Commentary: The Million Dollar Home

Photo by Blake Wheeler on Unsplash

By David M. Greenwald
Executive Editor

I keep seeing arguments put forward that we have plenty of expensive homes in places like Davis.  And while it’s true that the cost of housing is way to high here as it is elsewhere, “too many” is subjective.  In a typical month this year, less than 40 homes of any price have sold, and the median price has been around $900,000.

That means in a typical month, less than 20 homes even at levels over $900,000 have sold and the average length of time has been ten days on the market.  They are going on the market, being snatched up quickly and there frankly aren’t that many of them.

You would think, million-dollar home, that must be a big home at least?  Not so much.

This week in the LA Times, Stephen Menendian, the Assistant Director and Director of Research at UC Berkeley’s Othering and Belonging Institute, wrote an op-ed.

In LA, the median home price is around $1 million and statewide it’s approaching $750,000—Menendian points out “[t]hat is more than double the national median and more than triple the figure in Ohio.  This is the definition of housing unaffordability.”

That is pushing homeownership out of reach for many in California.  And it’s proportionately impacting people of color.  “As of 2019, only 55% of Californians, and just 36% of Black Californians, owned a home.”

“This isn’t just about homeownership,” he writes. “Renters face proportionate price increases. For the first time, the median monthly rent in the United States rose above $2,000 in the last year, and it’s closing in on $3,000 in California. Many people can’t afford to buy or rent a home here.”

And yet I continue to have the debate over why population trends are declining.

While there are many causes of these costs, Menendian points out that “chief among the reasons are supply restrictions. As with any other commodity, if you restrict the supply of housing, you can charge more for it.”

He adds, “This is essentially what zoning and other restrictive land-use regulations do. So it’s no wonder that a wealth of empirical evidence has shown that restrictive zoning makes housing more expensive.”

The good news in my view is that with the housing crisis has come a number of important studies.  In short, we know a lot about what is going on now and why.

Menendian himself led a study last year which found “that 78% of residential land in the Greater Los Angeles region and 74% in the city of Los Angeles itself was zoned exclusively for single-family homes, prohibiting apartment buildings and other multifamily developments.”

They also found that “home prices were correlated with the degree of stringent and exclusionary zoning in every community in the region. So were racial diversity and segregation.”

UC Berkeley’s Terner Center modeled six different housing policies for Los Angeles and found that “the single intervention with the biggest impact on supply growth was loosening density restrictions.”

While California has enacted things like SB 9, SB 10, and allowed more ADUs, the research here found “these measures are too modest to bend this wicked cost curve.”

Instead, Menendian argues, “What we need is deeper density, more multifamily housing and ‘missing middle‘ developments that provide a variety of designs suitable to different incomes. We need localities to allow it, and we need the state to mandate it.”

One of the conversations I had it seemed over and over again last night was that most of the people resisting new housing in this community tend to be older people who purchased their homes 30 or 40 years ago when the costs were relatively low.

Menendian notes that huge generational disparities persist.

He finds, “Older Americans are far more likely to own their homes; younger generations are struggling to catch up.”

There is also not surprisingly a huge racial divide.

He found, “In 2020, white homeownership reached a postwar peak of 75%, while Black homeownership lagged far behind at 44%, only slightly higher than it was in 1970, the year the Fair Housing Act took effect.”

You mean people who bought their homes in the 1980s for less than $100,000 and people who now own two or more homes might not think there is a housing crisis or the current situation is that bad?

Not only have home prices increased, but Menendian found that a major obstacle to closing these gaps “is that the cost of homeownership has soared relative to incomes.”

According to data from the Federal Housing Finance Agency, “the price of housing in the United States rose an average of 4.6% per year from 1975 through 2022, outpacing economic growth and wages. The rate in California was an astonishing 6.7% a year, higher than in any other state.”

Worse yet, homeowners “also fight against multifamily housing, affordable housing and homeless shelters in their neighborhoods and communities in an effort to protect their investments. These “homevoters” will fight to the hilt to prevent any loosening of zoning restrictions.”

Menendian concludes, “Overcoming this impulse and undoing restrictive zoning won’t make housing affordable or revive the American Dream on its own. If we don’t, however, the dream will become an impossibility for most of us.”

In the meantime, in communities like Davis, we will continue to have to fight these age-old fights.

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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17 Comments

  1. Walter Shwe

    Another word for homevoters are NIMBYs. Restrictive zoning practices and especially slow/zero growth ordinances must be either totally rescinded or dramatically loosened to significantly decrease the sky hight cost of housing in Davis and the rest of California. People are leaving California for other states because of the increasingly high cost of food, clothing and especially shelter in California. Those are the facts.

  2. Ron Oertel

    He finds, “Older Americans are far more likely to own their homes; younger generations are struggling to catch up.”

    They’ll be “catching up” literally overnight, when their parents die.

    The boomers have an expiration date coming up sooner than one might think.

     

     

      1. Richard McCann

        With California’s new property tax rules, younger members won’t be able to afford to own their parents’ homes because the taxes are reassessed at the new market levels unless the children actually live in the house. It’s only a minority of people in position to do that.

        1. Ron Oertel

          Well, according to this article – children won’t have their “own house” and will need some place to live.

          So if they choose to live in the house they inherit at that point, they’ll also inherit their parents’ property tax assessment.  If the market value is above $1 million PLUS their parents’ basis, they would only pay increased property tax on that difference.

          In Davis, there aren’t too many properties in which a child would pay a greater amount of property tax than their parents’ would.

          The new law does not impact most children (if they choose to live in the house).

          And if they subsequently move, I believe they can THEN take that reduced property tax with them to another house, as long as they meet the other requirements.

          And if they don’t live in the house, they’ll still get proceeds from the sale or rent.

           

           

           

           

        2. David Greenwald

          “Well, according to this article – children won’t have their “own house” and will need some place to live.”

          I could be wrong, but I don’t think the article says this.

        3. Ron Oertel

          Menendian notes that huge generational disparities persist.
          He finds, “Older Americans are far more likely to own their homes; younger generations are struggling to catch up.”

          I was reading “between the lines” (with a degree of sarcasm), as I did yesterday in regard to Taormino’s article.

      2. Jim Frame

        With California’s new property tax rules, younger members won’t be able to afford to own their parents’ homes because the taxes are reassessed at the new market levels unless the children actually live in the house. It’s only a minority of people in position to do that.

        If the inheriting child isn’t able to live in the home within  a year of the parents’ death, he/she might have to sell the house rather than keep it as a rental or second home.  I’m having a hard time feeling sorry for someone in that situation.  What am I missing?

         

        1. Ron Oertel

          Walter, it was Richard McCann (not me) who brought up Proposition 19.

          In response to my point regarding the enormous transfer of wealth as baby boomers die-off over the next few decades.

        2. Ron Oertel

          Me too, Keith.

          It’s actually more than $1 million of value, since they “add on” the assessed value as well.  And it will be adjusted for inflation going forward.

          As a simplified example, say someone’s parents own a property with $1.2 million, but their assessed value is already $200,000.

          In that case, the child simply inherits their parents’ low property tax.

          But Proposition 19 was actually a massive tax INCREASE, overall – due to the restrictions that didn’t previously exist regarding inherited properties.

          (I listed a link above, so that anyone can check the accuracy of what I’m stating.)

          Of course, the “other” part of Proposition 19 (which didn’t previously exist) is the ability to transfer one’s current property tax anywhere in California, within the restrictions enacted.  So that’s certainly a benefit for current property owners.

          As you can imagine, the California Association of Realtors (CAR) is the entity that pushed this through the legislature (which resulted in a lot of voters not understanding that it’s a tax increase for the state, overall).  Some strongly suspect that the ballot language was purposefully misleading (a lot more so than DISC, for example).

          Bottom line is that CAR is counting on this to increase turnover in two ways:

          1) Encouraging existing property owners to move.

          2)  Forcing those who inherit property to sell (to avoid a massive tax increase, unless they’re able to take advantage of the remaining, but reduced benefit available to those inheriting property.

           

        3. Richard McCann

          I was responding to the claim that people could just move into their parents’ house after their parents pass. Prop 19 makes that much more costly and difficult. Most people are not ready to move into their parents house on short notice so would likely keep the house as a rental for a transition period. So the suggested solution is not really workable.

          The suggestion also ignores the fact that few children live in the same neighborhood as their parents and are invested in where they currently live.

        4. Ron Oertel

          I was responding to the claim that people could just move into their parents’ house after their parents pass. Prop 19 makes that much more costly and difficult.

          Not seeing where anyone (other than you) actually suggested doing so.

          Proposition 19 does not make doing so more “costly” for a vast number of children.  More difficult perhaps, due to the time limitation.

          But what I was noting is the vast transfer of wealth that will occur over the next few decades – whether or not a child actually moves into the parents’ home.

          Most people are not ready to move into their parents house on short notice so would likely keep the house as a rental for a transition period. So the suggested solution is not really workable.

          It is not advisable to try to rent out a house while simultaneously selling it within a short period of time.  Any real estate agent will tell you that.

          The suggestion also ignores the fact that few children live in the same neighborhood as their parents and are invested in where they currently live.

          So, it sounds like those children already have a place to live, and would inherit money as a result of a sale.

          What “problem” are you trying to solve, here?
          Ignore Commenter

        5. Matt Williams

          Most people are not ready to move into their parents house on short notice.  So the suggested solution is not really workable.

          .

          That makes no sense Richard.  In today’s elderly parents’ healthcare landscape illnesses more often than not have substantial trajectories, and even when they are sudden, if the inventory of parents goes suddenly from two to one, there is more than enough time for the children to plan the evolution of their parents’ home from a one generational household into a two generational or even three generational household.  The old saying, “Your failure to plan does not constitute an emergency for me” comes to mind.

          Further, multigenerational households are considered to be much more healthy both mentally and physically, especially when the number of generations exceeds two.

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