SoCal’s Housing Crisis: Middle Class, Minorities May Not Survive

April 24, 2015 By Joel Kotkin 3 Comments

urban-housing-sprawl-366c0What kind of urban future is in the offing for Southern California? Well, if you look at both what planners want and current market trends, here’s the best forecast: congested, with higher prices and an ever more degraded quality of life. As the acerbic author of the “Dr. Housing Bubble” blog puts it, we are looking at becoming “los sardines” with a future marked by both relentless cramming and out-of-sight prices.

This can be seen in the recent surge of housing prices, particularly in the areas of the region dominated by single-family homes. You can get a house in San Francisco – a shack, really – for what it costs to buy a mansion outside Houston, or even a nice home in Irvine or Villa Park. Choice single-family locations like Irvine, Manhattan Beach and Santa Monica have also experienced soaring prices.

Market forces – overseas investment, a strong buyer preference for single-family homes and a limited number of well-performing school districts – are part of, but hardly all, the story. More important may be the increasingly heavy hand of California’s planning regime, which favors ever-denser development at the expense of single-family housing in the state’s interior.

In both the Bay Area and Southern California, plans are now being set to force the building of massive new towers in a few selected “transit-oriented” zones. In a bow to political realities, the planners say they won’t bring superdensity to the single-family neighborhoods beloved by Californians; the wealthy – including those who bought early and those with access to inherited money – will still be able to enjoy backyard play sets, barbecues and swimming pools. 

Home prices skyrocket

The rest of you had better get used to cramming. House prices over the past two years in Orange and Los Angeles counties have risen at a rate more than 10 times the relatively paltry increases in weekly paychecks, among the nation’s worst ratios of home prices to income. Now, you can’t buy a house in much of Orange County or West L.A. without a triple-digit income; in Manhattan Beach, buying a median-price house requires an income of more than $300,000 a year.

With development on the periphery basically shut down for lack of sufficient transit usage, the bright folks at SCAG, MTC, ABAG, SANDAG (the regional planning agencies in Los Angeles, the San Francisco Bay Area and San Diego, respectively) foresee a future of ever-increasing density, with apartment towers interspersed throughout the cities.

To be sure, city life and density might seem great, and could even work to some extent in smaller, scenic areas like Laguna Beach or Santa Monica, with their accessible walking districts. But such locales are only a small part of Southern California.

To live in a high-rise in Ontario or Garden Grove might please planners, but density without much amenity – and nothing that will ever be close to a New York-style transit system or even a system as good as that serving downtown Los Angeles – seems more a ticket to a neo-tenement purgatory than paradise.

For areas that lack ocean breezes or scenic views, we are looking at something more like the congested chaos of Mexico City or Tehran than the tourist’s Paris on the Pacific (more than 80 percent of Paris, France, is outside the compact core).

The biggest losers, as usual, will be those people – working and middle-class families as well as minorities – who have looked to the periphery for housing opportunities and a chance for a better life. Los Angeles County is already a majority-renting community, and attempts to force densification in other counties could bring this reality to Orange, San Bernardino, Riverside and Ventura counties as well. 

Where minorities can thrive

Until recently, the periphery has offered housing salvation for younger middle-income homeowners, particularly families. Homeownership rates are more than 25 percent higher in the Riverside-San Bernardino area than in the Los Angeles-Orange County area. Minorities also do much better. The homeownership rate inland is a quarter higher among African American and Asian households. The rate for Hispanics is nealy half again higher than in Los Angeles-Orange.

But as housing prices have soared, and opportunities to move outward have shrunk, Southern California has developed some of the worst crowding in the nation. Three of the most crowded areas – based on people per room – are in Los Angeles County: South Los Angeles, the Pico Union area near downtown LA and Huntington Park. Southern California trails only Miami, Fla., for the highest percentage of residents who spend 40 percent or more of their incomes on rent or a mortgage.

The impact of high prices extends well beyond the poor and minorities. As a recent report from the state’s Legislative Analyst’s Office suggests, the lack of affordable housing is one reason why California companies have trouble attracting employees, particularly those with families. To keep the digital hearths going in places like Silicon Valley, companies rely on either young people (often with family money) or, increasingly, low-wage workers, called “technocoolies” by some, imported from Asia.

The LAO is spot on about the disadvantages of California housing, which now costs two and half times the national average, and rents that are 50 percent higher than in the country as a whole. Homeownership rates now stand at 48th among the states. Unfortunately, the proposed solutions follow the same script adopted by our planning elites that seeks to further densify large swaths of central Los Angeles and the San Francisco Bay Area, which, since 2000, have accounted for roughly 10 percent of all growth in the state. 

Affluent exempt

This planning fiat is sure to spark fierce resistance. Don’t expect to see high-rises sprout amid the expanses of single-family housing in Malibu or Beverly Hills, due to the organized power of their overwhelmingly “progressive” residents. Higher-density development likely will be jammed, instead, into already denser, less-affluent and less politically powerful areas, such as the east San Fernando Valley, North Orange County and some inland communities.

There’s nothing wrong with appealing to a market for apartments, but limiting the expansion of single-family construction will only exacerbate our looming demographic dilemmas. Southern California’s family population is decreasing more than any of the nation’s other large metro areas. Homes are increasingly owned by an aging population lucky enough to have bought before the new planning regime helped drive prices into the stratosphere. Young workers may be amused by dense, high-cost rental space, at least until they desire to start families and own homes. But the crucial middle-class households headed by thirty- and fortysomethings may find themselves forced out of the region if they are unwilling to accept a lower quality of life.

Some of the logic behind densification was based on the perception that the suburban dream is dead. Yet, despite persistent claims by planners and pundits, this turned out to be less a matter of altered market preferences than of temporary effects of the Great Recession. Roughly 80 percent of Americans still prefer single-family homes. So do Californians: In the past decade, single-family units represented the vast majority of all new homes built in the state.

Now that the economy is coming back to life, suburban communities, particularly the much-disdained exurbs, appear to be on the demographic rise again around the nation. By rejecting this option for the next generation, we are essentially putting the California Dream on ice, all but pushing upwardly mobile, but not rich, families to pursue their futures in notably lower-cost, less-regulated places, like Texas.

All this is for a dubious philosophy that has long derided suburban communities and their single-family homes as an environmentally wasteful, anti-social extravagance. Yet, today, many new suburban developments are eco-friendly, including such features as high-efficiency construction and renewable solar power, and employment patterns increasingly allow for work from home or in nearby firms. Business growth near homes in Irvine, often pilloried as the epitome of sprawl, notes former California State University, Los Angeles demographer Ali Modarres, has resulted in some of the nation’s shortest commutes and highest rates of people working at home.

Add to the equation more fuel-efficient cars and the environmental justification for forced sardinization becomes even less compelling. Densification might well increase over time as some people prefer more urban lifestyles. But the opportunity to own a single-family home should not be limited to the very rich, or to aging baby boomers, by Sacramento bureaucrats and unelected regional planning agencies. Yet, precisely this is the inevitable result of the massive attempt at social engineering now advancing throughout the region and state.

This piece is cross-posted at Citywatchla.com

Joel Kotkin is executive editor of NewGeography.com… where this piece was most recently posted …  and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism is now available at Amazon and Telos Press. He lives in Los Angeles, CA

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Economic Growth: Why SoCal is Slow and Go

January 3, 2015 By Joel Kotkin 1 Comment

ECONOMICS POLITICS-In this information age, brains are supposed to be the most valued economic currency. For California, where the regulatory environment is more difficult for companies and people who make things, this is even more the case. Generally speaking, those areas that have the heaviest concentration of educated people generally do better than those who don’t.

Nothing more illustrates this trend than the supremacy of the Bay Area over Southern California in the past five years. Since the 2007-09 recession, the Bay Area has recovered all of its jobs, as has San Diego, but Los Angeles-Orange and the Inland Empire, although improving, lag behind.

Overall, the San Jose and San Francisco areas boast shares of college graduates at around 45 percent, compared with a 34 percent average for the 52 largest U.S. metropolitan areas. The San Diego area clocks in at 34.6. In comparison, the Los Angeles-Orange County area has roughly 31 percent college graduates while the San Bernardino-Riverside area has the lowest share of four-year degrees – 20 percent – of any large region in the country – this is worse even than backwaters like Memphis, Tenn., and Birmingham, Ala.

Dividing this region by counties shows Orange County well in the lead, with 37.6 percent college-educated, well above Los Angeles County’s 30 percent. 

Recent Trends – To see where these metrics are headed, Mark Schill, an analyst with the Praxis Strategy Group was asked to identify the share growth of bachelor’s degrees in the country’s largest metropolitan areas during 2000-13. The share of the adult population with college educations rose by 6.8 percent in San Jose and 6.4 points in the San Francisco-Oakland region. Some regions did better, including Boston, Pittsburgh, Grand Rapids, Mich., Baltimore, New York and St. Louis. All these were considerably above the national average increase of 5.2 percent.

In contrast, most areas of Southern California have shown more meager growth in their educated workforces. Los Angeles, overall, enjoyed a very average increase of 5.2 percent. San Diego, despite its high-tech reputation, notched a 5 point jump while the Inland Empire increased by 3.8 points, one of the lowest performances in the country. The biggest gainer in the Southland was Orange County, where the share of educated workers grew by a healthy 6.3 percent. 

Whither young, educated workers? – The picture, particularly for the Inland Empire, is not totally bleak. In a recent survey conducted by Cleveland State University, there have been some promising developments in the growth of younger educated workers. This key cohort, notes researcher Richey Piiparinen, appears to follow a very different path than do older educated workers, with many seeking out careers in less-expensive locales.

Indeed, looking at educated growth among 25-34-year-olds from 2010-13 finds that the most rapid expansion is taking place in unlikely places, such as the areas around Nashville, Tenn., Orlando, Fla., and Cleveland, all which experienced increases of roughly 20 percent or more. This is better than twice the growth rate in such noted “brain centers” as San Jose and San Francisco, which were around 10 percent, and New York at 9 percent. The Los Angeles-Orange County area saw a similar increase.

The reasons for these surprising, and somewhat encouraging results, particularly for the Inland Empire, may vary. One thing, of course, is the low base from which the area starts. After all, until the past decade, the employment profile of the Inland Empire favored manufacturing, logistics and construction, all fields not dependent on large contingents of highly educated workers.

Another critical factor may well be price, as we saw in our surprising findings on millennials. Simply put, many of the areas attractive in the past to educated workers have become extraordinarily expensive – as demonstrated by San Francisco-based writer Johnny Sanphillippo – while some more affordable locales have become “sweet spots” for younger educated people, particularly as millennials enter their family formation years. 

County, city breakdowns – The Southland, of course, is a vast region, and even every county contains hosts of cities that are very different from each other. In terms of counties, the biggest gains – albeit from a smaller base – took place in the Inland Empire, notably Riverside, which saw a 93 percent jump in its educated population since 2000. Orange County saw a 37.6 percent gain, ahead of Los Angeles’ roughly 36 percent gain.

More intriguing, and revealing, is the distribution of college degrees by city areas. Here, the supremacy of a few areas is very clear. In three Southland communities, more than 60 percent of the adult populations have college degrees: Santa Monica, Newport Beach and Irvine. Yorba Linda, Pasadena and Redondo Beach all boast rates close to, or above, 50 percent.

Obviously, these towns are something of outliers in the region. Los Angeles, by far the region’s largest city, has roughly 31 percent of its adults with college degrees. Many communities do far worse, most of all, Compton, where less than 6 percent have four-year degrees. Hesperia, Southgate, Lynwood and Victorville have educated percentages under 10 percent.

Adjacent communities sometimes have radically different rates of education. Santa Ana, for example, abuts Irvine, but has an educated population of barely 12 percent. And while some areas have shown meager growth in their share of educated residents, several areas have seen double-digit percentage increases, including Burbank, Yorba Linda, Rancho Cucamonga and Santa Monica. 

Implications – As the Southland economy evolves, it makes sense to look at those areas most likely to have more of the educated workers that high-end industries need. These increasingly are clustered in a few places, such as Irvine, Newport Beach, Rancho Cucamonga and Costa Mesa, that are both suburban in form but tend to have better schools than much of the region. These areas also tend to have lower-than-average unemployment rates. Educated people tend to migrate, for the most part, to areas where others of their ilk are concentrated, and often where their children have the best chance at a decent education.

These statistics and trends suggest that our leaders, in education and politics, need to focus on reality. It is dubious that many communities throughout the Southland will develop large shares of educated people in the immediate future. Indeed, given the quality of public education throughout most of the region, it seems almost inevitable that much of the region will lag in terms of skills well into the next decade.

This means that local leaders cannot expect to duplicate in the near future the success of places like Boston, the Bay Area, or even Pittsburgh. Instead, there needs to be a two-pronged attempt to address this issue. One is to boost preparatory and higher education throughout the region, which will allow for Southern California to better compete at the highest-end of employment.

But the other strategy, not to be discounted, is a full-scale commitment to skills training for those unlikely to earn bachelor’s degrees. This also means taking measures allowing the industries that would employ such workers – largely manufacturing, logistics, medical and business services – to flourish, so this training will have rewards. The Southland’s already large educated population is one key to its future, but finding a decent work environment for those without a four-year degree merits equal, if not greater, emphasis.

This article was originally published on CityWatchLA

(Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study,The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This piece was posted most recently at newgeography.com.)

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