Though housing production in California broke through the 200,000 barrier in 2004 for the first time since 1989, and production is at a 15-year high, the state’s homebuilders didn’t build enough new homes and apartments to meet the state’s continuing need for more housing, and California remained the least affordable state in the nation in which to buy a home during the fourth quarter of 2004, according to the California Building Industry Association.
Preliminary year-end data compiled by the Construction Industry Research Board shows that housing starts as measured by building permits issued totaled 210,527 during 2004, a 7.6 percent increase over 2003. The total includes 150,344 single-family homes (up 8.3 percent from 2003) and 60,183 apartments and condominiums (up 5.7 percent).
2004 was only the third year since 1980 that single-family production exceeded 150,000 homes. It also boasted the most housing starts since 1989, when 237,747 building permits were pulled.
“We are delighted that 2004 marked a 15-year high in home production in California,” said CBIA Chief Economist Alan Nevin. “Production of more than 210,000 units is strong evidence of the confidence in the state’s economy as well as the demand for ownership homes and condominiums. We are convinced that, as a state, we could absorb as many as 40,000 more units annually without upsetting the supply/demand balance.”
But the National Association of Home Builders/Wells Fargo Housing Opportunity Index found that during the fourth quarter of 2004, California was home to 19 of the 23 least-affordable metro areas in the nation. In fact, 25 of the country’s 39 least-affordable markets are located in California.
While national affordability inched upward in the fourth quarter due to a slight reduction in mortgage interest rates, California’s housing affordability actually worsened in 20 of the 25 metro areas included in the survey.
According to the Association, the housing affordability crisis is caused primarily by severe housing shortages, particularly in California’s job centers, which have triggered a steady increase in home prices over the past several years.
It’s been 15 years since housing production in California was sufficient to meet annual demand. During that period, annual production averaged only 130,000 units while, according to the state’s Department of Finance, California had a yearly need of 230,000 new homes.
The NAHB study found that Monterey and Los Angeles counties tied for the nation’s least-affordable markets during the fourth quarter, with only 5.2 percent of the homes affordable to a median-income family in those areas.
In comparison, the NAHB survey found that in the nation’s most affordable market, Lima, Ohio, 91.6 percent of homes sold during the fourth quarter were affordable to families earning the area’s median income. Among larger metro areas nationwide, the most affordable was Buffalo, NY, where 89.9 percent of the homes were considered affordable.
The California Building Industry Association is a statewide trade association representing more than 6,000 businesses – homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals.
The Housing Opportunity Index calculates the share of homes sold in an area that would have been affordable to a family earning the median income. For income, NAHB uses the annual median family income estimates for metropolitan areas published by the Department of Housing and Urban Development. NAHB assumes that a family can afford to spend 28 percent of its gross income on housing, a conventional assumption in the lending industry. That share of median income is then divided by 12 to arrive at a monthly figure. On the cost side, the monthly principal and interest is based on a 30-year fixed-rate mortgage with a 10 percent down payment. The interest rate is a weighted average of fixed and adjustable rates during that quarter. The cost also includes estimated property taxes and property insurance.