Location, Location, and…Occupation
This post draws on interactive data on income and housing affordability, provided as a resource for California legislators and the public.
It’s well known that in coastal California, homeownership and rents are largely out of reach for low-income earners. But even highly skilled or educated workers earning well above the median income – think nurses, accountants, engineers and even software developers – are being priced out of the housing market in parts of California.
In an effort to provide California legislators and their staff with accessible and relevant data, we compiled information on the incomes of hundreds of occupations and tracked home prices in regions across the state. What we found were stark regional divides.
In California’s expensive coastal cities, affordability is beyond reach for low- and middle-income households, and is often a struggle for all but the very highest earners. Further inland, homeownership has remained within reach for those in middle-income occupations, but for those lower down the income spectrum it has become a struggle inland, too.
A straightforward measure of affordability is the price-to-income ratio, which measures typical local home values against annual incomes. A family earning $100,000 a year in an area where a typical house (not necessarily theirs) costs $300,000, for example, has a price-to-income ratio of 3, which economists consider the upper bound of comfortable affordability. An area is considered moderately, unaffordable when the ratio exceeds 3 and severely unaffordable when it exceeds 5. By the time it exceeds 7, homeownership is essentially out of reach.[1]
Statewide, the price-to-income ratio for California’s median resident is 3.9 percent – moderately high. But we’re talking about real estate, so location, of course, is everything.
Let’s start along the coast, where the housing prices are extreme. In the greater San Francisco region, before the pandemic, the median resident’s annual household income was $117,000, high by most standards.[2] But a typical home at the time cost close to $1 million, putting the price-to-income ratio for the median resident of the region at a suffocating 7.9. Using a price-to-income ratio of 3 as a benchmark, only households earning more than $308,000 a year could comfortably afford to buy a house in the region.
Even highly paid software developers are price-challenged when it comes to homeownership. They’re crucial to keeping Silicon Valley up and running and earn a median $210,000 in the Bay Area. But their price-to-income ratio is 5.8. For registered nurses, whose incomes are lower but who aren’t as concentrated in the most expensive parts of the region as software developers, the ratio is 5.4. And for lawyers, who typically live in higher-income households than software developers, it is still a challenging 4.7.
Price-to-Income Ratio for Median Group Member, 2015-2019
San Francisco Bay Area (ABAG)
Greater Los Angeles region (SCAG)
In the greater Los Angeles region, including the Inland Empire, the corresponding numbers are a household income of $78,000 and a price-to-income ratio of 7.1, which imply a household needs to earn almost $185,000 a year to comfortably afford the typical home.
In both the San Francisco and Los Angeles regions, firefighters and police officers appear to punch above their weight with respect to affordability. In greater Los Angeles, for example, those two occupations have higher price-to-income ratios than physicians and surgeons, but lower ratios than lawyers and CEOs, despite substantially lower incomes.
A likely explanation is that firefighters and policemen often work in multi-day shifts, which make them more amenable to long commutes. In other words, firefighters and policemen can get by living much farther from work than most other people, which allows them to work in one place while living somewhere else that’s distant but much cheaper.
If it’s a reach for lawyers and software developers to buy, imagine the plight of people farther down the income spectrum. Homeownership in the Bay Area is seriously unaffordable for teachers, architects, electricians, network administrators and accountants, among others.
For many others, homeownership is simply impossible – a typical house can cost more than 10 times the income of an unskilled worker.
Drive a couple of hours away, however, and the landscape changes. In the San Joaquin Valley, homeownership is within reach for a lot more of the population. Teachers, registered nurses, accountants and, yes, even software developers and lawyers, fall well within the comfortably affordable range. They make less money than they would in the Bay Area, to be sure, but because a typical home can be had for much less, it’s a lot easier to live on their incomes.
But a large share of the population still struggles, even in lower-cost parts of the state. Agricultural workers, who are essential for powering the regional economy, have little chance of buying even in the fields of the Central Valley, where their price-to-income ratio is 6.1. The same holds for skilled laborers in construction trades.
And the problem is getting worse. In every occupation we looked at, in every region of California, wages have failed to keep up with housing prices.
From 2000 until shortly before the pandemic, household incomes for agriculture workers in the San Joaquin Valley had grown by a third, to $39,000. But the median cost of a home there had more than doubled, to $233,000.
In 2000, roofers, masons and other construction workers could afford a house in the San Joaquin Valley or environs east and north of Sacramento. But wage growth in those occupations over the past 20 years hasn’t kept pace with rising home prices and they’re now priced out.
Price-to-Income Ratio for Median Group Member, 2015-2019
San Joaquin Valley
Sacramento Region (SACOG)
If that trend continues, middle-class earners in dozens of other occupations will soon join their neighbors in the construction trades, falling into the red zone of unaffordability even in communities that today are considered within reach.
The tried-and-true strategy of moving away from job centers to find an affordable home might soon be a thing of the past, too. People willing to accept a long commute in exchange for homeownership might not have that option anymore as sky-high prices spread.
While mounting housing affordability concerns are pervasive in California, they play out differently in every region. Different swaths of society are affected in different places.
The land use policy reforms needed for addressing the problem require coalition-building and cooperation. Hopefully, clear data on housing affordability by occupation in state senate and assembly districts can help find and pull together the coalitions needed for change.
Notes:
These affordability labels are drawn from a related measure, the median multiple, which compares an area’s median household income to its median home price. Here, we are comparing households’ actual incomes with the area’s typical home price (derived from the Zillow Home Value Index). For more information, see here.
This income figure and others are drawn from the 2015-2019 five-year compilation of the American Community Survey.