The Center for California Real Estate has just released its list of top issues and insights in housing, reflecting the past 10 months of conversations among the state’s leading government, academia, nonprofit and business leaders working together to tackle California’s multi-faceted housing challenges.
While the year began with a spotlight on interest rates and housing affordability, it quickly shifted focus to homeowners insurance as the leading issue currently impacting housing and homeownership, according to CCRE, an institute of the California Association of Realtors created to bring together the state’s best minds to help solve California’s housing and real estate challenges.
Here are California’s top three pressing housing issues:
1. Insurance: Relief in sight, but still far off
With insurance rates skyrocketing, large carriers leaving the state and major legislative changes underway, homeowners insurance has been the biggest issue in the housing sector this year. Locally, this issue isn’t new for many residents in Portola Valley, who began experiencing insurance woes following the destructive CZU Lightning Complex fires in 2020. At the time, the state stepped in to protect residents’ home insurance policies, issuing a one-year moratorium against nonrenewal of residential insurance coverage for nearly 2.4 million policyholders in California in the wake of multiple widespread wildfires. Portola Valley, which abuts the Santa Cruz Mountains and includes several neighborhoods that are at severe risk of wildfire, was excluded from the state’s moratorium. Down the Peninsula, homeowners in Los Altos, Los Altos Hills and Palo Alto also began experiencing the same issue in late 2023.
Insights from industry experts:
- The California Association of Realtors reported 7% of its members surveyed in 2023 had a transaction fall through due to the inability to obtain affordable insurance. Obtaining homeowners insurance can be a contingency today, with potential buyers given a few days to secure a policy prior to the sale being completed.
- Mark Sektnan, vice president of State Government Relations, American Property Casualty Insurance Association, said for the last decade, insurers have been paying out $1.13 for every dollar they’ve taken in.
- While State Insurance Commissioner Ricardo Lara issued new guidelines for major insurance reforms around rate change rules by the end of 2024 or early 2025 to help bring carriers back to the state, relief will not be immediate. Insurers need more expedited processing and approval by the California Department of Insurance and time to implement the changes.
2. Housing Supply: Reversing a decades-long issue
Insufficient housing inventory is a chronic problem – but just how out of sync it’s become is startling. Last year, home sales nationwide dropped to the lowest level in nearly three decades, and despite a modest uptick in January, the housing market continues to have a deficit in housing inventory. In California, the cost to buy a house reached a new all-time high with the median price for a single-family home rising to $904,210 in April, exceeding the $900,000 benchmark for the first time in California history. To alleviate the housing crisis, the California Department of Housing & Community Development has set an ambitious goal of adding 2.5 million new housing units across the state by 2030. But will that be enough to fix the problem?
Insights from industry experts:
- State legislative action is not delivering enough support for more housing: “In Sacramento this year, there were two bills that were housing creators and eight bills that were housing killers. “Still, after all these years of housing crisis, we get more bills that are housing killers,” Jeff Schroeder, SVP, Land, Planning & Operations, Ponderosa Homes, said.
- Consumer advocacy is key to reversing decades of underinvestment in housing: “If we’re going to make a dent in this housing crisis, we need to change the hearts and minds of the larger public,” Xiomara Cisneros, Senior Program Officer of Housing Affordability, Chan Zuckerberg Initiative, said.
- A multi-pronged approach to supply is necessary: “We have to continue to advocate for resources, for policy to preserve, protect, and produce,” Noni Ramos, CEO of Housing Trust Silicon Valley, said.
- Historic approaches are being reevaluated in an ‘everything is on the table approach’ to solving supply issues: “We’re going to have a reckoning about how we want to address California Environmental Quality Act in a more holistic way, for the protection that is needed, but not a barrier that delays projects for years because of frivolous lawsuits,” Assemblymember Pilar Schiavo (D-Chatsworth) said.
3. Affordability: An uphill climb
Affordability is an issue at all income levels. The California Association of Realtors’ 2024 second-quarter Housing Affordability Index shows just 14 % of households can afford a median-priced home and must earn at least $236,800 annually to do so. San Mateo and Santa Clara were the only two counties in California where homebuyers would need to earn more than $500,000 annually to afford a home. In San Mateo County, households needed a minimum annual income of $574,800 to purchase a home with the county’s median price tag of $2.2 million.Santa Clara County wasn’t far behind. Homebuyers there needed a minimum annual income of $524,000 to qualify for the purchase of a $2-million median-priced home.
Insights from industry experts:
- Outdated zoning practices, excess permitting and bloated costs, such as impact fees that can cost upwards of $100,000 per unit, make projects increasingly less affordable at all levels: “What we’ve seen over the decades is regulatory burdens that have just added onto the challenges essentially of developing good housing. It makes it more difficult and more expensive,” Andrew Fremier, executive director, Metropolitan Transportation Commission & Association of Bay Area Governments, said.
- Improved supply has a direct impact on price mitigation: “In San Diego, for example, where we used to be doing 2,000 or 3,000 permits of new housing a year, this year, we are up to 9,000 units of housing under permit right now. And we are seeing a stabilization in the rents because supply and demand is a real thing,” Assemblymember Chris Ward (D-San Diego) said.
- The need for an inclusive process that enables underrepresented communities such as seniors and minorities to participate is vital, from advocacy at meetings to designing targeted solutions to releasing significant wealth into the economy. Robert Kleinhenz, director of the Office of Economic Research at California State University, Long Beach, suggested seniors liquidating assets at a rate of 3% could inject a substantial $300 billion into the economy ― enough to add a percentage point of growth nationally.
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
