This may be the world’s last ‘affordable’ city for home buyers — and how the Bay Area compares

In fact, out of the nearly 100 housing markets in eight countries examined in the report, just one remained “affordable” when measuring home prices in relation to income: Pittsburgh.

The finding that the East Coast city now stands alone in the “affordable” category in the 2022 Demographia International Housing Affordability report was “surprising,” according to Wendell Cox, a senior fellow at the Urban Reform Institute in Houston and the Frontier Centre for Public Policy in Canada, which jointly issued the report.

Last year, three other cities were also rated affordable, all in the U.S. but none on the West Coast: Rochester and Buffalo, N.Y., and St. Louis, Mo.

‘Unprecedented’ price growth

But the COVID-19 pandemic fueled a rapid shift in home markets, causing prices to grow at “unprecedented” rates, according to the report.

“Housing affordability in virtually all markets has worsened in the last couple of years as a result of the pandemic related ‘demand shock,’” Cox said. “This huge increase in demand relative to supply has occurred as households have sought larger houses and yards.”

The report, based on data from the third quarter of 2021, used the price-to-income ratio, or median house price divided by the gross median household income, to rate middle-income housing affordability. The lower the ratio, referred to as the “median multiple,” the more affordable a market is.

Middle-income housing affordability was separated into four categories:

• Affordable (median multiple of 3 and lower)

• Moderately unaffordable (3.1 to 4)

• Seriously unaffordable (4.1 to 5)

• Severely unaffordable (5.1 and higher)

Among the 92 metropolitan markets examined in Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom and the United States, only Pittsburgh remained in the affordable range with a median multiple of 2.7 – and was therefore ranked the No. 1 most affordable market both in the U.S. and internationally.

At the other end of the spectrum, San Francisco ranked 86th with a median multiple of 11.8, while San Jose was in 89th place internationally with a median multiple of 12.6, surpassed in unaffordability only by Vancouver, B.C.; Sydney; and Hong Kong.

Among the 56 U.S. markets examined, San Francisco was 54th and San Jose was 56th least affordable, separated by Honolulu. The report defined the San Francisco market as encompassing San Francisco, Marin, Alameda, Contra Costa and San Mateo counties, while the San Jose market included San Jose, Santa Clara and San Benito counties.

Though prices vary within those metropolitan areas, at least seven figures is common: The median sale prices in the cities of San Jose and San Francisco are $1.45 million and $1.53 million, respectively. Realtor.com reports the median listing price for both cities at $1.3 million.

The other figure determining affordability, median household income, is $119,136 in San Francisco and $117,324 in San Jose, according to the U.S. Census.

By contrast, in Pittsburgh, the median household income is only about half those in the Bay Area cities, at $61,969, according to the U.S. census.

But what makes the city “affordable” is its dramatically lower home prices. In Pittsburgh, the median home sale price on Redfin is $231,700, while the median listing home price on Realtor.com is $230,000.

Even after accounting for pandemic demand shock, Pittsburgh reigns in terms of housing affordability because “these less unaffordable markets have preserved a competitive supply of land,” Cox said.

 This may be the worlds last affordable city for home buyers — and how the Bay Area compares

Pittsburgh was ranked in the survey as the last truly affordable city for home buyers among the eight countries studied.

Keith Srakocic/Associated Press 1999

That contrasts with markets such as San Francisco and San Jose, which have strict land-use rules, he said, especially “urban containment regulation,” which according to the report aims to curb “sprawl” by restricting building beyond set growth boundaries.

Planners’ expectations that increased housing density within urban boundaries would maintain affordability did not materialize — instead, affordability “has deteriorated substantially” in cities including San Francisco, Seattle, Toronto and Sydney, the report said.

“In the last pre-pandemic year, all of the markets we covered with severely unaffordable housing … had strong urban containment strategies,” Cox said. “Before land-use regulation became much stronger, there was little difference between housing affordability in California and the rest of the nation.”

Gap largest in California

California now has the biggest share of “severely unaffordable” markets in the U.S., including four of the country’s five highest cost markets relative to incomes, according to the report.

In addition to San Jose and San Francisco, Los Angeles ranked 84th internationally and 53rd in the nation with a median multiple of 10.7. San Diego was close behind at 82nd internationally and 52nd in the U.S., with a median multiple of 10.1, while Riverside-San Bernardino was 76th internationally and 49th in the U.S. with a 7.4 median multiple.

 This may be the worlds last affordable city for home buyers — and how the Bay Area compares

Los Angeles was barely ahead of the top Bay Area cities in affordability, ranking 84th internationally and 53rd in the nation.

Kevork Djansezian/Associated Press 2007

“California is a wonderful place to live,” said Cox. “Yet, the housing affordability-driven cost of living crisis is making it impossible for many middle-income households to afford a decent middle-income standard of living. That will not change without significant regulatory reform, which does not seem likely.”

Cox added that as major markets such as ones in California continue to become more unaffordable, inequality, poverty and overcrowding seem likely to worsen, and more people will need to seek subsidized housing.

That in turn could mean that fewer middle-income households and corporate headquarters will come to California, and as more people work remotely, they’ll continue to seek more affordable places to live out of state, Cox said.

Recent figures from the state Department of Finance showed that California’s overall population decreased by 0.3% in 2021, only the second drop since data collection began in 1900. Experts said out-migration to other states and a steep drop in international immigration due to the pandemic were major factors in the decline.

The housing report found that two other California markets were slightly more affordable than Bay Area metros, but still ranked low both worldwide and nationally: Sacramento had a median multiple of 6.7 and ranked 69th for affordability internationally and 44th nationally, while Fresno was 66th in the world and 42nd nationally with a median multiple of 6.5.

 This may be the worlds last affordable city for home buyers — and how the Bay Area compares

Sacramento was one of the California cities not ranked at the least affordable end of the scale, placing 69th for affordability internationally and 44th nationally.

Scott Summerdorf / The Chronicle 2003

Majority of U.S. households priced out

Housing affordability is “critical” for the surge in remote work, the report noted, but it cited data from the National Association of Home Builders showing that almost 70% of households in the U.S. can’t afford the median-priced house.

Although only one market met the definition of “affordable” in the report, Cox said the criteria remain valid.

“There is broad agreement among economists that much of the problem is an overly prescriptive regulatory system,” he said. “In my view, the answer is not to ‘move the goal posts,’ but rather to make policy adjustments that reduce the huge increases in inequality that the housing market has created. Indeed, differences in housing affordability largely define inequality between metropolitan areas.”

Researchers offered one potential note of encouragement: The highest-cost housing markets, such as San Francisco and San Jose, could see prices flatten or decrease as people move to more affordable areas.

“We hope that the losses sustained during the pandemic will be quickly reversed and the increasing inequality attributable to higher house prices will become a thing of the past,” the report said.

Kellie Hwang is a San Francisco Chronicle staff writer. Email: kellie.hwang@sfchronicle.com Twitter: @KellieHwang

Article source: https://www.sfchronicle.com/bayarea/article/real-estate-affordable-housing-markets-17148926.php

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