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Housing, a basic necessity for living, is becoming increasing unaffordable for the majority of families in California. The recent housing crisis in Los Angeles has developed based on a variety of factors but compounded by the growing difficulty in buying a home. As more people are forced to stay in the rental market, housing prices are further driven up. Los Angeles needs to spur anemic homeownership rates through targeted government expansion of credit specifically to minority borrowers.

Homeownership Rates

Rising rents and lack of affordable of housing leaves the high number of renters in Los Angeles vulnerable to price changes and sometimes forced to relocate. California was identified as one of the states with the most burdened renters, defined as people spending more than one third of their income on rent. These people tend to be low and middle income families and generally African American and Hispanic. Los Angeles stands out among cities because almost 60% of renters are classified as burdened renters, with just over a third spending 50% of their income on rent.

The lack of affordable housing hurts low income residents the most as they have less income to spend on other necessities like healthcare and transportation. The region as a whole also suffers as it becomes difficult to attract talent because of the high cost of living and income inequality rises. People must live farther away from their jobs, increasing commute times and contributing to higher traffic.

In the past, people under the age of 35 have generally rented and become homeowners as they age, but this trend is reversing. Millennials are staying in the rental market longer and homeownership rates have not risen despite the dip in prices after the recession and increased economic growth. Research has noted the connection between low homeownership rates and high rents. The higher number of people in the rental market has created pressure on rents in Los Angeles, driving up prices as more people demand a much smaller supply. Higher rents also make it difficult to save for a house, further pushing them into the rental market. Unsurprisingly, Los Angeles was named the least affordable city to buy a home in the country. Less than 1/3 of Californians could afford median home price compared to 50% nationally. Helping more people afford homes would help relieve some of the pressures on the rental market so that fewer people would be competing for a limited number of properties.

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To make homeownership more feasible, local and county government programs should work with banks to safely expand available credit to potential buyers and, especially, minority borrowers.

While it is currently much more likely for white Americans to be homeowners, the housing boom of the early 2000s significantly increased homeownership rates among minorities. Although it initially spurred growth, it was unsustainable because it diverged from conventional lending practices by providing sub-prime loans. When the bubble burst, African-American and Hispanic homeowners comprised the majority of those who lost their homes. Today, many people who would be qualified to receive mortgages cannot get them because of strict access to credit. This especially affects minorities as black and Hispanic applicants are rejected at much higher rates than whites even when they hold the same amount of wealth. If they are accepted, they tend to pay higher interest rates as well.

To make homeownership more feasible, local and county government programs should work with banks to safely expand available credit to potential buyers and, especially, minority borrowers. A Department of Housing and Urban Development study found that down payment assistance loans, even as little as $1,000, led to a 19% increase in low-income renters buying homes. Several low-income homeowner loan programs already exist at the city and county levels but, they are often limited in scope due to limited funding and strict qualifications. For example, in a given year only about 105 loans are approved. Along with increasing funding, taking into account alternative data points can significantly increase the number of approved qualified loans without expanding much risk. An updated credit system developed by Freddie Mac that incorporates data such as rent payments, improved the credit scores of mostly minority borrowers by pushing them over the threshold to qualify for a loan. Similarly, programs that allow lenders to include income of extended family members of the borrower have also shown to increase the number of working class and minority individuals who qualify for a loan.

In Los Angeles, due to the interaction of many factors including steady population growth and slow housing development, there is no single solution that will solve the housing crisis at once. While helping to raise the number of people who can take out mortgages is important, it will be less effective if there is not enough supply of houses for buyers. Even people who qualified for the Los Angeles Homeowner Programs still faced challenges in finding homes because of low supply and high prices. A report from the California Legislative Analyst’s Office concluded that without more housing built, Californians “will continue to have escalation in the disparity of the cost of housing.” Homeownership Programs are necessary, but they only function as long as there are also policies that promote housing development as well as investing in affordable housing.

The housing crisis in California is not unsolvable, but maintaining the status quo will have possibly irrecoverable social and economic consequences. It is prudent to address housing costs and inequalities now before California must deal with large scale discontent. Well-planned and targeted measures that take into account additional information on will help increase the number of low-income homebuyers. Not only will this release some of the pressure on the already overburdened rental market, the state will see benefits in areas including the economy and overall quality of living.

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Alison Salazar