Real estate market crisis: High real estate prices are “feudalizing” California

The housing crisis is an obstacle to social advancement, and the Golden State is vulnerable to affected by particularly severe stratification, as shown by the annual Demographia International – Affordable housing Report prepared by Chapman University in California and the Frontier Center for Public Policy in Canada.

“High housing prices relative to incomes have had a distinctly feudalizing effect on our home state of California, where the primary victims are young people, minorities and immigrants,” wrote Chapman’s Joel Kotkin. “Restrictive housing policies may be portrayed as progressive, but in social terms their effects could be described as regressive.”

The report points to “urban containment measures” designed to limit urban sprawl and increase population density. These measures have led to higher land prices, which in turn have led to dramatically higher real estate prices, the report says.

The trend toward increasing densification was aimed toward reducing dependence on cars and highways, avoiding traffic congestion and making neighborhoods more pedestrian-friendly. But the report says that while these measures were well-intentioned, they resulted in land prices inside city limits being eight to twenty times higher than outside.

To determine affordability, the report examined 94 markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the UK and the US and compared the median house price in each location to the median income.

A price-to-income ratio of three and below was considered reasonably priced, with higher ratios corresponding to increasing unaffordability. A ratio of 9 or more was called “impossibly unaffordable.” Of the 11 cities on this category, 4 are in California.

1. Hong Kong (16.7)
2. Sydney (13.8)
3. Vancouver (12.3)
4. San Jose (11.9)
5. Los Angeles (10.9)
6. Honolulu (10.5)
7. Melbourne (9.8)
8. San Francisco (9.7)
9. Adelaide (9.7)
10. San Diego (9.5)
11. Toronto (9.3)

The report also warned that the housing crisis posed an existential threat to the center class, noting that prime housing costs had lowered living standards and increased poverty.

“The middle class is under pressure, particularly because of rising land prices,” it says. “As land has been rationed to curb urban sprawl, excess demand over supply has driven up prices.”

The report noted that every one cities where housing is “unaffordable” have urban planning policies that encourage higher densification and really useful that cities make more land available to scale back housing costs.

In the U.S. housing market, the issue of accelerating affordability is clear within the disappearance of the $200,000 entry-level home. Many millennials attempting to move into larger homes to accommodate their growing families at the moment are facing closure.

But potential buyers are resisting high property prices, leading to more properties remaining unsold available on the market and asking prices falling.

This dynamic was observed in the course of the crucial spring selling season, which is now slowly coming to an end amid weak demand.