Report: Typical California home requires triple the median household income to afford

The typical home in California requires nearly triple the median household income to afford, according to a new housing affordability analysis from the state-run, nonpartisan Legislative Analyst’s Office.

Low pandemic-era interest rates facilitated larger home loans, driving up home prices, while rising interest rates to combat inflation have increased mortgage payments on each dollar owed, creating a double-whammy for would-be homebuyers in the state.

Prices for mid-tier homes (in the 35th to 65th percentile range) and bottom-tier homes (in the 5th to 35th percentile range) in California vastly outstrip their national counterparts, coming in at twice as expensive and 33% more expensive than national analogues, respectively.

Mid-tier home payments rose to $5,500 per month in December, an increase of 80% since January 2020, while those for a bottom-tier home increased to $3,400, or an 85% increase since January 2020, suggesting demand is higher at the bottom-end of the market where residents are competing for a smaller quantity of housing that is affordable to them.

However, rents have not grown as quickly as home purchase payments, meaning that a two-bedroom home is now almost $2,000 per month cheaper to rent than to buy.

Among the report’s key figures was the finding that the annual income required to qualify for a mortgage on a mid-tier home is $224,000, or 2.6-times the median household income of $85,300. To afford a bottom-tier home, a $137,000 income is required — still well above the median household income.

“If the supply were more in line with demand, we would see a leveling of prices. We haven’t,” said Kerry Jackson, a fellow at the Pacific Research Center, noting that despite a decrease in housing prices between October and November, prices still remain significantly higher than they were the year before.

California has a 4.5 million unit housing shortage while also having some of the highest construction costs and longest construction times in the nation. It takes an average of 523 days for a housing project to be entitled in San Francisco, and 605 days for San Francisco to issue a building permit to an already entitled housing project, according to a to a California Department of Housing and Community Development report.

Gov. Gavin Newsom set a goal in late 2022 for the state to build 2.5 million new housing units by 2030, or an average of 300,000 units per year. California built just 116,000 new units of housing in 2022, according to the California Department of Finance, suggesting the state will need to triple housing production to meet its goal.