The Landscape of Middle-Income Housing Affordability in California
Housing affordability in California is increasingly difficult to achieve due to soaring home prices and the high cost of living. Between 1940 and 1960, California built over 3.3 million new homes, more than doubling the existing housing stock. The average home costs $15,000 to purchase, equivalent to about $140,000 today. Average rents were around $80 a month or $760 in today’s dollars, and the state’s average house prices were largely in line with the rest of the country’s.
Although the state’s post-war housing landscape was not without fault—racial discrimination and poor housing quality limited access to safe and affordable housing for many— housing costs were largely in line with household incomes. The average factory worker, teacher, nurse, or line cook was able to rent a home and spend less than thirty percent of their income on housing.
Today, California’s housing market is dramatically different. For the last fifty years, California has not built enough housing to meet demand. The statewide median sales price for a single-family home in October of 2021 was $800,000; in San Francisco, it reached $1.3 million. Average market rents hover above $2,500 in all coastal markets. Even in cities like Fresno, which have historically been more affordable, the average rent is over $1,800 a month. Housing costs in California are now among the highest in the nation.
Some of these higher housing costs have been offset by higher wages. New jobs— for example, in information technology, finance, and real estate—pay significantly higher wages than similar occupations twenty years ago. For instance, the average salary for a computer and information systems manager rose from $120,000 in 1999 (adjusted for inflation) to over $185,000 in 2019. Housing affordability in California has become a significant challenge due to rising home prices and limited supply. Housing affordability in California is increasingly difficult to achieve due to soaring home prices and the high cost of living.
The growth in higher-paying jobs has pushed up the household median income in some regions of the state, meaning that the definition of a “middle-income” household varies across places, and in the state’s coastal regions, it tops $100,000. For many occupations that have traditionally been considered middle class, wages have not kept up with rising house prices. This mismatch between housing costs and incomes—especially in the state’s coastal areas is straining household budgets and putting homeownership increasingly out of reach for middle-income families.
The lack of lower-cost options for those earning median incomes has negative consequences for the state’s housing and labor markets. More middle-income households are staying renters, decreasing the available housing stock that is affordable to lower-income groups, as middle-income households are able to outbid low-income households for available units.
The lack of lower-cost homeownership opportunities also limits pathways to wealth building and access to higher-resourced neighborhoods, especially for households of color. And there is growing concern about the loss of middle-income households to other, lower-cost housing markets, such as Portland and Austin. As housing cost burdens move up the income ladder, the state also risks losing essential workers, such as teachers and nurses.
The lack of housing affordability for middle-income households is in part due to the lack of housing production overall; this lack of supply is foundational to California’s housing crisis. But it also reflects a set of market conditions that raise the costs of development and encourage the construction of larger, higher cost, and “luxury” units that can be unaffordable to middle-income households. The lack of housing affordability in California is driving many residents to seek more affordable living options elsewhere.
In response to a lack of overall supply and market dynamics that are unlikely to produce the needed stock of homes affordable to middle-income households, policymakers are beginning to consider new solutions. However, there remains a lack of consensus on the appropriate tools for catalyzing middle-income housing. Existing financial governmental resources remain scarce, meaning that direct subsidy programs are rightfully reserved to address the housing needs of low-income households, which have the highest risk of housing insecurity and homelessness.