California Cities Are Now ‘Impossibly Unaffordable, Leaving Families Struggling

A new report by housing experts has revealed some harsh home truths for many American families..

Housing Affordability

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If you thought America’s real estate was pricey, you haven’t seen anything yet. 

California’s Unaffordable Housing Crisis

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According to a new study, four of the world’s top 11 most unaffordable housing markets are here in the U.S. – California, to be specific. The 2024 Demographia International Housing Affordability report has revealed how bad it’s gotten.

Cities on the “Impossibly Unaffordable” List

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The prices in California are making the dream of homeownership nearly impossible for many. San Jose, Los Angeles, San Francisco, and San Diego have all made it to the “impossibly unaffordable” list. 

San Jose: Leading the Affordability Crisis

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San Jose is streets ahead, with a median house price that’s 11.9 times the median household income

Los Angeles, San Francisco and San Diego

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Los Angeles isn’t far behind at 10.9, with San Francisco and San Diego trailing at 9.7 and 9.5, respectively.

Affordability Challenges

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In simpler terms, if your household brings in $100,000 a year, you’d need nearly $1.2 million to buy a home in San Jose – and over $900,000 in San Diego. Three decades ago, this kind of unaffordability was unheard of. So, what’s changed?

Causes of Unaffordable Housing

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The people behind the report point the finger at strict land use policies. They argue that efforts to control urban sprawl – greenbelts, urban growth boundaries, and densification – are making land scarce. 

Land Use Policies

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Less land means higher prices, which trickles down to skyrocketing house prices.

Criticism of Urban Growth Boundaries

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“The crisis stems principally from land use policies that artificially restrict housing supply,” the authors claim. Basically, government rules are making it harder for people to find affordable homes.

COVID-19’s Influence on Housing Costs

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The COVID-19 pandemic didn’t help matters. Massive government spending, rock-bottom interest rates, and supply chain disruptions sent inflation soaring to a 40-year high of over 9% in 2022. 

Federal Reserve’s Response to Inflation

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To try and combat this the Federal Reserve jacked up interest rates to above 5%, which pushed mortgage rates from under 3% to around 7%.

Impact on Homeowners and Sellers

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Homeowners who locked in those low rates are reluctant to sell and are holding onto their houses, which is causing a shortage of homes for sale and driving prices even higher.

Beyond California

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California isn’t alone in this mess. The report also explores other North American cities facing serious affordability issues. Honolulu, Hawaii, for example, has a median price-to-income ratio of 10.5. Vancouver (12.3) and Toronto (9.3) in Canada aren’t doing much better. 

Global Comparison of Housing Markets

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These cities join the ranks of Australian and U.K. markets struggling with the same problem: homes are simply too expensive for the average earner.

Bright Spots In The Market

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But it’s not all doom and gloom. The report does mention a few U.S. cities where housing is still somewhat affordable. 

A Model of Affordability

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Pittsburgh tops this list with a median price-to-income ratio of 3.1, followed closely by Rochester and St. Louis at 3.4 and Cleveland at 3.5. If you’ve been dreaming of owning a home, these might be the places for you.

The Toll of Unaffordable Housing

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The main issue with “impossibly unaffordable” cities is the massive toll it takes on people’s lives. Soaring home prices and rising living costs are squeezing household budgets. 

Financial Strain on Households

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Many families are now struggling with higher monthly payments for credit cards, car loans, and other debts because of those interest rate hikes. This financial pinch is making it even harder to save up for a home, pushing the idea of homeownership further out of reach for many.

Barriers to Homeownership

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As the Demographia report lays it out, we’re in a housing affordability crisis, especially in California. Whether it’s restrictive land use policies, the pandemic’s economic fallout, or a mix of both, the result is clear: homeownership is becoming impossible for many. 

Call for Creative Solutions in Policy Making

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California’s housing market is a tough nut to crack. Policymakers need to get creative and find ways to increase housing supply and affordability before the dream of owning a home slips away for good.

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The post California Cities Are Now ‘Impossibly Unaffordable, Leaving Families Struggling first appeared on Thrift My Life.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.