California and Bay Area housing set to get even pricier, says UCLA

The good news in University of California Los Angeles’s new Anderson Forecast—the Anderson School of Management’s regular assessment of how jobs and housing will shape up in California and the larger United States—is that California cities are building more housing than expected.

The bad news is that it’s still not enough, at least not according to UCLA Senior Economist Dave Shulman. In an accompanying essay titled “Housing Activity Grinds Higher,” Shulman says:

Although we marked up our forecast from last quarter to 1.27 million units in 2017 and 1.34 million units and 1.37 million units in 2018 and 2019, respectively; that level of activity remains below the 1.4-1.5 million units per year we estimate to be consistent with long-run demand.

Shulman expanded on the problem in comments to the Sacramento Bee this week, noting:

“California is still attracting high-income people, who are creating an enormous amount of wealth, but low and middle-income people like teachers are leaving because housing has become extraordinarily expensive.”

The UCLA report calculates that of the seven least affordable cities in America, six are in California and two are in the Bay Area—San Jose and San Francisco, naturally.

Affordability in this case is a measure not just of how much it costs to buy or rent a home but of the gap between prices and median income.

As Curbed LA notes, Los Angeles got it worse than anyone, as Shulman says LA is the least affordable city in the U.S. right now, with San Francisco and San Jose’s higher median incomes somewhat balancing against higher home prices.

Tupungato

Building still isn’t that robust compared to how strong local industry is these days, which the forecast calls “puzzling.”

Shulman points the finger at “tighter credit standards,” the “hollowing out of the middle class,” Millennials staving off home ownership, and the fact that income isn’t growing as fast as industry.

On the bright side, the university does also anticipate a pivot away from luxury housing and toward more attainable housing stock:

Although there have been signs of over-building high-end units in New York and San Francisco we still believe [...developers will] shift their focus from high rise urban to more affordable mid-rise suburban product. The apartment developers have, at long last, realized that there is a limited market for $3500/ month one bedroom apartments.

Shulman also notes vacancies in the very-high end condo market, adding, “In Manhattan, San Francisco and Miami, [...] it is not surprising to see the several floors of unlit apartments at night.”

So, how much should San Francisco build? The National Apartment Association and National Multifamily Housing Council put out a report this week claiming that SF needs 72,000 new apartments by 2030 to meet what they say is the projected demand.

Do note, however, that the NAA and NMHC are both non-profit trade groups composed of apartment builders, and also that when the report says “San Francisco” it actually means San Francisco plus four other nearby counties—Alameda, Contra Costa, Marin, and San Mateo.

Nickolay Stanev

• Anderson Forecast [UCLA]
• Housing Grinds Higher [UCLA]
• California Rents Getting Higher [Sac Bee]
• Forecast Projects Mild Growth [UCLA]
• LA Is Least Affordable [Curbed LA]
• We Are Apartments