By Kirk Lesh
It seems like every week I read an article regarding California’s housing crisis. Depending on what paper you read, there are various reasons for the problem and few, if any, solutions. But first, we need to understand what kind of a problem we have so that policymakers can draft appropriate legislation.
I argue that Ventura County has a middle-income housing problem, not just a low-income housing problem. As a result, legislation will need to be drafted that addresses both issues, not just the low-income problem that seems to get all the attention.
To investigate this problem, I first looked up the median home price in Ventura County on the California Association of Realtors website and learned that it was $650,000 as of April. Then I went to the Census Bureau’s website and found that the median income in Ventura County is $81,972, while the average income is $107,872. Finally, I called my friend Kelly Marsh, who is the vice president of Cornerstone Home Lending in Santa Barbara. (In the interest of full disclosure, Marsh has handled my last three home loans.) She suggested that I use a property tax rate of 1.25 percent, an interest rate of 4.125 percent and a homeowners insurance cost of $75 per month.
I fed all of this information into an amortization table using Microsoft Excel. What I found shocked me. Assuming that a household can afford the 20 percent down payment of $130,000, total housing costs for a median home in Ventura County are $39,267 a year. That represents 47.9 percent of the median income and 36.4 percent of the average income. According to Marsh, most lenders have a maximum debt-to-income level of 45 percent but can increase that limit to 50 percent for strong clients. Thus, even if a household in Ventura County earns the median income and can afford the 20 percent down payment, they will not meet the 45 percent debt-to-income threshold.
Keep in mind that this does not include other debt the household may have. I did not include estimates for car loans, student loans or any other type of debt. Thus, assuming the household is debt-free and can afford the down payment, it still will not meet the 45 percent debt-to-income threshold. I found that a household has to earn $87,260 to meet the 45 percent threshold. That is $5,288 more than the current level of median income.
In addition to the median and average income, the Census Bureau also provides an estimate of income distribution. Ventura County’s median income falls in the $75,000-to-$99,999 income bracket. Thus, I summed the percentage of households that earned less than $74,999 to determine the percentage of households in Ventura County that cannot afford a median-priced home. That number is 46 percent. Please note that this is a conservative number as I did not estimate the percentage of households in the $75,000-to-$99,999 bracket that would not be able to afford a median home.
The situation is better for households earning the average income or better. For these households, the debt-to-income ratio is 36.4%. However, I suspect that when other types of debt are added, even these households would struggle to afford a median home in the county.
To be fair, there are various first-time buyer programs that help households purchase a home. However, most of those require a smaller down payment. As Marsh points out, the problem with these programs is that buyers have to pay mortgage insurance if the down payment is less than 20 percent.
The situation is even worse in Santa Barbara County, where the median and mean incomes are less than Ventura County at $68,023 and $97,025, respectively, but the median-priced home is more at $760,500. In San Luis Obispo County, a median-priced home is the same as Ventura County but the median and mean incomes are less at $67,175 and $87,933, respectively. Of the tri-county area, Ventura County fares the best.
The bottom line, in my opinion, is that we need to start thinking of our housing problem on multiple levels. We need to start addressing the median-income problem as well as the low-income problem.
• Kirk Lesh is an assistant professor in the California Lutheran University School of Management.