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The Decline of the Homeowner

Homeownership is on the wane in California. Between 2006 and 2012, the number of owner-occupied housing units in California declined by more than 320,000, while the number of renter-occupied housing units increased by more than 720,000. Never before has the state seen such dramatic declines in the number of owner-occupied houses. As a result, homeownership rates in California are at their lowest levels in more than 50 years.

The decline in owning and the rise in renting are largely a result of the housing bust between 2007 and 2011. Single-family housing units, long the primary domain of the homeowner in California, were the most likely to be lost to foreclosure. Thousands of owner-occupied homes were sold or foreclosed upon, and many became rentals.

However, even during the bust, housing prices remained relatively high in the state’s heavily populated coastal areas, which meant that ownership continued to be unaffordable for many renters who might prefer to buy. It may come as no surprise that states with low housing prices tend to have the highest homeownership rates. For example, median home values in West Virginia and Michigan are among the lowest in the nation—less than $120,000 in 2012—and rates of homeownership in those states are above 70 percent—among the highest in the nation. In contrast, in New York, California, and Hawaii, housing values are high and homeownership rates are among the lowest in the nation.

Housing construction in California reflects the increase in demand for rentals. In recent years, most new construction has consisted of large multi-unit buildings, most of which are rentals. This focus on multi-unit construction also reflects a shift among planners and local officials toward encouraging high-density in-fill development. This shift is especially apparent in expensive coastal housing markets where there is not a lot of room for new housing. In Los Angeles County, multi-unit buildings accounted for 86 percent of the increase in occupied housing units between 2010 and 2014. In the Bay Area, 60 percent of net new occupied housing units were in multi-unit buildings. By contrast, in inland areas such as Sacramento County and the Inland Empire, three of every four newly occupied housing units were single-family dwellings.

These newly constructed multi-family units make up just a fraction of the recent growth in renter households. Conversions of owner-occupied single-family homes to rentals have captured a large portion of growth in renter-occupied units. Between 2006 and 2012, 60 percent of the increase in rented occupied units occurred in single-family units (about 436,000 units). In 2006, before the bust, only 21 percent of occupied single-family houses were rented; by 2012, the share of houses occupied by renters had increased to 26.0 percent.

Will the trend toward renting reverse as the state’s economy continues to recover? A key consideration is whether the rise in renting represents a long-term shift in preferences. High home prices and past volatility in the housing market may have led many to conclude that owning a home is simply not worth the risk. On the other hand, rapidly rising rents have made homeownership relatively more attractive. And all this is happening as large numbers of young adults are reaching prime ages for starting a household and buying a first home. If historic trends are any indication, these demographic forces—along with low interest rates and improved labor markets—should lead to increases in homeownership rates.

Chart sources: (top and bottom) Authors’ calculations based on American Community Survey data; (middle) SOCDS Building Permits Database.

Drought Watch: Support for the Water Bond

This is part of a continuing series on the impact of the drought.

With the effects of the drought intensifying, the water bond is at the top of the legislature’s to-do list. Unless an agreement is reached on a new version, the $11.1 billion bond built in 2009 will go before voters this November. This year we have seen a range of proposals for a smaller water bond—including one by Governor Brown and one by Senate Republicans that designates more funding for storage than the governor’s. The debate continues.

Getting approval by two-thirds of both houses of the legislature is just the first step. The next hurdle is voter approval. According to the July PPIC statewide survey, 51 percent of likely voters said they would vote yes on the current $11.1 billion bond, with support increasing to 59 percent if the bond amount were smaller. This is higher than in March 2013, when only 42 percent of likely voters said they would vote yes on the $11.1 billion bond, and 55 percent supporting a smaller bond.

While the size of this bond may be important for voter approval, the central policy debate is about how the money should be allocated. Most funding for California’s water system comes from local water bills and taxes, but a new state water bond could help close critical funding gaps facing some parts of the water sector. The PPIC report Paying for Water in California highlighted the lack of sustainable and reliable funding for drinking water quality in small systems, flood protection, stormwater management, aquatic ecosystem management, and integrated water management.

Even if the legislature and the voting public do come together to approve a new bond, there is still work to be done to ensure sustainable funding for our water system. A bond can be expected to provide about $1 billion per year in new funds, leaving a $1 to $2 billion annual funding gap for critical water services. To close this gap, Californians will need to go beyond bonds and approve a broader mix of revenues, such as water use surcharges or state sales tax increases.

The Politics of Global Warming

The Global Warming Solutions Act, AB 32, was passed with bipartisan support and signed by Republican governor Arnold Schwarzenegger in 2006. The law—which requires state to reduce its greenhouse gas emissions—received strong majority support (65%) among Californians when the PPIC Statewide Survey first asked about it in July 2006, with strong majorities of Democrats (67%), Republicans (65%), and independents (68%) in favor.

Overall support for the law remains strong: in our July 2014 survey, 68 percent of Californians said they favored it. But the partisan makeup of the supporters has changed significantly. While support among Democrats and independents has remained solid, it has gradually decreased among Republicans. Today, 81 percent of Democrats and 62 percent of independents favor the law, but only 39 percent of Republicans do.

What happened?

We have found that this partisan divide is linked to two main factors. The first is the increasingly common belief among Republicans that global warming is not imminent. Fewer Republicans today say the effects of global warming have already begun (47% 2006, 35% today) or that global warming poses a serious threat to California (57% 2006, 48% today). Attitudes among Democrats and independents have not changed much.

The second factor is rising concern among Republicans that addressing global warming will affect the economy and jobs. From the beginning, proponents of AB 32 have argued that the threat posed by global warming requires immediate state action and opponents have expressed concern about the economic impact of regulating greenhouse gases. Our survey shows that during the Great Recession, support for taking action right away declined among all Californians. Support did not drop much among Democrats and independents, and it bounced back as the economy recovered. But immediate action on global warming was never popular among Republicans, so perhaps it is not surprising that even as the state’s unemployment rate declined from its peak in 2010 most Republicans continued to say the state should wait until the economy improved.

Their differences may be growing, but partisans do still agree on some aspects of addressing global warming. Majorities across parties continue to favor requiring increasing energy efficiency for residential and commercial buildings and appliances. They also favor requiring industrial plants, oil refineries, and commercial facilities to reduce their emissions.

These results show that policymakers face a challenge in forging compromises on the contentious aspects of climate change policy. But they also have areas of consensus to build on.

Bay Area Tops in Population Growth Rates

For many decades, inland areas of California have experienced faster population growth rates than coastal areas. Indeed, from 1950 to 2010 the Inland Empire (Riverside and San Bernardino Counties) experienced the most rapid rate of population growth in California. But now, for the first time since the 1860s, the Bay Area—long the slowest-growing urban region—is experiencing faster growth rates than any other region of the state.

Clearly, the Bay Area’s strong economy has led to this growth. With robust job gains and relatively high wages, demand to live in the Bay Area is very high. To some extent, local authorities and builders have responded to this demand with new housing construction, much of it multi-unit housing in densely populated areas. Population growth has been especially strong in Santa Clara and Alameda Counties, but San Francisco and San Mateo Counties are also outpacing the more suburban parts of the Bay Area, such as Sonoma and Solano Counties.

In contrast, inland areas are still recovering from the recession and housing bust that hit them hard at the end of the last decade. Declines in employment and very high rates of foreclosure were centered on these inland regions, including the Inland Empire, the San Joaquin Valley, and Sacramento.

Some might say this is not an important shift in regional growth patterns. After all, at 1.0 percent annual growth, Bay Area populations are not exactly exploding. But growth rates in the Bay Area are twice as high this decade as they were in the previous one, and no one expected the Bay Area to be the fastest-growing region of the state—according to long-term projections, inland areas will have faster growth rates than coastal areas. If recent patterns persist, this conventional wisdom will be turned on its head, and the implications for California’s future—from transportation infrastructure to water demand—could be enormous. As the economic recovery spreads throughout the state, it is reasonable to expect that inland growth will pick up, but to what extent and for how long is highly uncertain.

Chart Source: Author’s calculations based on California Department of Finance data.

Climate Change, Fracking, and Drought—Oh My!

Last week’s release of the PPIC Statewide Survey: Californians and the Environment prompted a discussion of several major policy issues under consideration in Sacramento. A panel convened by PPIC talked about the survey’s findings on climate change policy, particularly public attitudes toward a potential increase in gas prices when new regulations for transportation fuels begin next year.

PPIC research associate Sonja Petek set the stage for the panel discussion by presenting the survey findings. The panel included Assemblyman Richard Bloom (D-Santa Monica); Anne Baker, a senior advisor at the Center for Energy Efficiency and Renewable Technologies; and Rob Lapsley, president of the California Business Roundtable. The panelists said they supported the goals of the state’s climate change policies. They encouraged a public education effort about the extension of the cap-and-trade program to transportation fuels. The survey found that most Californians also support the policy change, but support drops sharply if it means higher gas prices.

The panel was divided on the state’s approach to fracking, a controversial process for extracting underground oil. Bloom is the author of a bill calling for a moratorium on fracking. Lapsley described the economic benefit of having more in-state oil production. The survey found most Californians opposed to fracking.

The panel also discussed water policies and the drought. In the survey, Californians name water as the number one environmental issue this year, and a narrow majority of likely voters support an $11.1 billion bond that is scheduled for the November ballot. Support is higher for a lower bond amount, something that is under discussion in the Capitol.

Californians and the Carbon Tax

California is leading efforts to address climate change, and public support for state action on this policy has been strong and steadfast. In the July PPIC Survey, six in 10 likely voters say that global warming’s effects have already begun and favor the state’s requirements that greenhouse gas emissions be reduced to 1990 levels by 2020.

The landmark law laying out these efforts—AB 32—relies on a “cap-and-trade” program for companies to reduce their greenhouse gas emissions. The state government currently enforces emissions “caps” by issuing permits that can be “traded” among companies at quarterly auctions. The state is getting ready for the AB 32 legislation to impact transportation fuels in 2015, with costs—which are unknown—likely passed on to Californians at the gas pump. Under these circumstances, some policymakers are having second thoughts about the cap-and trade program and are reconsidering a carbon tax on companies for their greenhouse gas emissions.

In our polling over the past five years, Californians have been more likely to express support for a carbon tax than a cap-and-trade system. In the July PPIC Survey, 54 percent of likely voters favor a carbon tax on companies’ greenhouse gas emissions—identical to the support that we found in July 2009. By comparison, 43 percent of likely voters favor the current cap-and-trade system when read a description in the July PPIC Survey—similar to the 44 percent who supported this proposal in July 2009. This support for a carbon tax doesn’t appear to be a simple reflection of a desire to tax business. A carbon tax on companies is a more popular proposal than raising overall state taxes paid by California corporations, which had a mixed response (48% favor, 47% oppose) in the March PPIC Survey.

What are the attitudes underlying majority support for a carbon tax on companies? Most likely voters are concerned about global warming and want the government to take action. Those who express the most concern and support tend to favor a carbon tax over the cap-and-trade system. For example:

  • Of those who believe the effects of global warming have already begun, 75 percent favor a carbon tax and 56 percent favor the cap-and-trade system.
  • Of those who believe that global warming is a very serious threat to the state’s economy and quality of life, 78 percent favor a carbon tax and 55 percent favor the cap-and-trade system.
  • Of those who favor the state law to reduce greenhouse gas emissions to 1990 levels by 2020, 76 percent favor a carbon tax and 57 percent favor the cap-and-trade system.

There is also a political dimension, reflecting the partisan differences in levels of concern about climate change and support for state action. Democrats are more likely to favor a carbon tax (72%) than a cap-and-trade system (54%), with similar trends for independents (56% carbon tax, 42% cap-and-trade). Republicans show similarly low support for either approach (32% carbon tax, 27% cap- and-trade).

The July PPIC survey also found that potential consumer costs play a striking role in views of climate change policies. Among likely voters, 70 percent, favor requiring oil companies to produce transportation fuels with lower emissions; however, favor for this policy declines to 41 percent if it means an increase in gas prices. What is noteworthy is that most higher-income Californians support lowering emissions—even if gas prices rise. In light of California’s uneven economic recovery, this finding suggests that the state lawmakers should be focusing on ways to limit the financial impacts of new global warming regulations on the state’s less affluent residents, not abandoning current efforts to reduce greenhouse gas emissions that enjoy solid support.

If policymakers are going to debate the pros and cons of these two policy options, it would be worth taking the time to better explain them to the state’s residents—especially since gas prices could increase with either option. Most likely voters have heard only a little or nothing at all about these competing proposals for reducing greenhouse gas emissions. One in four likely voters say they have heard a lot about the cap-and-trade system (24%) and awareness is similarly low for the carbon tax (28%) in the July PPIC Survey. Californians care about climate change and would likely welcome the chance to learn more about the decisions that are being made today to address the challenges of the future.

In Memoriam: Margaret Weston

It is with profound sadness that I share the news that a beloved PPIC colleague, Maggie Weston, has passed away. Maggie was 32 years old—an accomplished educator and policy researcher with boundless potential. My colleagues and I are shocked and heartbroken at this sudden loss. We extend our deepest sympathies to Maggie’s family.

All of us who knew Maggie were awed by her passion for her work. A champion of children, she dedicated her career to improving educational opportunities for disadvantaged youth. As a Teach for America instructor in Baltimore, Maggie experienced first-hand the systemic problems facing public education and sought to be a part of the solution. When she joined PPIC six years ago as a research associate—equipped with master’s degrees in teaching (Johns Hopkins University) and public policy (University of Michigan)—she said she wanted to make a difference on a larger scale.

At PPIC, Maggie brought her intellect and work ethic to the critical, then-unrecognized, topic of school finance in California. Describing the system as inequitable, inadequate, and overly complex, she authored more than a dozen publications documenting its problems and outlining clear steps toward addressing its shortcomings. She bridged the gap between the research and policy communities and created the common knowledge that resulted in important policy change. Her rigorous and objective work helped to provide the basis for the new Local Control Funding Formula, approved as part of the state budget last year.

In recognition of her outstanding contributions to public policy research and in anticipation of her Ph.D. (expected in 2015 from UC Davis), Maggie became a research fellow in 2012. She continued to specialize in education finance, determined to evaluate and communicate the real-world impacts of local control on students. She met with PTAs and community groups across the state, convinced that empowering them with information would help ensure a new level of transparency and engagement in public education.

The impact Maggie had on her colleagues, educators, and the policy community is a testament to her intensity, her intelligence, and above all, her integrity. We will miss her dearly.

Maggie’s family has scheduled a memorial service this Thursday at 2 p.m. in Sacramento. Details of the service and an online guest book are available at http://www.eastlawn.com/obituaries-services.html?obituary_id=1039856

Sincerely,

Mark

Drought Watch: Water for the Environment

This is part of a continuing series on the impact of the drought.

The ongoing drought has heightened tension over how water is allocated in California. In our recent publication on overall water use in California, we show that the environment uses the largest share—50%—of the state’s water. In contrast, agriculture uses 40% and urban users account for only 10%.

The amount going to the environment may look surprisingly high, but this number is not as straightforward as it may seem. Most of what we call “environmental” water is simply too remote for people to use—or is actually reused for irrigation, drinking water, or other human benefits. In other words, most of the water that goes to the environment does not significantly detract from the overall amount of water available for other purposes.

Here, we look more closely at how the California Department of Water Resources breaks down environmental water use (also see related figure below):

  • Managed wetlands make up state and federal wildlife refuges and account for only 4% of total environmental water use. These wetlands provide critical habitat for migratory and resident birds, along with fish, plants, and other wildlife. Some provide other important ecosystem services like flood protection.

  • Delta outflow accounts for 16% of total environmental water use. The state sets standards for how much water should flow into the Delta from the Sacramento and San Joaquin Rivers, and how much should flow out of it, into San Francisco Bay. These standards seek to meet two primary objectives: protection of native fishes listed under state and federal Endangered Species Acts, and maintenance of water quality standards within the Delta—most notably for salinity—to allow irrigation of farms in the Delta and exports of water to cities and farms elsewhere.

  • Instream flows constitute 18% of statewide environmental use. These are minimum river levels set by state regulatory agencies to meet habitat needs for fish and wildlife in waterways.

  • Rivers designated as “Wild and Scenic” use the bulk of water assigned to the environment—63%. Under federal and state laws, these rivers are protected from the construction of water resources projects—such as dams or diversions—that would adversely impact them. However, most of these rivers are in the state’s remote north coast, where there is little agricultural or urban demand for water and no economically viable way to use it elsewhere. Outside of the north coast, most water in Wild and Scenic Rivers (such as those on the west slope of the Sierra Nevada) is captured in downstream reservoirs and used again for hydropower generation, irrigation, and drinking water.

As this discussion shows, the allocation of limited water supplies is not a matter of simple tradeoffs between the environment and humans. Sometimes, water counted toward environmental use gets used again for something else. Other times, there is no practical alternative use (such as in the north coast). Understanding these basic facts is essential to resolving differences over how to manage water in California.

Realignment: Progress and Challenges

Expectations were high when California rolled out public safety realignment in October 2011; many expressed optimism that the reform would significantly address prison overcrowding and reduce the state’s high recidivism rate.

Now that realignment is approaching the three-year mark, has the reform delivered? In some important ways, yes, it has. But a fundamental issue remains: the state still relies heavily on costly incarceration with limited crime preventive effects.

Realignment shifted responsibility for most lower-level felons from the state to the counties and reduced the state prison population by an impressive 27,000. Although most newly sentenced lower-level felons are serving their sentences in county jail instead of state prison, the majority of the prison population drawdown has been accomplished by essentially halting the practice of sending parole violators back to state prison. The one-year return-to-prison rate for released offenders has dropped by about 33 percentage points (from around 41% to about 8%).

Clearly some parole violators are serving time in county jails (there is no currently available statewide data on county sanctioning of parole or probation violations), but the reform’s stricter limit on how violations can be punished means that offenders now have more “street time.” Also contributing, counties now pay for sanctioning and many have limited jail space.

Importantly, our recent recidivism report shows that decreased reliance on incarceration as a sanction has not been accompanied by an increase in re-offending. In fact one-year re-arrest rates have come down by about 2 percentage points (from 61% to around 59%). In other words, significant reduction in the prison population and halting the use of prison as a sanction for parole violations and minor criminal offenses has moved corrections practices in the right direction in a very meaningful way.

However, the prison population is still above the federal limit, and it has recently started to increase. Furthermore, the reduction in the state prison population has been partially offset by an increase in the county jail population. The shift has put pressure on county jails, where the population has increased by about 11,000 since the October 2011 reform rollout and is continuing to grow.

In other words, the state prison system is still under pressure and now county jails face new challenges. Addressing these challenges solely by building more jails will be fiscally painful and is not likely to be a cost-effective way to prevent crime. Instead, the state needs to identify and implement alternative effective crime prevention strategies. This includes, as intended by the reform, targeted efforts guided by evidence-based practices to reduce re-offending. Among other things, this will require the state to support efforts to gather the data necessary to identify what works in California. But even if these efforts are successful, basic forces like population growth and fiscal stress are likely to force the state to consider sentencing reform and take a closer look at who we incarcerate and for how long.

Drought Watch: Our Thirsty Lawns

This is part of a continuing series on the impact of the drought.

The unprecedented restrictions on outdoor water use that the state enacted this week send a message that Californians need to conserve more water. But we can do more to move toward sustainable consumption. To help the state get through this drought—which may continue into 2015—and prepare for a future that will include repeated droughts, local agencies should go further to encourage long-term changes in how we use water outdoors.

Outdoor water demands—which account for roughly half of all urban water use—are highest during the hot, dry summer months. Experts regularly cite reductions in landscape watering as “low hanging fruit” during droughts. But, as we’ve learned, it is not enough to just ask people to cut back: during the 2007–2009 drought, outdoor water use did not significantly decline despite repeated calls for conservation.

The main culprit is Californians’ love affair with lawns. Not only do lawns require a lot of water to look good, but people also tend to overwater them. Water agencies should seize the opportunity presented by the drought—and the publicity surrounding the new restrictions—to offer incentives for switching out thirsty lawns. For instance, Long Beach has a turf buyback program that offers rebates to customers who replace grass lawns with low-water-using plants—which have the added benefit of lending themselves to more-efficient irrigation systems. Finding attractive alternatives to lawns is easier than ever before, now that major garden retailers offer a range of California-friendly plants. Gone are the days of cacti and gravel being the only options.

Water pricing can also motivate customers to make the switch. Tiered rate structures—which charge a higher price per gallon for higher use—help send a message about the real costs of our landscaping choices. More than half of urban water agencies currently have some form of tiered rates, though recent legal challenges to their constitutionality under Prop 218 threaten to undermine these very important tools.

During droughts, it makes sense for water agencies to charge higher prices per gallon than they do in normal years. This provides additional conservation incentives while ensuring that agencies bring in enough to cover costs when they are selling less water. The city of Roseville, for example, implemented a temporary 15 percent drought surcharge starting in June. But according to a State Water Resourses Control Board survey, only 7 percent of agencies have enacted drought pricing strategies this year.

So far, no region has reached the governor’s 20 percent conservation goal, and water use has actually increased in some regions. Over the next few months we will see whether increased watering restrictions and threat of fines can deliver the conservation message to all Californians.