Chasing the Dream: Latinos and Housing in Los Angeles County

Fernando J. Guerra, Ph.D.
Mara A. Marks, Ph.D.
Matt Barreto




Executive Summary

Findings
In Los Angeles County, median home prices have increased by more than 10 percent each year, more than triple the rate of median household incomes. Population growth far outpaces new home construction, leaving the average Latino family with little to no opportunity to achieve the American Dream of homeownership. While data from the Census Bureau shows considerable expansion of the Latino middle class, the housing market in Los Angeles is failing its largest population. In this section, we review four components of the housing industry: Accessibility, Availability, Affordability, and Quality, and conclude that Los Angeles County is earning a 'D' grade with the Latino Community. In particular, the findings for 2001 are:
  • Accessibility: While Latinos comprise 45% of the county population, they received only 17% of new home loans. They had higher rejection rates than Whites and were more likely to receive subprime loans. Grade: C
  • Availability: Latino homeownership stands at just 38% compared to 58% among Whites and only one new home is being built for every 30 Latinos who move to Los Angeles. Grade: D
  • Affordability: Home prices grew by 12%, up to $227,000 in 2001, but incomes only grew by 3%. The average Latino family spends almost half of its income on housing. Grade: F
  • Quality: Compared to non-Latino families, Latino families tend to live in homes with less square footage, more people per room, and that are in poorer condition.
  • Grade: C

Policy Recommendations
If the American Dream is to remain viable for this region's largest demographic group, Los Angeles County needs more housing as well as loans that are cheaper and of higher quality. For this to occur we need to increase household incomes (see Economic Scorecard), build more houses, reform the regulatory system, reform the loan approval process, and enforce current housing codes. To accomplish this, private, public, and non-profit sectors must work together to prioritize the housing issue and cooperate to implement the recommendations outlined below including balancing the concerns of environmental groups and neighborhood activists with the pressing need for new housing development, ensuring that inclusionary housing provisions also give developers by-right development rights and density bonuses, and stepping up enforcement of current regulations and housing/apartment codes without taking units off the market.

Introduction
In 2001, the state legislature convened a series of working groups focusing on the most pressing issues throughout the state. At the top of the list was the lack of affordable housing with only one out of three California households able to afford the median-priced home in the state in 2000. According to the state report, "housing affordability is a huge problem statewide," because "overall demand exceeds overall housing supply." Since 1976 home prices have grown by 356 percent, far outpacing the growth of the average family income. While the housing crisis is felt across the state, the report concluded that "the housing shortage is most acute in California's urban growth centers," such as Los Angeles County where only 36 percent of all households were able to afford the average home in 2000. What's more, the problem is getting worse here in L.A. where only 1 new housing unit is being built for every 9 new jobs created, leaving more than 60 percent of Angelinos in the rental market or locked out of the market altogether. In response to this growing problem, the City of Los Angeles created the Housing Crisis Task Force "to consider the profound crisis of housing affordability."

While all of Los Angeles "is in the grip of a profound crisis of housing affordability… minority households still have more trouble than Whites obtaining mortgage financing." In particular, Latinos are significantly impacted by the housing crisis in Los Angeles. Latinos are the largest population in L.A. County at 45 percent, but received only 17 percent of all home loans in the county, compared to Anglo-Whites who comprise 31 percent of the population and received 72 percent of home loans. While the housing crisis is felt countywide, this evidence has lead many experts to conclude, "the group most impacted - and certain to feel the sting most acutely - is Latinos, who represent a plurality of California new households."

Achieving the American Dream of homeownership is critical for social and economic stability. Studies have shown that homeownership helps create wealth and economic opportunities, generates a sense of community, leads to better educational opportunities for children, and promotes safer neighborhoods. Survey research also suggests that homeowners in Los Angeles are more optimistic about the future of the city. Indeed, "greater Los Angeles faces a profound housing crisis that threatens the region's economy, erodes the quality of life, and widens the gulf between rich and poor." To best assess the status of housing in Los Angeles into the future, and how the lack of home ownership opportunities effect Latinos, this section details four housing indicators that can be tracked at two-year intervals.

Grading
Grades were assigned based on local, regional, and national comparisons to other population goups and to the aspirations identified in the 2000 American Dream Makers survey.

Housing Indicators

Accessibility
Loan approval rates and subprime loan rates Grade: C

Using yearly data from associations of realtors and the U.S. Census Current Population Survey (CPS), Accessibility measures "access" to capital in Los Angeles by Race and Ethnicity. Specifically, we examine how many loans are given and the rejection rates by race and ethnicity. To supplement this, we examine loan rates by comparing the percent of all loans received that are subprime for Whites, Blacks, and Latinos. Subprime loans, or loans with higher interest rates, make it more difficult to accumulate wealth, and are harder to payback. As evident in the table presented below, Latinos represent the largest population in Los Angeles at 44.6 percent, but received only 16.9 percent of total home loans in 2000. This corresponds to a lower overall rejection rate for whites (16.4) compared to Latinos (25.0) and Blacks (31.9). Further, among loans that were given, Blacks and Latinos were more likely to receive subprime interest rates for both new home purchases and refinance loans.

Loan Accessibility by Race/Ethnicity in Los Angeles 2000

White Black Latino
Share of Total Home Loans 72.00% 4.90% 16.90%
Share of Total Population 30.90% 9.80% 44.60%
Total Home Loan Rejections 16.40% 31.90% 25.00%
Subprime Purchase Loans 10.90% 27.00% 15.30%
Subprime Refinance Loans 16.90% 41.50% 25.70%

Source: ACORN Annual Housing Report, 2000.


Availability
Homeownership and new homes built Grade: D

In addition to access to capital, availability of homes is a problem in Los Angeles. Yearly data from the U.S. Census tracks homeownership by race and ethnicity and provides the means to monitor the homeowner / renter market. In addition, by comparing population growth to the number of new homes built, we can estimate whether or not the county is providing enough available housing to keep up with demand. Generally speaking, there is a shortage of housing of various types and price points, in Los Angeles. This is evident in the chart below. While a large gap exists between Black, Latino, and White homeownership rates, even Whites only reach ownership levels of 58 percent. Latinos though are more than 20 percentage points lower at only 37.7 percent. Increasing demand and tight supply drive up home prices and also send rental prices soaring, leaving Latinos, as the largest growing segment of the population, with nowhere to live. As noted in a recent policy report from Pepperdine University, the lack of homeownership opportunities for Latinos poses a problem to society at large. "Strongly work-oriented and family-centric, Latinos are natural home buyers, with a strong, demonstrated cultural affinity for investing their earnings into residential real estate. Yet increasingly they face growing obstacles to purchasing homes… If not addressed forcefully, this gap in affordability could create a potentially dangerous break with our state's tradition," of rewarding hard work with the opportunity of owning a home.

Source: U.S. Census Bureau, 2000


Growth in the population and new housing 2000 - 2001

L.A. County Total Population Growth 150,000
Latino Population Growth 200,000
Non-Latino Population Growth -50,000
New Homes Built in L.A. County 6,390
Population Growth : New Home Ratio 23:01
Latino Population Growth : New Home Ratio 31 :1

Source: U.S. Census Current Population Survey, 2000-1;
LAEDC Stats Sheet 2000-1


Affordability
Median home payment compared to income Grade: F

Not only do more new homes need to be built, but the average price of a home needs to be affordable for the average family. Affordability compares the median household income for ethnic groups in Los Angeles, and the median monthly expenses on rent and mortgage payments. This data, reported yearly from the U.S. Census, provides a picture of how reasonably priced the housing market is - for the population as a whole as well as for different ethnic groups. In addition, we report the growth in the overall median home price as compared to overall median household income. Starting here, it is evident that the growth in median home prices far outpaced the growth in median household income from 2000 to 2001. On average, home prices grew by nearly 12 percent while income grew by only 3 percent. This disparity makes it nearly impossible even for most middle-income households to purchase a home in Los Angeles. As the largest number of low- and middle-income households in the county, Latinos are dispropor-tionately locked out of the opportunity of homeownership.

The proportion of income spent on rent does not differ greatly among ethnic groups. However, the higher incomes of Whites and Asians means that these households have more money available for expenses other than housing, while Latinos and Blacks are more likely to be severely limited in discretionary funds. With much lower incomes than non-Latinos, 43% of Latinos and 52% of Blacks spend more than the recommended 30% of income for housing.

Growth in Median Home Price and Median Income 2000-01

Home Price Household Income
Average 2000 $203,000 $39,671
Average 2001 $226,698 $40,907
Increase 2001-02 $23,698 $1,236
Percent Growth 11.70% 3.10%

Percent of Income Spent on Housing, Los Angeles County, by Race

Black Asian Latino White
Median Household Income $31,905 $47,631 $33,820 $53,978
Median Monthly Rent $ 663 $ 746 $ 632 $ 825
Percent of Income Spent on Rent 31% 28% 29% 27%
Percent Paying 30%+ for Rent 52% 45% 43% 47%
Median Monthly Mortgage $ 1,363 $ 1,643 $ 1,350 $ 1,709
Percent of Income Spent on Mortgage 26% 24% 27% 21%
Source: U.S. Census Bureau; California Association of Realtors 2000-01


Quality
Multiple quality issues including persons per room Grade: C

Beyond having a place to live, we are interested in measuring the quality of housing opportunities in Los Angeles for Latinos and non-Latinos. The Quality index examines a variety of factors including persons per room, persons per square foot, physical damage to home, presence of air conditioning and safe drinking water, and other variables pertaining to health and safety. The first component of this indicator, occupants per room, shows that half of Latino households average more than one person per room. This measure is not confined to bedrooms, but all rooms in a house: bedroom, bathroom, kitchen, dining room, living room, family room, and more. Thus, the average of over one person per room or more, among 50% of Latino households suggests that they live in small, crowded houses. By comparison, in more than 90 percent of White households, there is less than one person per room. In addition to living in more crowded conditions, Latino householders are more likely to report physical damage to their unit, less likely to have air conditioning, less likely to have safe drinking water, and have less living space per person to enjoy.

Source: U.S. Census Bureau, 2000


Housing Quality Measures in Los Angeles

Latino Non-Latino
Physical Damage to Unit 12.6% 9.0%
No Air Conditioning 54.3% 40.0%
Water not Safe to Drink 48.1% 33.9%
Square Footage per Person 355 636

Source: HUD American Housing Survey - Los Angeles MSA, 1999.


Overall Grade: D
On all four indicators presented here, the housing market in Los Angeles is not effectively serving Latino households. Latinos receive fewer loans and higher interest rates when they do receive loans, resulting in lower levels of Latino homeownership. As the largest growing population in the county, Latinos face slim opportunities to find housing because few new homes are being built and consequently, the median price of homes is pricing Latino families out of the market. If changes are not made soon, Latinos may become "the first major group to find themselves, through no fault of their own, excluded from owning their piece of the California dream."


Key Concept: Homeownership

Put simply, Latinos lag in homeownership because of a lack of affordable housing and access to capital. Thus, monitoring homeownership, on its own, is the single best marker of housing equality. While multiple indicators and variables are presented in this section, homeownership rates by race and ethnicity provide a snapshot of the current status of the housing market in Los Angeles on a yearly basis.

Action Strategies
While the analysis above paints a bleak picture of the housing market for Latino families, it is possible to improve on the situation with strong leadership from stakeholders in the county. Private, public, and non-profit sectors must work together to prioritize the housing issue and cooperate to implement the necessary recommendations, in four main policy areas. These policy recommendations include: (1) Build more houses; (2) Improve access to capital/loans; (3) Promote inclusionary housing; and (4) Enforce current codes without taking units off the market. As a part of this effort, we also suggest new emphasis be placed in the following areas:
  • Safeguarding the environment and preserving the character of existing neighborhoods should be balanced with the pressing need for new housing development
  • Ensure that inclusionary housing provisions also give developers by-right development rights and density bonuses
  • Assist non-proft organizations seeking to secure capital for low interest loans
  • Monitor financial institutions lending practices
  • Encourage development of affordable housing in working class communities with attention to areas with high population growth
  • Increase government backed loans and grants for first time home buyers
  • Step up enforcement of current regulations and housing/apartment codes without taking units off the market
  • Encourage the building of larger homes and apartments for multi-family living arrangements to alleviate crowding through density bonuses or credits