How do people afford to buy a house here? (Los Angeles: houses, buyers)

[jm1982]

I do agree with you on Prop 13 ,etc.
Also L.A was a 'global city' back when prices were normal...but the economies of other countries around the world have advanced and they have become more wealthy since then.

Another big factor is that L.A is pretty anti-development. There have been many projects that have been planned and developers willing to build higher density , but it seems it's always a big struggle to get anything built and if the project doesn't get killed..it gets massively scaled back. Less supply of housing , means higher prices.

It's just now that the Mayor of L.A have made a statement that it's going to be important to build more housing soon.
He says he wants 100,000 more housing units built by 2021 in L.A

One idea is to use the land by the L.A river in order to built more housing units.
Report advocates housing development along L.A. River - LA Times

I think a good idea would be to have a high speed train between the city of L.A and cheaper areas like Palmdale. Still seems to be quite a bit of vacant land in the antelope valley.
I know there have been high speed trains planned for L.A...so maybe this is in the works already. I haven't followed the progress too closely.

Example of how much cheaper land is in Palmdale , versus L.A
https://www.redfin.com/city/14292/CA...6&market=socal

Cheap land means that affordable housing can actually be built...while in L.A land being so very expensive and scarce makes affordable housing not realistic.

[L_Pasini]

In 2015, people can only afford to buy a house in Los Angeles if they are bringing home at least $100K net plus a housing fund for R & M stuff.

Owning a home anywhere is expensive. It's not just the mortgage but also the closing costs, down payment, property tax, homeowners insurance, etc. If you buy a condo and/or anything that has HOA fees, it is more expensive.

There have been a lot of frauds surrounding LA housing market. Therefore be careful before you get suckered in. Take classes like at Redfin or at nearby college. Buying a house is not the only way to secure yourself financially unless you have $100K cash in the bank sitting doing nothing.

I just read an interesting article but not sure if I should post a link here. Maybe not. But if you're thinking of buying now, stop. Summer is not a good time to buy a house. Wait and save more money.

Hope this helps.

[Curbed Enthusiasm]

Originally Posted by landsend

Los Angeles was considered a global city back when housing prices were relatively "normal" before the housing bubble.

I think a commonly overlooked factor in the high prices is proposition 13. Folks back in the 70's and 80's purchased their LA homes at very low prices because mortgage rates were very high (in the teens). The gradual lowering of mortgage rates to our current 4% for a 30 year fixed fueled the escalation in prices.

Back to proposition 13. This law was passed in 1978 and limited property tax increases to a maximum of 2% per year. So a lot of older homeowners in LA now pay property taxes far below the market rate (some owners pay $700 per year for a 800k house) because the annual increases were based on their initial purchase prices (it's common for owners to have purchased for less than $50k back in the 70's). They even bequeathed those properties to their heirs after they passed, preserving the tax savings.

This ultra low property tax became a disincentive for homeowners to sell. Imagine if those homeowners were suddenly forced to pay market rates for property tax? their bill will jump from say.. $700 to $9,000 (what current buyers would pay). They will strongly consider putting their homes up for sale.

I don't think LA has gotten much wealthier (if at all) since 30 years ago but the property tax laws mixed with much lower mortgage rates caused shortage.

proposition 13 was originally marketed as a means to protect older homeowners on fixed incomes, but those older homeowners have benefited (and continue to benefit) immensely at the expense of working people today.

Here's some Prop. 13 ridiculousness for you. https://www.redfin.com/CA/Beverly-Hi...0/home/6824303

This is the estate of the late singer/songwriter Rod McKeoun. He purchased his rambling Beverly Hills estate in 1970 for the then-princely sum of $290,000. The home is currently listed for $14.5 million.

In 2014, the property tax bill was $9,805, with a taxable value of $742K.

And people wonder why CA schools have gone from best to worst... and why some people feel that the rich get unnecessary tax breaks.

[bobsnow]

Originally Posted by Curbed Enthusiasm

Here's some Prop. 13 ridiculousness for you. https://www.redfin.com/CA/Beverly-Hi...0/home/6824303

This is the estate of the late singer/songwriter Rod McKeoun. He purchased his rambling Beverly Hills estate in 1970 for the then-princely sum of $290,000. The home is currently listed for $14.5 million.

In 2014, the property tax bill was $9,805, with a taxable value of $742K.

And people wonder why CA schools have gone from best to worst... and why some people feel that the rich get unnecessary tax breaks.

Wow. Thats extremely screwed up. Im guessing that there is zero chance that Prop 13 will ever change?

[ihatedcu]

Originally Posted by Curbed Enthusiasm

Here's some Prop. 13 ridiculousness for you. https://www.redfin.com/CA/Beverly-Hi...0/home/6824303

This is the estate of the late singer/songwriter Rod McKeoun. He purchased his rambling Beverly Hills estate in 1970 for the then-princely sum of $290,000. The home is currently listed for $14.5 million.

In 2014, the property tax bill was $9,805, with a taxable value of $742K.

And people wonder why CA schools have gone from best to worst... and why some people feel that the rich get unnecessary tax breaks.

Why do you feel its wrong? Can we Californians get a little break from taxes?

[CapRate]

Originally Posted by ihatedcu

Why do you feel its wrong? Can we Californians get a little break from taxes?

Because they selfishly only think about themselves and how it affects their purchase of current homes, not old retirees. They have no problem throwing old widows out of the homes they've lived in for 30 years.

[henderson702]

Originally Posted by jm1982

Robert Kiyosaki (of "Rich Dad, Poor Dad" fame) has said that in today's world "savers are losers". While it's good to save, savings should be put into great investments. The interest in the banks for years has been ridiculous, like 1% or less.

If you keep the money in the bank then you are losing money every year because we all know cost of living goes up more than 1% per year.

The rich don't work for money, they make their money work for them. They also leverage other people's money, time and efforts,etc .

"savers are losers".
LOL.
You do know that this Asian man is a scam artist, right? Check out John T Reed's take on him, and you will see things more clearly.

Savers are winners, my friend.

Also, there are lots of great places to rent in LA, and LA is a renters' market IMO, unless you have around 150-200k+ in income…and not many bad habits (drugs, hookers, vacations)….

[henderson702]

Originally Posted by landsend

Los Angeles was considered a global city back when housing prices were relatively "normal" before the housing bubble.

I think a commonly overlooked factor in the high prices is proposition 13. Folks back in the 70's and 80's purchased their LA homes at very low prices because mortgage rates were very high (in the teens). The gradual lowering of mortgage rates to our current 4% for a 30 year fixed fueled the escalation in prices.

Back to proposition 13. This law was passed in 1978 and limited property tax increases to a maximum of 2% per year. So a lot of older homeowners in LA now pay property taxes far below the market rate (some owners pay $700 per year for a 800k house) because the annual increases were based on their initial purchase prices (it's common for owners to have purchased for less than $50k back in the 70's). They even bequeathed those properties to their heirs after they passed, preserving the tax savings.

This ultra low property tax became a disincentive for homeowners to sell. Imagine if those homeowners were suddenly forced to pay market rates for property tax? their bill will jump from say.. $700 to $9,000 (what current buyers would pay). They will strongly consider putting their homes up for sale.

I don't think LA has gotten much wealthier (if at all) since 30 years ago but the property tax laws mixed with much lower mortgage rates caused shortage.

proposition 13 was originally marketed as a means to protect older homeowners on fixed incomes, but those older homeowners have benefited (and continue to benefit) immensely at the expense of working people today.

Great post, thanks!

Of course, this is more common in NY, where there is far more generational wealth vs. the new LA.

[jm1982]

Originally Posted by henderson702

"savers are losers".
LOL.
You do know that this Asian man is a scam artist, right? Check out John T Reed's take on him, and you will see things more clearly.

Savers are winners, my friend.

Also, there are lots of great places to rent in LA, and LA is a renters' market IMO, unless you have around 150-200k+ in income…and not many bad habits (drugs, hookers, vacations)….

I have heard of his questionable practices regarding seminars,etc.
But some of the things he says make sense. His point is that people don't get wealthy by saving money and putting it in a savings account at .01% interest or whatever they are paying today.
They get wealthy by leveraging their money and investing it.

Yes in many areas nowadays it's cheaper to rent versus buy...but the big problem with renting is that it never ever builds wealth...except for the landlord.

I've seen too many people become wealthy via real estate...even ones that didn't plan to become wealthy from it , to believe otherwise.

[Curbed Enthusiasm]

Originally Posted by CapRate

Because they selfishly only think about themselves and how it affects their purchase of current homes, not old retirees. They have no problem throwing old widows out of the homes they've lived in for 30 years.

Then make Prop. 13 a means based test. Nobody is advocating for throwing little old ladies onto the streets because their homes of many years have dramatically appreciated. But, when millionaires living in multi-million dollar houses benefit from such a tremendous tax break, it hardly seems like an equitable application of the law.