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Locked Out of a House

September 22, 2002|JOEL KOTKIN | Joel Kotkin, a contributing editor to Opinion, is a senior fellow with the Davenport Institute of Public Policy at Pepperdine University and the Milken Institute. He is co-author, with Thomas Tseng, of "Rewarding Ambition: Latinos, Housing and the Future of California."

For generations, California's special allure has rested on the notion that nonnatives, or at least their children, can work their way into the state's middle class. At the core of this aspiration is homeownership. Yet today, this promise is threatened as never before. The problem is not that the state's upwardly mobile first and second generations of immigrants, roughly half of whom are Latinos, are not hard-working or ambitious enough. Rather, they are entering a housing marketplace incapable of meeting their demands at reasonable prices.

There are many causes of upwardly spiraling housing costs in California, among them the state's tax regime and various environmental and liability laws. But the effect is the same: Not enough houses are being built to ensure affordability. If not corrected, Latinos, the fastest-growing segment of the state's population, may become the first major group to be denied, through no fault of their own, ownership of a piece of the California dream.

Today, homeownership in California, at 56%, is the second lowest in the country, behind New York. In contrast, the overall U.S. homeownership rate, driven by historically low mortgage interest rates, has soared to an all-time high, 68%. While the rate rose 4.2% in the rest of the nation during the 1990s, it increased only 2.2% in California.

Latinos, particularly immigrants, have been most powerfully affected by this trend. Between 1970 and 2000, the percentage of home-owning Latino households in California dropped from 49% to 41%.

The decline is not caused by a lack of significant income gains for Latinos. Nationally, a median of 71% of Latino homeowners' net worth is in home equity, compared with 57% among African Americans and 40% for Anglos. Moreover, most Latino renters want to buy a home and, according to a recent survey, believe they will be able to in the next five years.

Yet, increasingly, their ambitions seem more likely to be frustrated. Nine of the 10 least affordable metropolitan areas in the country are in California. The state is home to 16 of the 20 least affordable metro areas. In the Los Angeles metropolitan area, the homeownership rate, 49%, is second lowest behind the New York City area among all metropolitan areas in the country. In the city of Los Angeles, the rate is a meager 39%.

This situation threatens both the future of the state's economy and the durability of its social order. To have a large, work-and family-oriented population consigned to a kind of permanent landlessness makes a mockery of the promise of homeownership embedded in the California dream: If you put in a 40-or 60-hour workweek, you, or at least your children, will someday own a piece of the community that is your adopted home.

The failure to deliver on this promise is not just an issue for working-class or immigrant Latinos. Homeownership makes neighborhoods more stable and connected. Homeowners, according to a recent Harvard University report, are more likely to participate in volunteer and political organizations, as well as stay in their areas longer, thereby helping to promote social stability.

The state's housing shortfall is not a civil rights problem. Discrimination may contribute to the problem, but it is fundamentally rooted in economics--more specifically, in the changing dynamics of the state's housing market. Simply put, housing production in California has not kept pace with the state's remarkable surge in economic and population growth.

The key difference between the 1990s boom in California and previous ones has been the lack of new housing construction. During the 1990s, housing production was less than half that in the 1980s. Today, despite a much larger population and strong demand, annual housing construction is less than 150,000 units a year, half the peak rate of 1986 and more than 50,000 fewer than in the 1970s, when the state population was about 10 million fewer.

Things are not likely to get better soon. Judging by the current rates of new permits, the state housing shortfall will exceed as many as 1 million units. Inventory levels for new homes already are at near-record lows statewide. Not surprisingly, prices are escalating, particularly in areas that serve largely Latino working-class consumers--such as Bell, Paramount, Lancaster and Pomona. Home prices in these communities in 2001 rose by as much as 20%. Ironically, as immigrant incomes rise, competition for housing will increase, pushing prices still higher.

All the signals from Sacramento compound the housing problem. Some of the blame lies with strict environmental laws, the ability of local anti-development groups to stand in the way of even the most thought-out projects, and mounting litigation concerns over new construction. Legislative action to rein in environmentalist activists and trial lawyers would help remove a few of the obstacles to more housing construction.

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