It may be the world’s last ‘affordable’ city for homebuyers — and how the Bay Area compares

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A new study reinforces the daunting reality for homebuyers in San Francisco and San Jose: Both of these housing markets are among the least affordable in the world.

But both Bay Area metro areas are growing rapidly as the ranks of unaffordable markets swell around the world during the pandemic, putting homeownership increasingly out of reach for middle-income buyers, found. researchers.

In fact, of nearly 100 housing markets in eight countries examined in the report, only one remained “affordable” when measuring home prices relative to income: Pittsburgh.

The observation that the North-East city is now the only one in the “affordable” category of the 2022 Demographia International Housing Affordability Report was “surprising,” according to Wendell Cox, senior fellow at the Urban Reform Institute in Houston and the Frontier Center for Public Policy in Canada, who jointly published the report.

Last year, three other cities were also deemed affordable, all in the United States but none on the West Coast: Rochester and Buffalo, NY, and St. Louis, Mo.

“Unprecedented” price growth

But the COVID-19 pandemic has fueled rapid change in domestic markets, causing prices to grow at “unprecedented” rates, according to the report.

“Housing affordability in virtually all markets has deteriorated over the past two years due to the pandemic-related ‘demand shock’,” Cox said. “This huge increase in demand relative to supply occurred as households sought larger homes and yards.”

The report, based on data from the third quarter of 2021, used the price-to-income ratio, or median house price divided by median gross household income, to assess the affordability of middle-income housing. The lower the ratio, called the “median multiple”, the more affordable a market is.

Housing affordability for middle incomes has been separated into four categories:

• Affordable (median multiple of 3 or less)

• Moderately unaffordable (3.1 to 4)

• Seriously unaffordable (4.1 to 5)

• Very unaffordable (5.1 and above)

Of the 92 metropolitan markets examined in Australia, Canada, China, Ireland, New Zealand, Singapore, UK and US, only Pittsburgh remained within the affordable range with a median multiple of 2 .7 – and has therefore been ranked as the #1 most affordable market in the United States and abroad.

At the other end of the spectrum, San Francisco ranked 86th with a median multiple of 11.8, while San Jose was 89th internationally with a median multiple of 12.6, surpassed in unaffordability only by Vancouver, in British Columbia; Sydney; and Hong Kong.

Of the 56 US markets surveyed, San Francisco was 54th and San Jose was 56th least affordable, separated by Honolulu. The report defines the San Francisco market as encompassing San Francisco, Marin, Alameda, Contra Costa, and San Mateo counties, while the San Jose market includes San Jose, Santa Clara, and San Benito counties.

Although prices vary within these metropolitan areas, at least seven figures are common: median sale prices in the cities of San Jose and San Francisco are $1.45 million and $1.53 million, respectively. dollars. Realtor.com reports the median listing price for both cities at $1.3 million.

The other figure determining affordability, median household income, is $119,136 in San Francisco and $117,324 in San Jose, according to the US Census.

By contrast, in Pittsburgh, the median household income is only about half that of Bay Area cities, at $61,969, according to the US Census.

But what makes the city “affordable” are its considerably lower property prices. In Pittsburgh, the median home price on Redfin is $231,700, while the median home price on Realtor.com is $230,000.

Even after factoring in the pandemic demand shock, Pittsburgh rules in terms of housing affordability because “those less affordable markets have preserved a competitive supply of land,” Cox said.

Pittsburgh was ranked in the survey as the last truly affordable city for homebuyers among the eight countries surveyed.

Keith Srakocic/Associated Press 1999

This contrasts with markets such as San Francisco and San Jose, which have strict land use regulations, he said, particularly “urban lockdown regulations,” which the report says are aimed at curbing “sprawl” by limiting construction beyond defined growth limits.

Planners’ expectations that increasing housing density within city limits would maintain affordability have not materialized – instead, affordability has “deteriorated significantly” in cities such as San Francisco , Seattle, Toronto and Sydney, according to the report.

“In the last pre-pandemic year, all of the markets we covered with extremely unaffordable housing … had strong urban containment strategies,” Cox said. “Before land use regulations got much stricter, there was little difference between housing affordability in California and the rest of the country.”

Largest gap in California

California now has the largest share of “extremely unaffordable” markets in the United States, including four of the nation’s five most expensive markets relative to income, according to the report.

Along with San Jose and San Francisco, Los Angeles ranked 84th internationally and 53rd nationally with a median multiple of 10.7. San Diego was just behind at 82nd internationally and 52nd in the United States, with a median multiple of 10.1, while Riverside-San Bernardino was 76th internationally and 49th in the United States with a median multiple of 7.4 .

Los Angeles was barely ahead of the best cities in the Bay Area for affordability, ranking 84th internationally and 53rd nationally.

Los Angeles was barely ahead of the best cities in the Bay Area for affordability, ranking 84th internationally and 53rd nationally.

Kevork Djansezian/Associated Press 2007

“California is a wonderful place to live,” Cox said. “Yet the cost of living crisis linked to housing affordability is preventing many middle-income households from affording a decent standard of living. This will not change without significant regulatory reform, which seems unlikely. »

Cox added that as key markets such as California continue to become more unaffordable, inequality, poverty and overcrowding look likely to worsen, and more people will have to seek subsidized housing.

That in turn could mean fewer middle-income households and corporate headquarters will come to California, and as more people work remotely, they will continue to look for more affordable places to live out of state, a said Cox.

Recent figures from the state Department of Finance showed that California’s overall population fell 0.3% in 2021, only the second decline since data collection began in 1900. Experts said that emigration to other states and a sharp drop in international immigration due to the pandemic were the main factors for the decline.

The housing report found that two other California markets were slightly more affordable than Bay Area metros, but still ranked low both globally and nationally: Sacramento had a median multiple of 6.7 and ranked 69th for international affordability and 44th nationally, while Fresno was 66th globally and 42nd nationally with a median multiple of 6.5.

Sacramento was one of the unranked California cities on the less affordable end of the scale, ranking 69th for international accessibility and 44th nationally.

Sacramento was one of the unranked California cities on the less affordable end of the scale, ranking 69th for international accessibility and 44th nationally.

Scott Summerdorf / The Chronicle 2003

The majority of American households are overpriced

Housing affordability is ‘critical’ to the rise of remote work, the report notes, but it cites data from the National Association of Home Builders showing that nearly 70% of households in the United States cannot afford the house at the median price.

Although only one market meets the definition of “affordable” in the report, Cox said the criteria still hold.

“There’s a broad consensus among economists that a big part of the problem is an overly prescriptive regulatory system,” he said. “In my view, the answer is not to ‘shift the targets’, but rather to make policy adjustments that reduce the huge increases in inequality created by the housing market. Indeed, differences in housing affordability largely define inequalities between metropolitan areas.

The researchers offered a potential note of encouragement: The most expensive housing markets, such as San Francisco and San Jose, could see prices flatten or decline as people move to more affordable areas.

“We hope that the losses suffered during the pandemic will be quickly reversed and that growing inequality attributable to rising house prices will be a thing of the past,” the report said.

Kellie Hwang is a staff writer for the San Francisco Chronicle. Email: [email protected]: @KellieHwang

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