Did you know in the 1970's Interest rates bounced between 7% & 11%. In 1981 they actually went up as high as 18%. This means that Loans were more expensive until they created more money by way of a little big experiment called Quantitative Easing
Banks & Lending
It may appear to be the fault of our financial institutions as they do have the most control over our economic health and in order for them to continue contributing to a failing system(2008 Financial Crisis) more rules and regulations had to be put in place to continue down the rabbit hole. It is no secret we live in a volatile democracy where paper magically becomes money just so we can continue building more debt. More people have jobs but they barely make enough to pay rent, bills, credit card and school debt. Not to mention this generation has a ton more Student loan debt than any generation which arguably, is entirely the result of our Government creating too many subsidies for higher education rather than actually lowering the cost of education. Of course, subsidies are beneficial for people in need but they also mean more money is available for businesses/institutions to make so in turn, programs are created, jobs are created in order to capitalize on free money. Not that this is a bad thing but everything has a cost.
In short, this generation(millennials) just doesn't have enough money to keep up with the cost of living even though they work longer hours or more than one job in some cases. Today, the debt that most people incur or qualify for surpasses what they can actually pay back. For example; lenders use gross income to qualify a person for a loan instead of using net income which is what you have after tax, the money you actually pay your bills with. We are now a country rooted in undying debt. The cost would have to be lowered in some sector of our government to initiate a remedy but that day is far.
Government Funds & Home Developers
So one of the biggest issues at hand is the supply of housing. One of the biggest questions is why aren't there more housing being built. Though there are(were) some government funds available for home developers to build more homes, these funds come with conditions. Conditions that some businesses and communities may be opposed to such as requiring builders to build a certain amount of affordable or fixed rent housing. This type of housing gets a lot of push-back from people who are concerned about the value of their neighborhoods being diminished or the change in demographics that such housing would bring about. Landlords/builders are faced with how expensive it may be in terms of the wage restrictions required for hiring people to build and the number of units they would have to build just to satisfy low-income housing requirements and still make a profit rather than a lost. Its safe to say that new home development comes with a lot of red tape.
Though some initiatives with recent bills have been finalized such as the SB2-Building Homes & Jobs Act, to help stabilize funds for the variety of niche housing needed in California by tacking on a tax to Real Estate Transactions, it will still take a few decades for the volume of homes to catch up with the demand. According to a UC Berkeley Study it can take a long time before the change will have a trickle down affect on rents and home purchases.
It cannot be ignored that California has had major economic growth, specifically between San Jose and the East Bay, It has resulted in the biggest impact on driving housing cost just within the last 10 years. Some of the biggest Tech and Social Media Companies have made this place home Google, Facebook and Skype to name a few. Although they create thousands of jobs and drive more people to California, indirectly housing becomes scarce so prices go up. The type of jobs that are created in this Tech Environment are, no doubt, well paying jobs so naturally people are willing to pay more for housing, outbidding the natural market by a land slide.
Coincidentally, some of the areas that have seen the biggest increase in housing cost have also had the least amount of new home development in general. Approving a permit to build has become a tool for local officials and people of those communities who don't want a denser population. They use it to stall time on development projects while appearing to cooperate with the much needed housing to accommodate its growing population by approving permits every blue moon. For example in Palo Alto this year so far only 3 multi-family home projects have been approved totaling to be about 15 units. These 15 units will most certainly not accommodate a town of 67,000 people in need of affordable housing.
SO THE QUESTION REMAINS....WHO IS TO BLAME?
While there is so much to be discussed on a micro scale in terms of all the wonderful cities of California and their building permit mandates, government funding and where the money is really used and of course the rising cost of higher education which by the way I had no clue a percentage of school tuition is used to pay off UC-State retirees pensions according to NPR. On a Macro Scale I think its impossible to entirely point the finger at the government sector or the private sector alone due to the very codependent relationship between the two. The easy way to cure a hang over is to drink more right? In other words the government makes more money and we take it because we need it and to think about the actual cost of doing so is over our heads so yes, I will take another drink.
I cover Real Estate Market information, RE Investing, legislation, loans and other stuff :-) My Goal is to bring facts to the table in hopes to open up a dialect among real people. Far to often the topic of Real Estate is perceived to be foreign when in fact it directly affects all of us. So lets talk about something that matters.