Why Young Californians Can’t Afford Homes – and What The Powers That Be Aren’t Telling You

Everything seems to be more expensive in California – even the politicians. But housing is getting to be – nay, scratch that – has been a real problem for some time. Young families are surrendering their dreams of owning a spacious California house in the suburbs as Mike and Carol Brady did, and that’s because housing has grown prohibitively expensive in California – and in plenty of other places, too. For the moment, though, California makes a good cautionary tale.

The Petersen family’s two-bedroom apartment in northern California is starting to feel small. 

Four-year-old Jerrik’s toy monster trucks are everywhere in the 1,100-square-foot unit in Campbell, just outside of San Jose. And it’s only a matter of time before 9-month-old Carolynn starts amassing more toys, adding to the disarray, says her mother, Jenn Petersen.

The 42-year-old chiropractor had hoped she and her husband, Steve, a 39-year-old dental hygienist, would have bought a house by now. But when they can afford a bigger place, it will have to be another rental. Petersen has done the math: With mortgage rates and home prices stubbornly high, there’s no way the couple, who make about $270,000 a year and pay about $2,500 in monthly rent, can afford a home anywhere in their area.

Describing home prices in California, especially in places like Campbell – a stone’s throw from Silicon Valley – as “stubbornly high” is to indulge in the greatest understatement since the English King Harold Godwinson described the Norman invasion as “a bit of a bother.” Prices in the Bay Area, of which Campbell is broadly a part, have been sky-high for some time now. Interest rates are climbing, too, although before young people get too agitated, I would caution them to look at the interest rates of the Carter years.

Supply and demand, as always, apply here. But while this piece recognizes the lack of supply of housing, what they don’t do is ask why.

The biggest driver of this trend, experts said, is simple: There are far too few houses on the market to match pent-up demand, driving prices past the point of affordability for many people who are relatively early in their careers. Coupled with high mortgage rates, many have concluded that renting is their only option.

“Wage growth hasn’t kept up with the increase in home prices and interest rates,” said Domonic Purviance, who studies housing at the Atlanta Fed. “Even though people are making more money, home prices are increasing at a faster rate.”

Oh, sure, there’s one “why” there. There are far too few houses, sure. But why are there too few houses?

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I spent many years conducting root cause analyses and teaching major corporate employees, mostly engineers, how to do root cause analysis. One of the tools for root cause analysis is what some call “5 Whys,” but I always called a “Why-Why Analysis,” as sometimes it may take two “Whys” and others, ten. In this case, there are too few houses. But they don’t ask or answer the next question: Why? 

This is going to take us down a long road, involving onerous building codes, landscaping regulations, zoning issues, and much more, but most of these rules, regulations, restrictions, and requirements were put in place by state and local governments that are, in this part of California, overwhelmingly Democrats, who never saw a rule or regulation that didn’t make them dance a buck and wing. 

When asked, “How do you know when you’ve arrived at a root cause,” my stock reply was, “When you arrive at the point where some person or group of people made a decision, that’s likely to be your root cause.” People who decided to vote in California’s overwhelmingly Democratic state legislature and the big coastal cities’ overwhelmingly Democratic municipal governments would seem to be the root cause here. Oh, the linked article also mentions another city – Boston – and we could say the same things there. Or in the Denver area, where two of our kids live – and can’t afford a house, even with a three-income household. Real estate is cheaper in other places, like small towns scattered across flyover country, but that’s not an option for everyone, and there are good reasons why some people can’t or don’t want to move.

Fortunately, there’s an answer. Vote in politicians who vow to deregulate, remove roadblocks for developers, establish only minimal structural standards for safety (this is earthquake country, after all), and then get out of the way and let developers do their thing. Supply and demand. Raise the supply to meet the demand, and the prices will moderate. 

The American Dream will be real again. Mike and Carol Brady would smile at the thought.

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