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92 Percent Of LA Homes Are Unaffordable To The Average Person

Let's be real--you couldn't afford these even if the market wasn't so messed up. (Matt Tinoco)
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If you don't already own a home in L.A. here's some bad news. Unless you're lucky enough to make a lot more than the average Angeleno, you're probably out of luck on the local real estate market.

And it's getting worse. Just eight percent of the homes sold in Los Angeles County last financial quarter were considered "affordable" to a household earning the countywide median family income, according to the National Association of Home Builders (NAHB). Earlier this year, the same estimate put 9.5 percent of homes into that category.

For context, the countywide median family income is $69,300 -- half the households in LA County earn more than that, and half earn less. The median home sale value countywide during the period analyzed was $613,000. The NAHB defines "affordable" as housing payments that makes up 28 percent (or less) of a household's income.

We'll do the math for you. You only have 10% for a downpayment? That means a median-priced home would require at least $136,000 in household income. (You have 20% to put down? Then $115,000 in household income would qualify you.)

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Of course the higher the purchase price, the more money it takes to come up with a downpayment. A recent LAist story found that many first-time buyers here are getting help from their parents.

Having just eight out of every 100 homes on the L.A. County market affordable to the average buyer is obviously a very, very low number. The only county less affordable in the entire country is San Francisco, where just 5.5 percent of the homes sold last quarter were affordable on a median income. By contrast, in New York about 33 percent of homes are affordable on a median income. In Las Vegas, it's just about 50 percent.

The overall trend since 2011 has been fewer affordable homes as the market rebounded from the 2008 financial crisis.

"As to why we see it declining in the last quarter, the reasons are twofold," said Rose Quint, the NAHB's Assistant Vice President for Survey Research. "The first is the rapid increase in the prices over the last couple years have really put homes outside the financial reach of many households. The second is the recent increases in mortgage rates, which have added to that burden."

Quint said the affordability rankings were determined with the assumption that prospective buyers would make a 10 percent down payment when they sign a 30-year mortgage. Besides the cost of a mortgage, they also account for insurance and property taxes in their estimates.

A limited supply of new homes to relieve existing market pressure is also playing a role, Quint says.

"In a normal market, you would have had builders come in and produce a lot more homes because demand is so strong. The economy is growing, and unemployment is low," said Quint. "But what's happened is they've been constrained by supply side headwinds."

She cited high labor, high land costs, and skittish importers navigating around new Trump administration tariffs on Chinese goods.

Of course, a limited supply is not new news for California, where the rate of housing production has not kept up with the state's population growth for the last 40 years.

A 2016 analysis by McKinsey determined that the state is short about two million housing units, and would need to build at least 3.5 million over the next decade to relieve the pent-up pressure on existing buildings. For perspective, there are about 3.5 million housing units today in all of L.A. County.

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A similar conclusion was reached by the State Legislative Analyst's Office (LAO) in 2015, when they went deep on the state's housing shortage. Wrote the LAO at the time:

"Between 1980 and 2010, California's major metros added about 120,000 new housing units each year. Our analysis suggests that between 190,000 units per year and 230,000 units per year were needed to keep California's housing cost growth in line with cost escalations elsewhere in the U.S."

The LAO's solution? Build more homes for an increasing population, especially in big coastal cities like Los Angeles, San Diego, and the Bay Area
"Though the exact number of new housing units California needs to build is uncertain, the general magnitude is enormous. On top of the 100,000 to 140,000 housing units California is expected to build each year, the state probably would have to build as many as 100,000 additional units annually--almost exclusively in its coastal communities--to seriously mitigate its problems with housing affordability."