The Hollowing-Out of the California Dream

Tent of homeless person on 6th Street Bridge with Los Angeles skyline in the background. California, USA. (Photo By: Education Images/UIG via Getty Images)

Progressives praise California as the harbinger of the political future, the home of a new, enlightened, multicultural America. Missouri Senator Claire McCaskill has identified California Senator Kamala Harris as the party leader on issues of immigration and race. Harris wants a moratorium on construction of new immigration-detention facilities in favor of the old “catch and release” policy for illegal aliens, and has urged a shutdown of the government rather than compromise on mass amnesty.

Its political leaders and a credulous national media present California as the “woke” state, creating an economically just, post-racial reality. Yet in terms of opportunity, California is evolving into something more like apartheid South Africa or the pre-civil rights South. California simply does not measure up in delivering educational attainment, income growth, homeownership, and social mobility for traditionally disadvantaged minorities. All this bodes ill for a state already three-fifths non-white and trending further in that direction in the years ahead. In the past decade, the state has added 1.8 million Latinos, who will account by 2060 for almost half the state’s population. The black population has plateaued, while the number of white Californians is down some 700,000 over the past decade.

Minorities and immigrants have brought much entrepreneurial energy and a powerful work ethic to California. Yet, to a remarkable extent, their efforts have reaped only meager returns during California’s recent boom. California, suggests gubernatorial candidate and environmental activist Michael Shellenberger, is not “the most progressive state” but “the most racist” one. Chapman University reports that 28 percent of California’s blacks are impoverished, compared with 22 percent nationally. Fully one-third of California Latinos—now the state’s largest ethnic group—live in poverty, compared with 21 percent outside the state. Half of Latino households earn under $50,000 annually, which, in a high-cost state, means that they barely make enough to make ends meet. Over two-thirds of non-citizen Latinos, the group most loudly defended by the state’s progressive leadership, live at or below the poverty line, according to a recent United Way study.

This stagnation reflects the reality of the most recent California “miracle.” Historically, economic growth extended throughout the state, and produced many high-paying blue-collar jobs. In contrast, the post-2010 boom has been inordinately dependent on the high valuations of a handful of tech firms and coastal real estate speculation. Relatively few blacks or Latinos participate at the upper reaches of the tech economy—and a recent study suggests that their percentages in that sector are declining—and generally lack the family resources to compete in the real estate market. Instead, many are stuck with rents they can’t afford.

Even as incomes soared in the Silicon Valley and San Francisco after 2010, wages for African-Americans and Latinos in the Bay Area declined. The shift of employment from industrial to software industries, as well as the extraordinary presence—as much as 40 percent—of noncitizens in the tech industry, has meant fewer opportunities for assemblers and other blue-collar workers. Many nonwhite Americans labor in the service sector as security guards or janitors, making about $25,000 annually, working for contractors who offer no job security and only limited benefits. In high-priced Silicon Valley, these are essentially poverty wages. Some workers live in their cars, converted garages, or even on the streets, largely ignored by California’s famously enlightened oligarchs.

CityLab has described the Bay Area as “a region of segregated innovation.” TheGiving Code, which reports on charitable trends among the ultra-rich, found that between 2006 and 2013, 93 percent of all private foundation-giving in Silicon Valley went to causes outside of Silicon Valley. Better to be a whale, or a distressed child in Africa or Central America, than a worker living in his car outside Google headquarters.

For generations, California’s racial minorities, like their Caucasian counterparts, embraced the notion of an American Dream that included owning a house. Unlike kids from wealthy families—primarily white—who can afford elite educations and can sometimes purchase  houses with parental help, Latinos and blacks, usually without much in the way of family resources,  are increasingly priced out of the market. In California, Hispanics and blacks face housing prices that are approximately twice the national average, relative to income. Unsurprisingly, African-American and Hispanic homeownership rates have dropped considerably more than those of Asians and whites—four times the rate in the rest of the country. California’s white homeownership rate remains above 62 percent, but just 42 percent of all Latino households, and only 33 percent of all black households, own their own homes.

In contrast, African-Americans do far better, in terms of income and homeownership, in places like Dallas-Fort Worth or greater Houston than in socially enlightened locales such as Los Angeles or San Francisco. Houston and Dallas boast black homeownership rates of 40 to 50 percent; in deep blue but much costlier Los Angeles and New York, the rate is about 10 percentage points lower.

Rather than achieving upward class mobility, many minorities in California have fallen down the class ladder. This can be seen in California’s overcrowding rate, the nation’s second-worst. Of the 331 zip codes making up the top 1 percent of overcrowded zip codes in the U.S., 134 are found in Southern California, primarily in greater Los Angeles and San Diego, mostly concentrated around heavily Latino areas such as Pico-Union, East Los Angeles, and Santa Ana, in Orange County.

The lack of affordable housing and the disappearance of upward mobility could create a toxic racial environment for California. By the 2030s, large swaths of the state, particularly along the coast, could evolve into a geriatric belt, with an affluent, older boomer population served by a largely minority service-worker class. As white and Asian boomers age, California increasingly will have to depend on children from mainly poorer families with fewer educational resources, living in crowded and even unsanitary conditions, often far from their place of employment,  to work for low wages.

Historically, education has been the lever that gives minorities and the poor access to opportunity. But in California, a state that often identifies itself as “smart,” the educational system is deeply flawed, especially for minority populations. Once a model of educational success, California now ranks 36th in the country in educational performance, according to a 2018 Education Weekreport. The state does have a strong sector of “gold and silver” public schools, mostly located in wealthy suburban locations such as Orange County, the interior East Bay, and across the San Francisco Peninsula. But the performance of schools in heavily minority, working-class areas is scandalously poor. The state’s powerful teachers’ union and the Democratic legislature have added $31.2 billion since 2013 in new school funding, but California’s poor students ranked 49th on National Assessment of Education Progress tests. In Silicon Valley, half of local public school students, and barely one in five blacks or Latinos, are proficient in basic math.

Clearly, California’s progressive ideology and spending priorities are not serving minority students well. High-poverty schools are so poorly run that disruptions from students and administrative interruptions, according to a UCLA study, account for 30 minutes a day of class time. Teachers in these schools often promote “progressive values,” spending much of their time, according to one writer, “discussing community problems and societal inequities.” Other priorities include transgender and other gender-relatededucation, from which parents, in some school districts, cannot opt out. This ideological instruction is doing little for minority youngsters. San Francisco, which the nonprofit journalism site Calmatters refers to as “a progressive enclave and beacon for technological innovation,” also had “the lowest black student achievement of any county in California,” as well as the highest gap between black and white scores.

Ultimately, any reversal of this pattern must come from minorities demanding a restoration of opportunity. Some now see the linkage between state policy and impoverishment, which has led some 200 civil rights leaders to sue the state Air Resources Board, the group that enforces the Greenhouse Gas edicts of the state bureaucracy. But perhaps the ultimate wakeup call will come from a slowing economy. After an extraordinary period of growth post-recession, California’s economy is clearly weakening, as companies and people move elsewhere. Texas and other states are now experiencing faster GDP growth than the Golden State. Perhaps more telling, the latest BEA numbers suggest that California—which created barely 800 jobs last month—is now experiencing far lower income growth than the national average, and scarcely half that of Texas, Colorado, Michigan, Arizona, Missouri, or Florida. Out-migration of skilled and younger workers, reacting to long commutes and high prices, seems to be accelerating, both in Southern California and the Bay Area.

One has to wonder what will happen when the California economy, burdened by regulations, high costs, and taxes, slows even more. Generous welfare benefits, made possible by taxing the rich, could be threatened; conversely, the Left might get traction by pushing to raise taxes even higher. The pain will be relatively minor in Palo Alto, Malibu, or Marin County, the habitations of the ruling gentry rich—but for those Californians who have already been left behind, and for a diminishing middle class,  it might be just beginning.

Government Regulations Worsen California Housing Shortage

house-constructionAs housing prices continue to rise in California, a significant number of our residents are being denied access to the American dream of homeownership. Today, only about one-third of our fellow citizens can afford to buy a median-priced home in the Golden State, down from a peak of 56 percent just four years ago.

With this in mind, the CALIFORNIA ASSOCIATION OF REALTORS® convened “Housing Affordability and California’s Future,” a real estate summit held recently in Los Angeles. The summit brought together and drew on the ideas of top industry leaders from financial institutions, government agencies, academia, public policy and real estate, who shared one common goal: to explore ways to increase housing affordability in California. 

There are many reasons for the steep decline in affordability. California continues to be a destination for millions of people, and it is difficult for supply to keep up with demand. But the reasons go beyond simply lagging housing construction. In particular, government regulations worsen the problem. Restrictive environmental, land use and zoning regulations artificially constrain supply, which makes it difficult and expensive to meet demand.

These rules, regulations and road blocks have taken their toll on housing.  We are now so far behind the curve that, according to the non-partisan California Legislative Analyst’s Office, the state needs to build 100,000 new homes every year – double what’s being built now — just to catch up with current housing needs.

And the McKinsey Global Institute recently reported that California’s housing shortage is costing the state more than $140 billion per year in lost economic output because Californians spend so much of their income on housing.

Before local governments can effectively address homelessness and affordability, they must recognize that it is a supply problem. It must be defined in terms that everyone can understand. REALTORS® believe the issue is appropriately defined as a need to provide adequate and affordable workforce housing for all segments of the community.

A lack of affordable workforce housing affects communities in many ways.

  • The growth of bedroom communities far removed from job centers adds to urban sprawl and all the challenges that it brings; workers who have to find shelter in distant communities must commute longer hours to get to their jobs, increasing traffic congestion and air pollution for all the cities in between.
  • The lack of housing for workers in the community makes it harder for employers to attract workers to fill their jobs. If they can’t find workers, the employers will take their jobs, and their tax revenue, elsewhere.
  • The socio-economic balance of the community is as important as the quality of the air we breathe, the roads on which we drive, and the amount of tax revenue in our city coffers. A healthy city is one that provides housing for all segments of its workforce, not just those who can afford luxury homes. The economic viability of a community is choked off by the lack of affordable workforce housing.

Once we recognize the importance of workforce housing, we can begin the process of increasing supply. Fortunately, there are many things local governments can do to address this housing shortfall, including:

  • Embrace higher density and infill.
  • Encourage housing next to transportation hubs, like light rail.
  • Speed up permit approval times and eliminating red tape.
  • Provide incentives to developers who include affordable rental and ownership housing, like density bonuses and reduced parking requirements.
  • Choose the development of workforce housing over retail developments that generate greater sales tax revenue.
  • Resist “NIMBYism” and educate the community about the importance of workforce housing and resist the call for short-sighted and excessive environmental constraints.

The achievability of homeownership for all Californians is ultimately tied to the success of the state’s economic future, but a thorough assessment of the state’s biggest economic and real estate challenges reveals the difficulty of balancing opportunity with responsibility amidst the pressing need for solutions.

Working together with the state’s top minds and influential leaders, we can better understand the solutions we can undertake to put California back on the map for those who are looking to buy and get their piece of the homeownership dream.

Joel Singer is CEO of the CALIFORNIA ASSOCIATION OF REALTORS®

This piece was originally published by Fox and Hounds Daily