California's Affordability Crisis May Be a Voter Issue
In the recently released May 2015 Golden State Poll, just 14 percent of Californian adults living in the Bay Area, Central Valley, and Southern California think one of the three state-level affordable housing policies tested would do the most to reduce the cost of purchasing a home. It is clear that while Californians do recognize the breadth of the affordability problem - 69 percent describe their area's housing market as expensive for the house you get - they necessarily don't feel the need to pressure their state leaders to do much. This, unfortunately, means Sacramento is unlikely to take the problem seriously. And that could have major economic implications for the state.
As I've written before, California's economy, particularly since the Great Recession, has become increasingly dependent on the Silicon Valley-Bay Area region. This region has increasingly represented more of the state's total employment and less of California's total unemployed. For instance, prior to the Great Recession, the Silicon Valley-Bay Area region accounted for 17 percent of the state's employment and about 14 percent of the state's unemployment. As of March 2015, the region now accounts for 19 percent of California's total employment, while only 12 percent of the state's unemployed. Moreover, between 1990 and November 2007, excluding the Silicon Valley-Bay Area region would have actually improved California's employment growth (relative to the nation as a whole) by almost 8 points. Since the Great Recession, without the region, California's employment growth decreases by approximately 2 points.
As the Silicon Valley-Bay Area becomes a more dominant part of California's economy, it becomes the crucial component to the state's fiscal health. California's state revenue is overwhelmingly reliant on personal income taxes - representing 65 percent of total general fund revenue receipts in FY 2014 - and this revenue is extraordinarily reliant on California's wealthiest - in 2013, the top 1% of filers paid over 45 percent of the state personal income taxes. With more wealth and economic growth concentrated in the Silicon Valley-Bay Area region, the area is contributing a higher proportion of income tax revenue. In fact, in 2013, the region accounted for 36 percent of the state's assessed personal income taxes - 12 points higher than the next largest area, Los Angeles County.
And the Silicon Valley-Bay Area region is the hardest hit by the affordability crisis. According to Zillow, San Francisco metro's April 2015 home value index was $738,200 - over 4 times the national value and up over 10 percent from last year. In the San Jose metro area, the situation is even worse; the median list price is almost 5 times the national value, up almost 12 percent from April 2014. And for both metro areas, the April 2015 values represent new peaks, representing the only two California metro areas examined by Zillow that have surpassed their previous peaks.
Further causing problems, according to a Bloomberg study, while millennials in the San Francisco and San Jose metro areas make more money than those in the nation's other top metro areas, they are further from being able to afford a house than their peers. The median millennial in San Jose would have to make an additional $80,000 on top of their median earnings, while the median millennial in San Francisco needs to make another $61,000 - the top two slots among the metro areas examined by Bloomberg.
For the many who cannot afford homeownership, the Silicon Valley-Bay Area region is just as unattainable for renters. According to Zillow, the San Jose and San Francisco metro area's rent index was $3,287 per month and $3,162 per month, respectively - 2.4 and 2.3 times the national index. And they are only getting worse increasing almost 13 percent and 15 percent since last year.
Regional business leaders are taking note. In the 2015 Silicon Valley Business Climate Survey of Silicon Valley CEOs, housing costs not only listed as the number one cost of living concern, but also the number one business challenge. The Silicon Valley-Bay Area's dominance of California's economy, and hence, the state's financial health is why Sacramento should be paying more attention to remedying, in a long-term sustainable manner, the problem. Local governments, in many ways, are actively working to restrict development further. While the principle of subsidiarity is a worthy starting point for many policy problems, it is clear that Sacramento has a vested financial and economic interest in ensuring California's housing supply is no longer artificially constrained.