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Trading places

As the affluent go downtown, the working poor are tripling up to buy homes in the 'burbs.

July 29, 2007|William Fulton | William Fulton is the publisher of California Planning & Development Report and a senior scholar at the School of Policy, Planning and Development at USC.

A few weeks ago, I checked out the latest monument to Los Angeles' newfound urbanity: the Getty Oil Building at the intersection of Wilshire and Western. The 23-story Modernist structure, designed by Claude Beelman and built in the early 1960s, has been converted into condominiums. Across the street is the Wiltern Theater, and Koreatown stores and restaurants are a block or two away. A Red Line station catty-corner to the Getty building gives a condo resident access to Universal City, Hollywood and downtown. The building, rechristened "The Mercury" by its developer, represents the epitome of car-free urban living.

If you can afford it. The condos cost about $700 a square foot, meaning a nice two-bedroom condo -- with windows on two sides and great views -- runs about $1 million.

A few evenings later, I found myself in the cramped living room of a single-family home in a suburb of Ventura, one of about 180 houses built a decade ago for buyers with annual incomes of about $50,000. Because the original development was federally subsidized, the homeowners can sell their house only at a restricted sales price of $300,000 to $400,000, which is 20% to 40% below the market price.

The cap on the selling price, the homeowners told me, has brought some changes to their neighborhood. It allows the working poor to afford these houses by teaming up to buy them. Realtors say four, five, even six people are listed on mortgage titles to qualify for financing. Seven, eight, nine cars are parked in the driveways and on the streets in front of the houses.

What's going on here? For a century, people in Southern California moved to the suburbs as they got richer, leaving the more "urban" parts of town to poor people. Now that pattern has reversed itself. Affluent people are leaving the suburbs to live in the city, while the working poor -- people who have jobs but don't earn enough to exceed the poverty line -- are doubling and tripling up in the suburbs to buy houses.

The migration of the affluent to the inner city has gradually increased in the last three years. According to a study by the Downtown Center Business Improvement District, the household median income of downtown residents with a least one earner was about $99,600 a year in 2006, roughly $28,000 higher than that of Beverly Hills. Nearly half of those surveyed reported annual income of $100,000 to above $250,000.

Demand for condos is so strong that virtually every older office building downtown has been converted to condominiums. Though condo sales have recently slowed, prices have held in the $500- to $700-per-square-foot range. That translates to $500,000 for a studio.

Meanwhile, the population density of older, working-class suburbs is rising. This is especially true in mostly Latino suburbs, including Pico Rivera, Rosemead and Fountain Valley. According to 2000 census data, the size of the average household in such suburbs has been rising since the 1980s and now approaches four people in some areas. In part, the greater density is attributable to larger families, but it is also the result of families doubling and tripling up to make the mortgage.

By contrast, one to two people occupy condos downtown.

All this points up the striking change in the Southern California economy since the 1970s: Metropolitan Los Angeles is no longer primarily a middle-class place. According to a recent Brookings Institution study, the decline in middle-income neighborhoods in L.A. has been among the sharpest in the nation. In 1970, 52% of L.A. neighborhoods were middle-income. By 2000, only 28% were, the lowest percentage among the top 100 metropolitan areas in the nation.

But the affluent drive the market. In Hollywood, Mid-Wilshire and downtown, the cost of developing or redeveloping anything is so extraordinarily high -- construction costs alone run close to $200 a square foot -- that developers have little choice but to target the high end of the market. That's why a two-bedroom condominium in an office building that was vacant for 10 years can come with a price tag of $1 million.

Meanwhile, the cost of housing in California tripled from 1998 to 2006, as average wages stagnated. The median home price of roughly $480,000 is 10 times the median household income.

If a $500,000 house requires that a buyer have $100,000 in annual income to qualify for a mortgage, it only makes sense that multiple wage-earners making $20,000 to $30,000 each could join to buy it and settle in. They're living in overcrowded conditions, but they own and control them. It's much better -- and probably no more expensive -- than renting a small apartment that they don't control in the inner city.

The trend is altering the nature of neighborhoods in Southern California. Urban areas are getting richer, and suburban neighborhoods are becoming more crowded -- and with the greater density comes social stress. Already, Oxnard has "bitten the bullet" and allowed residents to pave over part of their front yards for parking.

Home prices are likely to level off in the years ahead, and incomes might increase. Overall, however, the equation won't change much. Many rich people won't want to relocate to large lots on the urban fringe. And the working poor are not going to live in overcrowded apartments -- without cars -- if they can possibly avoid it.

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