They aren’t served by efforts to create affordable homes for lower income families, and they cannot afford the elevated cost of living in California. Experts call them “missing middle.”
Put simply, they are middle-income households that are priced out of market-rate housing, yet they are unable to qualify for housing subsidies. It’s not just the for-sale market they are being left out of; renting has also become a challenge for middle income earners.
On average, a California household would have to earn over $26 per hour, more than twice the California minimum wage, to afford a two-bedroom rental unit at market rate without spending more than 30% of their income. The report uses the Census definition of a household, which could be occupied by one or more people.
That is one of the many stark statistics in a study released in May by Long Beach-based City Fabrick, a nonprofit design studio, in partnership with California State University, Long Beach’s Geography Department. The study was funded in part though research grants from CSULB, and the California Endowment’s Building Health Communities fund.
The Community Housing Report is an exploration of opportunities to address housing affordability in Long Beach. It also considers housing types that can help serve the city’s growing “missing middle,” who are not being served by the current growth of high-end development or subsidized affordable housing communities coming online.
This report considers national case studies and best practices, including small lot development, adaptive reuse and motel conversion.
“The city has gotten a lot of market-rate development, especially in downtown, and the city’s been pretty good also about developing affordable housing for people with limited income,” said Brian Ulaszewski, principal and executive director for City Fabrick. “But we’re not generating new housing for people either who can’t afford the new market rate housing or don’t have the economic qualifications to live in affordable housing.”
Those with earnings relatively close to the American Median Income (AMI), a measure set by government and used in affordability calculations, make too much for most government housing subsidies.
Those making 80-120% AMI are generally excluded from governmental support, whereas households earning 30% or below AMI make up the population that receives the largest share government support, according to the report.
Who is the missing middle?
“It’s your teacher, or secretary or people in the services industries,” Ulaszewski explained. “Increasingly, our middle class is finding it more and more difficult to live in California. The missing middle is predominantly your typical family, a two-household income but they just can’t quite make it.”
Only 29% of potential homebuyers in Los Angeles County are able to afford to purchase property at the county’s median price, which was $485,000 at the time the report was being compiled in 2017. An income of just under six-figures is necessary to purchase a home at that price ($99,830 to be specific), the City Fabrick report shows.
That puts home ownership well out of reach for many. Rental rates aren’t easy to manage for the missing middle either, especially for families that have to pool lower income wages to get by. A household in Los Angeles, Orange, or San Diego counties would have to work more than 80 hours per week at minimum wage to afford a one-bedroom rental home at fair market rate without paying more than 30% of their income, according to the report.
Data from the University of California, Los Angeles Anderson School of Management shows rental prices are increasing more rapidly in California than nationally – 3.9% versus 2.6% in 2016 – and the state treasurer’s office estimates that California remains short by roughly 1.5 million housing units.
Long Beach rents rose by 7.8% compared with the national average of 0.7% in 2016. Roughly 60% of Long Beach residents are renters compared with the national average of 35%, according to the City Fabrick report.
What To Do?
“There’s truly no silver bullet solution right now,” Ulaszewski said. Generating more housing is a good first step to answering the needy call of the missing middle, and there are a “menu of options to increase housing supply,” he added.
One answer may be the accessory dwelling unit, enabling people to build additional units on lots where there is one house. Also known as “granny flats,” accessory dwelling units (ADUs)are smaller structures that can be built attached or unattached in someone’s backyard and can range from a converted garage to a free-standing pool house.
While the concept is not new, more ADUs have been coming online after the state passed a series of laws that would make building an ADU easier. In 2017, Long Beach passed an ordinance that would allow such developments. Here, an ADU could be up to 800 square feet or half the size of the primary residence, whichever is smaller. If the home is a parking impacted area, parking has to be replaced and provided for the ADU.
Since 2017, more than 100 ADU projects have been developed and about 231 applications have been filed with the city, with many of the permits being issued in Council Districts 7,8 and 9, according to the city’s development services department.
In April, the council revisited its ordinance, updating it with the California Coastal Commission’s amendments, including one to lower the minimum lot size requirement from 5,200 square feet to 4,800 square feet, making eligible more than 70% of single lots in the city.
There are plenty of larger lots in Long Beach where one single-family home sits on 6,000 or 8,000 square feet, Ulaszewski said. “You could fit three houses on some of those properties,” he added. Communities like California Heights, Rose Park and Belmont Heights are prime examples of places where numerous large lots can be found, according to Ulaszewski.
“You’ve got single family homes where so many people are not using those backyards for anything productive,” he said. “Some people, they’re just not making the best use of that real estate. You can literally almost double the amount of single-family homes in the city.”
The owners of some of these properties, if they wanted to, could build another residence for their aging or young relatives, or they could earn some extra income, Ulaszewski said.
Despite a real estate market slowdown, first-time home buyers continue to compete poorly against investors and those with plenty of equity, according to Richard Daskam, a broker-agent with Keller Williams Realty.
Home sales have slowed – the California Association of Realtors is forecasting home sales for the state will be down roughly 7% through end of 2019 from a year ago – and price pressures have eased. By all accounts, buyers should be seeing a shift away from the long-running sellers’ market.
But that doesn’t appear to be so for buyers at the low- to mid-price range.
Daskam recently wrote five consecutive offers for a middle-income family bidding on a modest $350,000 condominium near 3rd Street and Temple Avenue. “And they lost out,” said Daskam, who characterized the city’s lower-end condo market as being hot despite an apparent real estate slowdown.
“They can’t afford the houses, so now they’re going down to the condos,” he said.
When families that are too large for a typical two-bedroom apartment are beat on their bids for condos, they are turning to rental homes, where the monthly payments can rival that of a mortgage payment, Daskam said.
He recently found homes for rent for two different families in the area around Redondo Avenue and Atherton Street – one at $3,800 per month and the other at $4,000 per month. He found a backhouse for a family that had to squeeze into a one-bedroom, one-bath with a small garage, for $2,700 off 7th Street. Were those families able to purchase properties, their mortgages would have been about equal to what they are now paying, when taking into account the tax breaks for homeownership, according to Daskam.
“They’re probably paying just as much as if they were buying something,” he said.
Daskam sits down with his middle-income clients before they begin looking for properties and talks with about the realities of the market. “We have a very realistic discussion [about] what to expect when making offers,” Daskam said.
Sellers at that price range often don’t feel obliged to give the standard counteroffer; instead they just ask for a buyer’s highest and best price. “We’re still seeing a lot of [selling] agents do the highest-and-best as their counteroffers,” Daskam said. “Most buyers I’m working with, they walk away at that point.”
Not only do most government-sponsored affordability programs, such as inclusionary zoning, leave out the missing middle, they make things harder on these people, according to Tim Piasky, CEO of the Los Angeles/Ventura Chapter of the Building Industry Association of Southern California. “They’re the ones that take the biggest brunt of inclusionary zoning,” Piasky said.
Some cities require market-rate developers to make a certain percentage of their units affordable. These cities may require, say 10% or 15% or more of the units to be subsidized, or for the developer to put a comparable amount of money into an affordable housing fund.
It’s referred to as inclusionary zoning. Such a proposal, one that would require 15% of units in market rate developments to be affordable, is being studied by the City of Long Beach.
Piasky believes that inclusionary zoning will hurt the missing middle. When developers are looking at project in an area with inclusionary zoning, they’re likely to add to the costs of the market-rate units so the project is able to make money, he said.
“It’s going to push up the price of market-rate housing,” Piasky said of inclusionary zoning, adding that the effect may also be fewer projects built with units priced at a level that middle-class families can afford. “That’s fewer projects being down at the low end of the market rate, which is that missing middle income housing.”
– Karen Robes Meeks contributed to this report
BIA’S Proposed Solution to Help the Missing Middle
The Building Industry Association of Southern California has a position on ways to help the missing middle, many of which exclude inclusionary zoning.
Below are recommendations to alleviate the costs associated with producing housing:
Implement a moratorium on all proposed municipal fees or policies that would increase housing costs or decrease housing production
Implement a cap on total fees that is scaled and based upon the location and type of development
Prohibit the imposition of new exactions on projects that have already submitted a complete development application
Limit fees imposed on new residential projects to only those fees local governments post on their fee schedule on the internet
Require local municipalities to publicize, in a user-friendly format, full individual accounting of each type of impact fee, showing money collected and spent by month and (year to date) by project as well as the overall balance of the fund
Defer the payment of impact fees until the close of escrow for homes sold, and until certificate of occupancy for homes rented, since there is no impact until the unit is occupied
Ways To Shorten The Development Process:
Require local municipalities and utilities to publicize actual review times of steps in the permitting process on an annual basis
Require local municipalities and utilities to develop and follow enforceable turnaround times for critical milestones in the development process
Ways To Increase Land Availability And Incentivize Housing:
Require local municipalities to provide and publicize on their websites a monthly measure of (a) units applied by type; (b) units approved by type; (c) permits issued; (d) certificates of occupancy issued; (e) units demolished; and (f) actual housing units created
Amend the state’s Housing Element law to expand Regional Housing Needs Assesment categories for middle-income housing up to 200% AMI for high-cost areas