LA’s high housing costs pose ‘grave concern’ to economy

Personal stories about Los Angeles renters who are evicted or who are one rent hike away from living on the streets are gut-wrenching. Now a new report takes a bird’s-eve view of the state’s housing crisis—and makes a dispiriting forecast.

“The fact that the median Californian household must pay more than seven times its income to afford a home should be grounds for grave concern regarding sustainable economic growth,” says a report released this week by the Los Angeles Economic Development Corp.

It’s the first time the report—which predicts a slowdown in LA’s economy—has considered housing affordability. In the past, it focused largely on areas like developing the local workforce and attracting new businesses. But housing affordability has become such an “overwhelming” issue that it was impossible to ignore, says LAEDC economist Eric Hayes.

“Housing is the largest barrier to economic growth in the region,” he says.

The Los Angeles economy is forecast to grow by just 1.8 percent this year, compared to 3.7 percent in 2018.

Without “significant policy action” to spur the construction of more homes, the costs of buying and renting will only continue to rise, the report concludes. That could make an already dire situation even worse.

“It’s very easy for people when they encounter someone who is homeless to say, ‘Oh, that’s not me. I have a job. I own a home.’ But what our research shows is that this is impacting you too,” Hayes says. “If we start entering a spiral of economic decline, it’s not going to go well for you either.”

One particular statistic cited in the report illuminates how unaffordable home prices are already. In 2018, California’s median home price was 7.3 times the median household income. The median home price in the U.S., however, was 3.7 times the median household income.

The high costs are driving people out of the region—and out of California—into places like Arizona, Colorado, Nevada, Oregon, and Texas, where living costs are lower. Last year, for the first time since 2010, California “had more people leaving the state than moving in from abroad or other states,” Eddie Hunsinger, a demographer with the state Department of Finance, told the Los Angeles Times in December.

“It’s really hard to grow an economy without growing a population, and the population can’t grow if there’s nowhere for people to live” or if they can’t afford the homes that exist, says Hayes.

But in its forecast, the LAEDC predicts the number of permits issued for the construction of new homes will fall—not rise—from 107,433 this year to approximately 92,000 in 2021 due to increasing material and labor costs.

The solution isn’t just boosting supply, it’s maintaining the existing affordable housing stock, according to a Zillow analysis accompanying the report.

In the end, Angelenos need to understand that adding people to their neighborhood is good—and not just for the economy, Hayes says.

“Having more people in your community is only a positive thing—more places to do things, more people to meet, restaurants to go to and such,” he says. “I also think there’s a sort of basic human rights issue of people needing a place to live.”