Bloomberg News

Housing Woes Worse in L.A. Than New York, San Francisco

September 03, 2014

$1 Million Highland Park House

In Highland Park, this house sold in April for a neighborhood record of $1 million, $121,000 higher than the asking price. Source: L34 Group with Keller Williams Los Feliz via Bloomberg

Jeanette Cross took out a payday loan to cover her May rent of $1,600 in South Los Angeles. She skipped car and insurance payments to keep a roof over her head.

“I’m further and further behind,” Cross, a 34-year-old single mother of four, said in a telephone interview. “I make a payment on one thing and don’t pay others.”

She isn’t alone. Angelenos use a bigger slice of their paychecks on shelter than people in New York, San Francisco or Miami, studies show. Surging property prices in the second-largest U.S. city are driving up costs in once-impoverished areas while pushing lower-income households into converted garages or to distant suburbs, where the tradeoff is hours stuck in traffic each day.

Homeownership Reconsidered

“They’re bottom earners living in a high-priced housing market,” said Dowell Myers, a policy, planning and demographics professor at University of Southern California in Los Angeles. “The L.A. market’s messed up on so many fronts.”

About half of area households spend at least 30 percent of their income on housing, including costs such as utilities and property taxes, the highest proportion among 381 U.S. metropolitan areas, according to a report by Harvard University’s Joint Center for Housing Studies. Housing costs of 30 percent of income or less are “the traditional affordability standard” and those paying more are “cost burdened,” the study’s authors wrote.

Rising Rents

The burden is heaviest for renters. According to Zillow Inc. (Z:US), Los Angeles rents average about 48 percent of the area’s median income. That’s more than any other city and up from about 35 percent in the 1980s and 1990s, the real estate data provider said in an Aug. 21 report.

Homebuyers in Los Angeles devote about 43 percent of their median income to shelter at current prices and mortgage rates, tied with San Francisco for first place, Seattle-based Zillow said. The Los Angeles region has the lowest homeownership rate - - the proportion of housing units occupied by the owner -- of the 50 largest U.S. metro areas, U.S. Census data show.

Cross spends two-thirds of her gross income to rent her four-bedroom home. She works at an apartment-leasing company, where she takes home about $2,100 a month. Every day, she hears stories from tenants struggling to pay the rent.

“In some situations, it’s heart-wrenching,” Cross said. “But it’s a business and they’re supposed to pay their bills.”

While home prices and rents are higher in San Francisco and New York, Los Angeles is less affordable because incomes are lower -- and lagging behind housing inflation.

Lower Incomes

The median household income in the Los Angeles metro area was $59,424 as of the second quarter, about 22 percent less than in San Francisco and 13 percent lower than in New York, according to a Zillow analysis of Census data and figures from the Bureau of Labor Statistics. Most new jobs in Los Angeles through 2018 will pay less than $23,000 a year, according to a December report by the Department of City Planning.

Mayor Eric Garcetti this week proposed increasing the city’s minimum wage to $13.25 an hour by 2017, almost twice the current federal regulation. It’s part of the “biggest anti-poverty program in L.A. history,” he said in a Facebook post.

The cost of buying a home has been rising even faster than rents, which increased 4.7 percent in Los Angeles County in the 12 months through July, reported Axiometrics Inc., a Dallas-based real-estate data company. Home prices climbed 7.6 percent during the period to a median $457,000, according to CoreLogic DataQuick, based in Irvine, California.

Renter Demand

In the 1970s, Los Angeles began turning into a market where most people rent their homes, and construction has failed to keep up with soaring demand, according to a July study co-written by Paul Ong, a professor of urban planning and social welfare at the University of California at Los Angeles.

That is driving renters and buyers to dodgier neighborhoods. Police shot and killed a man down the street from Cross’s house last month. The violent crime rate in her neighborhood was 52 percent above the Los Angeles average, according to data compiled by AreaVibes Inc., a Toronto-based company that rates quality of life in cities and neighborhoods.

“I don’t let my children play outside,” Cross said. “I don’t like the area. But for the same rent, I’d only get a one or two-bedroom apartment in a better neighborhood.”

Even in sketchier communities, prices are on the rise. In Highland Park, a neighborhood northeast of downtown where the crime rate is 39 percent higher than the Los Angeles average, a house sold in April for a neighborhood record of $1 million, $121,000 higher than the asking price.

Priced Out

Christopher Sprinkle, 41, is looking to spend about $500,000 for a house in Highland Park, where many homes have dilapidated front porches, chipped paint and chain-link fences. Among them are spruced-up properties with new windows and solar panels -- signs of gentrification.

Sprinkle, a senior media producer at the Getty Trust, and his wife, Kira Kelly, 37, a cinematographer, can’t afford to buy on the westside or in the mid-city area where they rent, he said. Now they might not be able to buy in Highland Park.

“If we wanted to stay in our neighborhood, we’d have to drop close to a million dollars,” he said.

Some struggling Angelenos are opting to live in recreational vehicles or illegally converted garages. In June, a federal appeals court struck down a 31-year-old Los Angeles ordinance that sought to bar people from living in vehicles on the street after homeless residents sued the city.

Garage Complaints

The Department of Building and Safety has fielded more than 17,500 complaints of garages converted into illegal residences in the past decade. The number of unpermitted conversions driven by financial hardship has risen as housing costs climb, said Kim Darigan, founder of Property Forensic LLC, which advises homeowners who have received city citations for illegal structures.

“We’ve seen a lot more of this in the last few years,” Darigan, whose Van Nuys, California-based company advertises on the Web under IllegalConversionsLA.com, said in a telephone interview. “Many single-family residences, particularly in lower-income neighborhoods, do this to make extra money or to take in family members who can’t afford their own homes.”

The number of unpermitted housing units in Los Angeles may be as high as 70,000, according to City Councilman Paul Koretz. He opposes eliminating existing illegal apartments that are safe to occupy.

Building Shortage

A dearth of funding for subsidized housing, community resistance to new projects and a decentralized power structure - - the county is divided into 88 separate cities -- contribute to the shortage of living options, particularly for renters, according to Ong, the UCLA professor.

Homebuilders have delayed, downsized or dropped plans for projects as residents thwart development using regulations such as the California Environmental Quality Act, established in 1970 to require environmental-impact reports, said Chris Thornberg, principal at Beacon Economics LLC, a Los Angeles-based research company.

“When you open it up like this, you just give people the chance to argue every stupid little point until you finally acquiesce and come up with some compromise that’s not even close to meeting the level of demand,” Thornberg said in a telephone interview.

Moving East

From 2007 to 2011, almost 42,000 Angelenos moved to San Bernardino County in the region known as the Inland Empire, about 60 miles (97 kilometers) east of downtown Los Angeles, according to a Census Bureau report. It was the nation’s biggest net county-to-county movement in the period.

“People with modest means are being forced away from their jobs into the Inland Empire and therefore having to deal with enormous commutes,” John Husing, chief economist at the Inland Empire Economic Partnership, said in a telephone interview.

Joey D. Morales and his wife, Tammy Mortensen, pay $656.51 a month -- about two-thirds of his take-home pay -- for a rent-controlled studio apartment near University of Southern California. They ride the bus because they can’t afford a car, and buy groceries with food stamps.

The most recently advertised vacant studios in the 26-unit building, where Morales has lived since 2009, rented for $850. The units are now outfitted with hardwood floors, updated kitchens and renovated bathrooms. The building sold in March for $1.7 million, five times its 1999 price of $340,000.

“They’re buying buildings and rejuvenating them and making prices sky high,” Morales, 58, who works for a training program at the Los Angeles Department of Aging, said in a telephone interview. “Pretty soon, affordable housing’s going to be like a dinosaur.”

To contact the reporters on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net; John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net Daniel Taub, James Hertling


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