The California Dream symbolizes living well in a good location, working hard and enjoying easy access to work, recreation, education and shopping. For many Californians, this has turned into a pipe dream, as the real estate market is the second-most expensive market in the country, after Hawaii.

The availability and cost of housing has a profound effect not just on prospective home renters and buyers, but also on the state’s economy. It affects the ability of businesses to conduct business, hampers the ability to hire and retain qualified talent, and influences the decision of workers on where to work and stay within the state.

Problems in California’s real estate market

Many households across California are struggling to find affordable housing to suit their requirements. Also, people make many sacrifices in order to live in the state. Since housing plays a vital role in the lives of Californians, the high costs are worrying for the state and local authorities. As Californians are spending major portions of their income on housing, it is increasing poverty. Many households are barely scraping by as a result.

Paucity of housing

The temperate weather, miles of coastline, employment opportunities, good schools and higher education institutions and diverse economic centers attract people to the major metropolitan areas such as Los Angeles, San Francisco, San Diego, San Jose, Oakland and Santa Ana located along the coast. However, these metros are overcrowded and do not have sufficient housing options to accommodate all the people who want to live there. The thin pickings along the coast have prompted housing prices to skyrocket.

The high rents and home prices are an indication that these are the areas that people want to live in. In the mid-2000s, when the rest of the country witnessed an increase in home prices, developers found a solution by building more residences. Unfortunately, this did not happen in California. A good example is Seattle, which is comparable in economy and temperatures to the Bay Area metropolitan area. Seattle catered to the housing shortage by adding 1.4 percent to its realty stock, whereas San Jose and San Francisco increased their housing inventory by a mere 0.7 percent in the same period.

High building costs

 

One of the reasons for lack of new developments in California is the high cost to build homes. Compared to the rest of the country, the cost of building homes is much higher, and these costs include government fees, materials and labor. Labor for construction is 20 percent more expensive in the coastal metros compared to other parts of the US.

The comprehensive standards and building codes require developers to use more expensive materials and labor. The government requires homes to be more energy efficient and sustainable. Hence, developers must use high-quality building materials like HVAC systems, insulation and windows to achieve the energy efficiency goals laid down by the government.

The development fee levied by local governments in California for a single-family home is a little over $22,000, whereas in the rest of the country, the fee is $6,000 for a single-family home, according to a national survey conducted in 2012.

The solutions to California’s housing woes

If the housing problem in California is not tackled and home prices and rents not controlled, the state will witness serious economic problems and the California Dream will turn into a nightmare. If the current trend persists, Californians will have to spend more on housing, increase their debt, live in crowded conditions, and commute longer distances to work and school. The high housing costs will also have an adverse effect on the state’s economy.

There are ways the state can tackle the deficit in housing supply.

  • Build more units: Based on the available figures, the state will be adding 100,000 to 140,000 new housing units to its portfolio. However, that will not satisfy the demand. The state will have to add 100,000 units every year in the dense coastal metros.
  • Policy changes: Given the seriousness of the problem, the government would have to make major changes to local finance, local government land use authority, CEQA and other policies to address the high cost of housing
  • Introduce more affordable housing programs: These programs are vital for Californians who cannot fulfill their housing needs and give people access to housing. The need of the hour is to have targeted affordable housing programs that cater to different sections of society. These sections include people experiencing homelessness, low-income households and those with physical and mental health issues.
  • Affordable construction: Local, state and federal governments have introduced programs that subsidize construction of 7,000 rental units that are built annually. But more affordable construction needs to be promoted.
  • Green buildings: Today, consumers are more aware of green and sustainable constructions, as Kenny Slaught of Investec Real Estate Companies has found. He believes using sustainable and green technologies in home construction can help reduce the cost of homeownership and also meet the policy demands for energy efficient homes. Green buildings can also be architectural wonders, like the San Antonio Military Medical Center and its innovative heat management construction, and hence, be aesthetically pleasing without adding to the cost.

It goes without saying that even if local and state governments promote construction of more housing that is green, sustainable and affordable, the high demand for housing and restricted land for development will always make California’s real estate market more expensive than the rest of the country. However, this shouldn’t be an excuse to not take action and address the problem that the state’s real estate market is experiencing. If nothing is done, it will balloon out of control, and the damage will be irreversible.