The average San Diegan cannot afford to purchase a median-priced home, because they simply do not make enough money. It does not look like this situation is going to change anytime soon, but there is something government can do to help: Stop raising taxes and ease up on onerous lending constraints.
The median income for a family of four in San Diego is $63,400. Affordable housing for a low-income family would be a home priced under $225,000; a median-priced home in San Diego is $593,000. The permit fees alone to build a new home account for over 45 percent of the total building costs. A low-income family could not even afford the permit fees required to build a home.
San Diego residents need to earn $113,530.43 a year to qualify for a median-priced home, and if they put down 10 percent instead of 20 percent, the required annual salary jumps to $137,056.40. Supply and demand drives up home prices, and the region as a whole is building only 50 percent of the homes needed. Very few of the homes that are being built are for low- to moderate-income buyers.
San Diegans also pay among the highest income tax, sales tax and gas tax in the nation. San Diego residents are paying 76.7 cents per gallon of gas in state and federal taxes, and when gas prices go up, almost every consumable item goes up as well. Gov. Jerry Brown’s new gas tax scheduled to take effect in November will raise the tax on fuel by 67 cents. We already pay more per gallon for regular gasoline than the national average, because it is more expensive to refine our fuel to meet California’s requirements for cleaner-burning gasoline. The same law will also raise annual vehicle registration fees to $175. Commercial vehicles will pay even more, with the taxes on diesel fuel increasing.
California has the highest state-level sales tax rate in the nation at 7.25 percent, and San Diego’s sale tax is even higher at 7.75 percent. And if state lawmakers pass Sen. Toni Atkins’ SB 2, California residents will also pay a $75 fee to file some real estate documents, such as deeds and notices, with a cap of $225 per transaction to subsidize affordable housing projects.
The fee is expected to generate between $200 and $300 million annually for affordable housing projects. But the government’s proposed method of solving the housing crisis they helped create through excessive fees by adding more fess is an incredibly bad idea. Taxing ourselves out of the housing crisis on the backs of current homeowners is not the answer, especially when San Diegans already pay 39.6 percent of their income on mortgage payments.
As local, state and federal governments continue to raise and impose new taxes and permit fees, they make it harder for families – especially low-income families – to save for a home. Instead of taxing, government should provide incentives for homeowners, such as a home savings account. Similar to a health savings account, a home savings account would allow you to set aside money on a pre-tax basis for the down payment on a home.
Several government-imposed regulations have been established to prevent another real estate meltdown, and those regulations have been successful, as demonstrated by the low numbers of foreclosures. The unintended consequences of those regulations, though, are constricting lending requirements that have made it very difficult for qualified borrowers to qualify for a loan.
The government has over-corrected and could loosen lending requirements without significantly increasing risk. For example, 40-year financing is not within the definition of a qualified mortgage under the government Consumer Protection Act, also known as Dodd-Frank. If the government changed the rules for fixed-rate, 40-year loans, there’s little doubt that more borrowers would safely qualify for financing. Since a typical home is sold within 10 years, much of the higher cost for 40-year financing could be avoided. Many more San Diegans would also qualify for a Federal Housing Administration loan if the FHA reduced its property mortgage insurance interest slightly.
It is time for local, state and federal government to lower taxes, lower fees and ease up on lending regulations. Government should encourage home ownership with incentives, not subsidies, fees and taxes.
Mark Powell is a member of the board of directors for the San Diego Association of Realtors and the San Diego County Board of Education, representing District 1. Powell’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.