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The state's housing market never recovered from the 2008 recession.
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California’s housing crisis has been dragging on for four decades, and according to an October 2020 study by the University of Southern California, the situation in the state is so severe that — even before the coronavirus pandemic hit in early 2020 — the state’s housing market never recovered from the recession of 2008.
The economic collapse of 2008 seems like an eternity ago these days, as the era of Donald Trump seemed to compress decades’ worth of crisis, scandal, societal upheaval and just general insanity into just four years' time. But the financial crisis was only 13 years ago. And in fact, according to the USC Sol Price School of Public Policy study, California has made a full recovery in that time.
Well, almost full.
Unemployment went from 12.8 percent statewide in 2008, to record lows in 2019. California’s median household income dropped to about $65,000 by 2011, only to bounce all the way to $80,400 in 2019 (compared to $65,700 nationally). Even poverty rates bounced back to levels that actually improved on their levels prior to the 2008 crisis, after peaking in 2012.
The housing market, on the other hand, never made it back.
“How well did Los Angeles and the Golden State recover from the damages of the Great Recession?” asked Dowell Myers, the study’s co-author and a USC professor of urban planning, who was quoted in a City News Service report.
“Economy, good; housing, terrible.”
According to the findings by Myers and postdoctoral scholar Jung Ho Park, a continuing housing shortage in California is creating a crisis of affordability, cutting off the possibility of home ownership, especially for Black and Latino residents, and younger Californians generally.
The continued, post-2008 struggles in the housing market have also put the squeeze on the state’s renters, according to the study, titled “End of Housing and Economic Recovery from the Great Recession: How Good Did It Get by 2019?” While median incomes for California renters have risen somewhat from pre-recession levels, rents have skyrocketed. In real dollars, median rents in California reached levels 20 percent higher in 2019 than the pre-2008 high point.
In Los Angeles, at least one-third of renters carry what the study calls “extreme” rent burdens — defined as rents that consume more than 50 percent of income. The percentage of “extreme” renters remains above pre-2008 levels, the researchers found.
The situation for home buyers isn’t much better. House values have yet to recover from the 2008 collapse, coming 13 percent short of their pre-recession levels in California. And that’s after more than a decade of recovery. At the same time, those house values have made a quicker comeback than incomes, leaving prospective purchasers under what the study’s authors call a “crushing cost burden.” In Los Angeles, the median ratio of house value to owner income stood at twice the national figure.
With the amount it costs to buy a house so wildly out of whack with what hopeful house shoppers are earning, it’s not much of a surprise that rates of home ownership have dropped to only 45.3 percent of households in Los Angeles. That creates a situation there in which more than half of all households can’t afford to own a home — while large numbers can barely afford to pay rent.
The study also breaks down the decline in home ownership by ethnic group, with Black and Hispanic ownership at the lowest level, followed by the rate of ownership among whites. In Los Angeles, at least, Asian households now own their own homes at the highest rates of the four groups.
Why has the housing situation in the state remained in crisis, while other elements of the California economy not only bounced back from the 2008 recession, but thrived — at least until the pandemic hit early in 2020? The same shortage of housing that has persisted for four decades is standing in the way.
“That housing shortage is driving up home prices, excluding younger buyers from homeownership and driving up rents,” Myers said. “What is worrisome is that now we’re carrying these problems forward into the new cycle of recession and we’re starting from a deep housing deficit. This is the legacy of underperformance since the Great Recession.”
The USC study covered the period only from the start of the Great Recession of 2008, through the end of 2019, not taking into account the COVID-19 pandemic that hit in early 2020. According to data from the state Department of Finance, released in April 0f 2021, housing prices took a startling leap during the pandemic, as families suddenly confined together sought new living accommodations with a bit more space.
The median California home as of March, 2021, cost $758,990 — a hike of 24 percent over the previous year. The reason — the seemingly endless housing shortage in the state.
COVID-19, however, is far from the only reason why the state’s housing crisis may only get worse. Even prior to the pandemic, the state’s political leaders had not mustered the collective will to do something that might ease the situation.
California Governor Gavin Newsom took office with the production of new housing for the state as one of his top priorities. In 2019 he managed to allocate $1.75 billion for new housing. But most of that cash has yet to be spent.
Another $500 million, mostly in tax credits, earmarked for low-income housing in 2020 somehow survived the drastic, proposed budget cuts necessary to make up what was an anticipated $54 billion pandemic-induced deficit, according to reporting by Matt Levin of CalMatters. But when and whether that housing will actually be constructed at this point remains an open question.
California’s housing crunch was brought on by four decades of tax and zoning regulations that prohibit multi-family construction in huge swaths of the state. Those regulations are designed to squeeze the housing market, rather than burst it open. Those regulations will need to change, in order to create more — and more affordable — housing. A trio of state Senate bills — SB 50, SB 902, and the three-year-old SB 35— are designed to open up development laws to allow multi-family homes and higher density levels in areas previously restricted to single-family development.
Could the presence of a contagious and deadly disease permeating the state stand in the way of those needed changes? In a Los Angeles Times op-ed earlier this year, Joel Kotkin — presidential fellow in Urban Futures at Chapman University in Orange, California — argued that the pandemic actually vindicates opponents of increased density in housing.
Single-family zoning keeps density levels down, and when a highly contagious disease runs rampant, keeping people apart is essential to controlling the outbreak, Kotkin said. Single-family zoning results in “far less ‘exposure density’ to the contagion than more densely packed urban areas, particularly those where large, crowded workplaces are common and workers are mass-transit-dependent.”
Seems to make sense. But the facts can sometimes be counterintuitive. According to a report by the CATO Institute, evidence shows that not only is it more than possible to control the virus in areas of high-density housing, some of the world’s most successful regions when it comes to curbing the pandemic are also the most dense. Hong Kong (3rd), Singapore (18th) and Seoul (19th) all rank among the world’s 20 most densely populated cities. Yet all have kept their infection rates to just fractions of many United States cities.
The danger in a pandemic, according to the CATO study, comes not from urban density, but from crowded housing.
“The data from California also indicates this,” wrote authors Michael D. Tanner and David Hervey. “San Diego County, with about 7% of households living in crowded homes, has a lower rate of coronavirus infections than either Los Angeles or San Francisco counties, which have higher rates of crowding.”
Los Angeles County, with 11 percent of households in crowded conditions (i.e., more than one resident per bedroom), had the highest rate of the three counties. San Diego at 7 percent had the lowest, and San Francisco’s infection rate, like its 7.1 percent crowding rate, was only somewhat higher than San Diego’s — even though San Francisco County is six times more dense than Los Angeles County.
How to get people out of crowded living conditions? Create more affordable housing.
“If California does enter a prolonged recession, its political leaders may want to look back to the 2010’s for a lesson in what policymakers shouldn’t do,” wrote CalMatters’ Levin. As the state faced the aftermath of the 2008 crash, it cut back affordable housing funds and barely replaced them.
If the state plans to reverse the housing crisis in the wake of the COVID-19 pandemic, Levin writes, it will need to ease up on regulations against multi-family homes, and at the same time drastically ramp up spending on affordable housing, “even if state coffers start to bleed.”
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