California home prices still unaffordable Survey finds it takes more than median income to afford one

Despite recent declines in the cost of California real estate, median home prices remain unaffordable throughout the state, according to a report by a liberal research and advocacy group calling on the governor and state lawmakers to confront the issue.

The authors of "Locked Out 2008: The Housing Boom and Beyond," the study released today by the California Budget Project of Sacramento, said median incomes aren't enough to buy median-priced homes in every county it studied, 36 of the state's 58. The report assumes homes are out of reach if households have to dedicate more than 30 percent of their income to housing costs, the level above which the U.S. Department of Housing and Urban Development says people may have difficulty affording necessities such as food, clothing and transportation.

More than half of homeowners with a mortgage exceed that level in California, according to a 2006 survey by the U.S. Census Bureau. The lack of affordability is acute in the Bay Area, where the earnings required for purchasing a median-priced home is more than double the median household income in every county but Contra Costa and Solano, the California Budget Project said.

"While the softening (real estate market) has put tens of thousands of families out of their homes and many thousands more are threatened with foreclosure, it's actually had little effect on housing affordability," said Scott Graves, senior policy analyst with the group and lead author of the report, during a conference call. "Housing continues to be out of reach for many California families."

The housing downturn and credit crisis sparked by last summer's rising default rates have driven down the state's median price for new and resale homes and condos by 16.9 percent, from $484,000 in May to $402,000 in December, research firm DataQuick Information Systems said.

But that's offered little relief for residents who saw prices rise more than 140 percent since March 2000, when the median stood at about $200,000, and nearly 200 percent from 1989, the California Budget Project said.

Conditions aren't much better for the state's renters, who pay the second-highest rates in the nation, behind Hawaii. California's monthly median rent is $1,029, according to the Census Bureau survey.

Several things could exacerbate these problems. About 190,000 subprime loans in California as of mid-2007 could result in foreclosure, the California Budget Project said, citing estimates from the Joint Economic Committee of Congress. In addition, about 93,000 units of federally subsidized rental units in California could see rents go up to market rate by 2017 as expiring contracts allow owners to opt out of the government program, the report said, citing the California Housing Partnership Corp.

To address these challenges, the Sacramento group called on Gov. Arnold Schwarzenegger and the Legislature to, among others things:

-- Create a dedicated funding source for the construction of affordable housing, possibly by raising fees on documents processed by county recorders.

-- Withhold transportation and infrastructure funds from cities that don't comply with a state law requiring local governments to create plans for accommodating their fair share of regional housing.

-- Increase efforts to aid homeowners facing foreclosure by connecting them with counselors.

-- Require lenders to freeze introductory interest rates on subprime adjustable-rate mortgages, follow sound underwriting standards and curb deceptive lending practices.

-- Make surplus state property available for building housing for the homeless.

Sabrina Lockhart, deputy press secretary for Schwarzenegger, said the administration has already completed or is pursuing several programs along these lines.

The Republican governor recently announced the distribution of $69.5 million in permanent low-interest loans from housing bonds to 14 affordable multifamily projects, including three in the Bay Area; completed an agreement with four major subprime lenders to maintain initial interest rates for certain borrowers facing higher interest rates; and directed the Department of Housing and Community Development to draw up recommendations for securing a permanent funding source for affordable housing.

"The governor has been aggressive and proactive in multiple efforts to increase affordable housing in the state and also pledged to work with lawmakers in the coming year to provide better protections to home owners," Lockhart said.

Joseph Perkins, president and CEO of the Home Builders Association of Northern California, said the California Budget Project's suggestions don't address the two root causes of California's expensive housing: strict regulations and high fees.

Developers commonly argue that the state's environmental rules, drawn-out approval processes and charges for public benefits like parks and affordable housing all pump up the costs of building homes.

"If our impact fees were comparable with what they are in Texas, then we would be offering houses that the average-earning household here in the Bay Area could afford," Perkins said.

Out of reach The cost of homes in the Bay Area is so high, it takes much more than the median income to afford one. County Residents who own homes Income needed to afford a home{+1} Households spending over half of income{+2} Alameda 57.4% $148,450 18.8% Contra Costa 72.0 138,715 18.6 Marin 65.0 218,902 20.5 Napa 62.5 145,408 19.6 San Francisco 39.3 196,878 19.6 San Mateo 63.2 191,768 19.2 Santa Clara 60.6 170,352 17.4 Solano 65.9 103,185 20.7 Sonoma 63.9 124,114 19.5 {+1}With a 5 percent down payment on a median-priced home {+2}To pay for homes For more information or to read the full report, visit: www.cbp.org Source: California Budget Project