Lack of Affordable Housing Contributes to California’s High Poverty Rate

Poverty is more prevalent in California than in any other state, according to recently released US Census Bureau data. Nearly one-quarter of Californians (23.4 percent) lived in poverty each year, on average, between 2011 and 2013, based on the Supplemental Poverty Measure (SPM) — a more accurate indicator of economic well-being than the traditional poverty rate. Only Nevada’s poverty rate, at 20.0 percent, comes close to California’s under the SPM, while the poverty rates of all other states fall at or below about 19 percent, reaching as low as 8.7 percent in Iowa.

California’s high housing costs help explain why the state has the highest SPM poverty rate in the nation. Unlike the traditional poverty rate, the SPM takes into account local housing costs: poverty thresholds — the incomes below which families are considered to be living in poverty — are higher where housing costs are higher, reflecting the fact that families typically spend more in these high-cost areas to keep a roof over their heads. For example, the SPM poverty threshold is $24,336 for a four-person family who rents their home in a California metropolitan area, compared with $19,985 for a comparable family in an Oklahoma metro area. SPM thresholds also vary within California: In the San Francisco metro area, a family of four who rents their home is considered to be living in poverty if their income is below $33,562, while the threshold is much lower — $23,344 — for a similar family in the Merced metro area.

Rising rents have made housing much less affordable in recent years, particularly for families whose wages and incomes haven’t kept pace with the cost of living. The housing market bust helped fuel demand for rentals as people lost their homes or were unable to buy houses due to tighter lending standards, unemployment, or lower incomes. As rental vacancies fell, rental prices spiked. Typical rents increased by more than 20 percent in the metro areas of Los Angeles, San Diego, Riverside-San Bernardino, and Fresno between 2006 and 2011, and by more than 10 percent in the Bay Area and Orange County. By 2012, typical rents were higher than they were six years earlier in nearly all of California’s metro areas.

More recently, rapid job growth in California’s major urban areas has caused rents to jump higher, outpacing average wage gains. Typical rents rose by 6 percent or more in six of California’s major metro areas between July 2013 and July 2014. San Francisco, Sacramento, and Oakland saw the greatest increases among the 25 largest rental markets in the US, with typical rents rising by more than 13 percent. In fact, six of the 10 metro areas with the nation’s least affordable rents relative to wages are in California. Los Angeles, for instance, ranks third, after Miami and New York. Workers earning the average wage in LA would have to spend just over half of their earnings to afford the typical rent on a two-bedroom apartment. In Oakland, San Francisco, the Inland Empire, San Diego, and Orange County, typical rents would eat up between 44 percent and 49 percent of the average worker’s earnings.

California’s rental housing affordability crisis is even tougher for workers earning below the average wage. A full-time worker earning San Francisco’s minimum wage of $10.74, for example, would have to spend 83 percent of her income to afford a one-bedroom apartment in the city priced at “fair market rent.” To afford a comparable apartment in LA, a full-time worker earning the state’s minimum wage of $9 per hour would have to spend 69 percent of her income on rent.

Clearly, reducing economic hardship in California will not only take boosting workers’ earnings, as we discussed here, but also increasing access to affordable housing. Watch in the coming weeks for more blog posts on how the state’s lack of affordable housing contributes to poverty.

— Alissa Anderson

Don’t Miss These Workshops on Housing, School Funding, State Corrections and Other Timely Topics

This week is your last chance to register in advance for the CBP’s 2014 annual conference, Raising the Bar: How Smart Policy Choices Can Create Shared Prosperity in California, on March 6 in Sacramento. Reserve your spot and join over 300 individuals who will be with us for a discussion of how California can best reinvest in vital public services, maintain fiscal health, and promote broad economic growth.

Plenary sessions will examine California’s shifting electoral profile, the social and policy challenges posed by high poverty and growing inequality, and the latest on the 2014 state budget debate. In addition, Raising the Bar will feature a wide range of workshops in which expert panelists will discuss pressing issues facing California today. Some of our 2014 conference workshops include:

Laying the Foundation: How Can State Policy and Investments Best Promote Access to Affordable Housing?
Panelists will discuss what types of state policies and funding approaches might help address the tremendous need for affordable housing, what proposals are expected to be in play this year, and how California can build toward a long-term framework for supporting affordable housing and strong, economically vibrant communities. With Lisa Bates, deputy director, California Department of Housing and Community Development; Doug Shoemaker, president, Mercy Housing California; and Mark Stivers, consultant, Senate Transportation and Housing Committee.

Curbing the Prison Pipeline: Options for Reducing California’s Prison Population While Improving Public Safety
California has made significant strides in reducing the state prison population in recent years, but still needs to cut the prison population by several thousand additional inmates by early 2016 in order to comply with a federal court mandate. What approaches are needed to further reduce the number of inmates in ways consistent with public safety? And how are counties adjusting to their new responsibilities for managing — and rehabilitating — low-level offenders? With Lenore Anderson, executive director, Californians for Safety and Justice; Michael Daly, president, Chief Probation Officers of California and chief probation officer, Marin County; and Karren Lane, prevention network director, Community Coalition.

California’s New School Finance System: Where We Are, What Comes Next, and Why Stakeholder Involvement Is Essential to Improve Education for Disadvantaged Students
Last year, state policymakers restructured California’s education finance system in an effort to make it more transparent, rational, and equitable. This workshop will look at the new Local Control Funding Formula (LCFF), including the spending regulations recently approved by the State Board of Education, and why local stakeholder involvement will be key to ensuring that LCFF dollars go to support disadvantaged students. With Brooks Allen, deputy policy director and assistant legal counsel, State Board of Education; Oscar E. Cruz, president and chief executive officer, Families In Schools; and Dr. Christine Lizardi Frazier, superintendent of schools, Kern County.

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Other workshop topics at our 2014 conference will include public pensions, “horizontal integration” in social services, career education, and many more. For full event details and to register, visit this event page. We’ll look forward to seeing you on March 6!

— Steven Bliss

Options for Closing the Budget Gap

At a hearing yesterday that lasted well into the evening, the Senate Budget and Fiscal Review Committee reviewed revenue-raising options that could be used to help close the budget gap. We offered some basic principles and potential options, as did the Legislative Analyst’s Office (LAO). The Department of Finance presented the Governor’s proposed tax cuts that, it is worth noting, aren’t “scored” in the Governor’s Proposed Budget. That means that enactment of his proposals, most notably the expansion and extension of the homebuyers’ tax credit, would further widen an already gaping budget gap.

In light of support for continuing the credit offered by several senators at the hearing, it is worth reminding readers of what we’ve written about the homebuyers’ credit here before.  Budget Bites readers and lawmakers may also wish to read the Riverside Press-Enterprise editorial that appeared Tuesday entitled “Tax Posturing” which notes that the fact that buyers “snapped up” tax credits doesn’t mean that they were an effective or appropriate tool for stemming construction industry job losses:

“But a tax break on home sales misreads the factors behind those job losses. New home construction fell because land values and housing prices tanked. Developers could not build new homes cheaply enough to compete with the flood of inexpensive foreclosed houses coming on the market. Foreclosed homes, for example, accounted for 41 percent of the houses sold in California in December…No tax break on home sales will change those conditions. And where is the sense in urging new home construction when the state already has a surplus of vacant houses?”

As I noted at yesterday’s hearing, the first thing you should do when you are in a hole is to stop digging.

–Jean Ross

The Housing Bubble: A Lesson from Texas and Vermont

On Labor Day, the CBP will release our annual survey of the economic well-being of California’s workers and their families. Needless to say, this won’t be a happy story. Not only is unemployment at record high levels, inequality has risen nationally, and earnings here in California have suffered due to lagging wage growth and a loss of weekly work hours.

Before I give away the whole story, I think it is worth considering one reason why California has fared worse than the nation as a whole: lax consumer lending protections. Earlier this week, the Wall Street Journal published an interesting story suggesting that Vermont’s strong consumer lending laws protected that state from the worst of the housing crash. Now, Vermont is a small state, with little in common with California. Interestingly, it appears that Texas may have also avoided the brunt of the bubble bursting for the same reason. Researchers from the Federal Reserve Bank of Dallas note that:

“Due to the state’s strong predatory lending laws and restrictions on mortgage equity withdrawals, a smaller share of Texas’ subprime loans involve cash-out refinancing, which reduces homeowner equity and makes default more likely when mortgage payments become unaffordable.”

As we’ll soon report, the downturn has spread far beyond the housing sector and the “great recession,” as some economists have christened the current downturn, now calls for a comprehensive set of policy responses. But as California’s legislators think about how to prevent the next boom-bust housing cycle, here’s one lesson that we might learn from Texas and Vermont.

— Jean Ross