Because a steady drop in homeownership threatens overall quality of life, policy makers need to find ways to make housing easier to build and transfer before it’s too late.
Homeownership Is Declining
The stock market is up, unemployment is down, and wages are rising, yet homeownership in Orange County is declining steadily (see Figure 1). In 2000, according to the U.S. Census, the Orange County owner-occupied housing rate was 61.4 percent. That number is now 57.2 percent.
Although this does not seem like much of a change, the danger lies in the fact that the number has not improved with the economy. In addition, our neighbors to the north in Los Angeles County— who, some would say, are experiencing a similar trend—have a homeownership rate of 47.7 percent.
Homeownership Benefits Local Communities
Homeownership benefits local communities in many ways because homeowners are usually more civically engaged. According to the National Association of REALTORS®, homeowners are 28 percent more likely to repair and improve their home, 28 percent more likely to vote, and 11 percent more likely to know who represents them in Congress. Homeowners also account for about $60,000 of direct and indirect spending in the local economy. And perhaps most important, a homeowner has an average wealth of about $199,000 while a renter has only about $2,200.
But Homes Are Not Affordable
The biggest driver of this decline in homeownership is unaffordability. According to the California Association of REALTORS®, only 21 percent of Orange County residents can afford to purchase a median-price home. This is down from 22 percent in 2016 (see Figure 2). With 10 percent down, at a median price of $700,000, mortgage payments would be about $3,100 a month; and a family would need to make about $160,000 annually to afford these payments.
Building Has Not Kept Pace with Demand
This price escalation correlates directly with lack of inventory and high demand (see Figure 3). According to the California Employment Development Department, from 2010 to 2015, Orange County added 162,740 new jobs but approved only 44,923 new building permits. In addition, Orange County homes are now changing hands only once every twenty-three years. As a result, the average age of the county has increased by almost three years since 2009.
Finally, even with soaring prices, investors continue to increase their presence in the local market. In 2017, all-cash sales accounted for 29 percent of home purchases as opposed to 10 percent in 2006 according to ATTOM Data Solutions.
The Strong Economy Masks Troubling Symptoms
The strong economy masks many of these troubling numbers, but their long-term effect on the county could severely impact local quality of the life. More people are forced to move inland, resulting in longer commutes and more traffic. As the county ages, school enrollment falls, and the unsupported local business results in less revenue for local municipalities. Less revenue means understaffing and crumbling infrastructure. The most obvious result of these trends is a rise in homelessness. The Orange County point-in-time count shows a homeless population that has grown by more than five hundred since 2013.
Orange County Is Living on the Edge
There are many outside economic risk factors. These include an average of $37,172 in student loan debt and $21 trillion in national debt. Because the county’s housing shortage has grown worse and income has not kept up with home prices, Orange County is living on the edge. Policy makers need to find ways to make housing cheaper and easier to build and transfer before it’s too late.