The Paradox of Economic Health
If California was a country it would have the sixth largest GDP in the world, however, as the economy has grown so has income inequality. And nowhere is this more apparent than in the San Francisco Bay Area, home to tech giants minting millionaires, but also a population of service workers and tech professionals that can barely afford to live here. A drive down the quiet, pristine streets of Mountain View and Palo Alto shows rows of RV’s housing folks that cannot afford the high rents in these towns.
Consumers in the US have faced more than two years of record level gas and grocery prices. The costs of housing, both for renters and buyers, have been unstable, with rising mortgage rates that peaked at almost 8% last fall, deeply hitting small businesses including the ones that many of you founded or work for.
Facing the most rapid price increases since the early 1980s, many U.S. households are facing difficult choices, including whether to change purchasing habits or dig into savings. At a recent Ethnic Media Services (EMS) briefing, the panelists discuss what’s ahead for 2024, and how an unstable economy impacts its most vulnerable residents.
Vulnerable Communities Pushed to the Brink
Nathan Ganeshan, founded the San Jose non-profit Community Seva to feed the hungry and serve the homeless hot meals, shining a spotlight on the wealth and income inequality in one of the world’s richest regions. “The population is struggling for basic needs, housing largely contributing to this. Not only am I talking about food, but even hygiene, so many women out there who are living in encampments, struggling for basic hygiene, feminine products and things like that. The struggle what we are seeing, on the ground with the homeless is rising every single day,” he adds. “So many of them ask us for a Safeway grocery card, because they want to buy so many other items. And so, during Thanksgiving, we distributed several $25 gift cards so that they can buy what they want. Right now, as we are in winter Community Seva distributes blankets, sleeping bags, and shower shoes.”
A stark reminder that homelessness does exist in our backyard is in Santa Clara County. One of the wealthiest counties in the United States, it has the 3rd highest rate of chronic homelessness. According to the Homeless Point-in-Time Count (PIT), on any given day in Santa Clara County, approximately 10,028 people find themselves without a safe place to stay. This is one of the best methods of determining progress as PIT Counts are the most accurate measure of the number of homeless people on a specific day in a specific area.
Housing the Unhoused
The ultimate goal is to provide homeless people permanent housing, and local governments are addressing the housing crisis by building more affordable housing. Project Homekey is one such program by the state of California that provides local government agencies with funds to purchase and rehabilitate housing – including hotels, motels, vacant apartment buildings, and other properties – and convert them into permanent, long-term housing for people experiencing or at risk of homelessness.
Prices in the housing market have skyrocketed and affordability has worsened. The housing market is a classic case of supply and demand and during the pandemic we saw a spike in housing and rental prices.
“Before the pandemic, there really weren’t many dramatic changes to supply and demand. And so, prices were trending up, but they were out of fairly steady rate and they were at roughly the same rate that incomes were going up. But COVID was an inflection point. Suddenly there were rapid changes in the supply and the demand of housing and it created a lot of volatility in price and as you can infer from this chart a much less affordable housing market,” explains Rob Warnock, Senior Research Associate at Apartment List, an online rental marketplace where people can go to see apartments that are available for rent in their area.
Haves and Have-nots Split the Housing Market
As haves and have-nots continue to bifurcate the market, those with less money to spend are, not surprisingly, being phased out of the housing market. Prices skyrocketed in 2020 and continued their upward trajectory in 2021, till the middle of 2022 when the Federal Reserve started to raise interest rates bringing some relief to home prices. But as we can see today, homes are still 45% more expensive right now than they were before the pandemic and the mortgage rates higher. The rental market however, tells a different story, explains Warnock, “In that first year of the pandemic, we saw rent prices actually went down across the country. It’s kind of the exact opposite of what was happening in the for-sale market because supply and demand, the relationship was flipped.”
That changed again in 2021 as the economy starts to emerge from the pandemic. Vacant apartments become scarce, much like for sale homes became scarce and rents started to rise quickly for two years bringing the affordability crisis to its peak in 2022. Warnock says, “That was a point when over half of all the renters in the United States were cost-burdened, meaning that they were spending more than the recommended 30% of their income on rent.”
A Construction Boom Means More Housing
But the landscape is changing. His research points to the early stages of a massive apartment construction boom, with nearly 500,000 brand-new apartments opened last year. And right now, there are about a million more that are under construction, leading to an optimistic prediction of more vacant apartments. This means that renters are going to have more opportunities to find a good deal. And it’s going to encourage landlords to lower their prices in order to fill those vacancies.
Warnock predicts that in 2024, we will not see any pricing relief in the for-sale housing market, as the Federal Reserve has indicated that they’re not going to raise interest rates any further. So even though more homes should be coming onto the market, we know that demand remains high from people who want to buy those homes. His prediction for rentals is “a downward pressure.”
Transportation Costs Hurt With Rising Oil Prices and Demand for Fuel
All of this is further exacerbated by oil prices, with increased demand for fuel, hitting vulnerable communities the hardest. The transportation strain disproportionately affects low-income individuals who rely heavily on personal vehicles for transportation. Elevated transportation costs extend beyond the gas pump, contributing to increased prices for goods and services.
With rising tensions in the Red Sea and the Middle East, “You’re just adding time and money to the shipment of oil,” says Denton Cinquegrana, Chief Oil Analyst, Oil Price Information Service (OPIS). But he predicts that prices will be a bit lower than they were last year, except maybe in California, where we have a very unique specification of gasoline that not many refineries can make it. “California also has a couple of environmental programs as well, so that both costs get passed on to the consumer and that’s why you see California prices trending higher,” adds Cinquegrana.
Economic Prosperity Forgets Those On The Margins
The paradox of economic growth paired with high gas prices and escalating housing costs underscores the urgent need for comprehensive solutions. As we celebrate economic prosperity, we must not forget those who are pushed to the margins. Governments, communities, and advocacy groups must collaborate to implement policies that address the root causes of economic disparities, ensuring that the benefits of growth are shared inclusively. Only through collective effort can we create a society where everyone, regardless of socio-economic status, can thrive in the face of economic expansion.
