California, the land of gold dreams, has become America's worst housing nightmare. Recent wildfires have only raised the stakes for a state that does not appear to be able to create enough new homes.
The median house price is now more than $600,000, more than double the national average. The state has four of the country's five most expensive residential markets, Silicon Valley, San Francisco, Orange County and San Diego. (Los Angeles is seventh.) The poverty rate, adjusted for the cost of living, is the worst in the country. California accounts for 12 percent of the U.S. population, but one fifth of the U.S. population is homeless. For both owners and tenants, California has the largest share of households spending more than 30% of their income on housing.
How have we come here? Simply put, bad government—from obsolete zoning regulations to a 40-year-old tax provision that favors long-standing homeowners at the detriment of everyone else—has created a serious house shortage. Though decades have passed, California's slow-moving tragedy has reached a critical point for state governments, companies, and millions who are struggling to survive there.
This fall, as President Donald Trump blamed Democrats for the state's swing to raise money for his re-election, Sacramento lawmakers passed some of the most sweeping legislation in years to fix housing affordability. Google, Facebook Inc. and Apple Inc. are pouring billions of dollars into this issue. But nobody's kidding themselves that this is enough.
For the poorest Americans, having decent housing has long been a problem. But it's also become a middle-class epidemic in California. Silicon Valley teachers are having such a hard time paying rents that Facebook just announced a $25 million donation to build affordable apartments for them. Another town in the Bay Area recently agreed to retrofit an old firehouse into barracks for its cops after they put their cars to sleep.
In a nation where more than 40 percent of inhabitants are perceived to be burdened with housing costs—paying more than 30 per cent of their income to shelter—even high-income individuals are also stretching their budgets.
California also has a distinct burden: Proposition 13, a bill passed by voters in 1978 that restricts property-tax increases on homes before they are sold. It's been a blessing to Baby Boomers who have been living in their homes for decades and are not priced at something similar to the market value of their houses. But it is particularly unfair to their children, who are essentially subsidizing the generation of their parents.
Prop 13 has provided a fiscal incentive for many cities to support new commercial growth over residential construction—and for developers to pay for budget gaps.
For decades, many Californians have just moved out of town to find cheaper places to live. But as climate change increases the severity and frequency of wildfires—leading to destruction and billions of dollars in costs—officials can decide to keep certain areas out of bounds for new construction.
This might worsen the lack of housing, said Stephen Levy, director of the California Economics Center for Continuing Study in Palo Alto. "At some point, regions that are under pressure to build more housing will find areas that are prone to more frequent fires," he said.
Not surprisingly, some people are not waiting to see what's going to happen. In recent years, younger, less educated and low-income citizens have led the migration from the state, according to an analysis by the Office of the Legislative Analyst. They are being replaced by high earners with advanced degrees in what amounts to a kind of state-wide gentrification.
Corporations are also decamping for low-cost premises. Also companies like Apple, Facebook and Google, which still add workers to the city, have been looking for development in cities like Atlanta, Austin and Pittsburgh. The three tech firms have also vowed to fix the problem themselves, with a total of $4.5 billion in contributions to affordable housing construction in the state.
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