Even in the aftermath of the greatest real estate bust since the Great Depression, houses in California are expensive. The reason is simple: the rent, a key fundamental underlying house prices, is expensive here.
To put this in some perceptive, I used the 2011 American Community Survey to tabulate rents at the 25th percentile for California's metropolitan areas, and divided this by renter incomes at the 25th percentile.
The upshot: even if a household were perfectly sorted, so that the 25th percentile income household was matched with the 25th percentile unit, renters in Los Angeles would pay more than 40 percent of their income in rent. Those in Yuba City would pay 32 percent of income. The standard for affordable rent is 30 percent, so there is no place in California where, even with perfect matching, rents are affordable to those in the bottom quarter of the income distribution.
One reason for this is that vacancies are so low. Below are average vacancies for the 75 largest MSA for 2012. Oxnard, Los Angeles, Bakersfield, San Francisco and San Jose have vacancy rates that are well below the national average, and that are sufficiently low that we can expect inflation adjusted rents to continue to rise in these cities, making housing affordability even worse.
Why this is the case will be the subject of future posts.
