The Flip Side of High Housing Prices
California is notorious for having some of the highest housing prices in the country. Californians pay a greater share of their incomes on housing costs than residents of any other state, meaning that many Californians are “house poor.” But it is less well known that a sizable share of Californians own their own homes free and clear, with no mortgage. When home prices go up, these Californians experience gains in wealth. Because of the high price of housing, these Californians are “house rich.”
According to American Community Survey data, 1.8 million California households owned their homes free and clear in 2012. These households make up 26 percent of owner-occupied housing units and 14 percent of all occupied housing units in the state (compared to 35% and 20% respectively in the rest of the country). Californians who own their homes outright tend to be older—80 percent are over age 55. Those with the most equity live in coastal counties. Some of them are house rich yet cash poor, with 6 percent having incomes below $10,000 per year. But a sizable share—22 percent—are both house rich and cash rich, with household incomes exceeding $100,000 per year. Many have lived in their houses for decades. Because Proposition 13 limits property tax increases for homeowners who don’t move, house rich Californians pay less in property taxes (on average $2,590 per household in 2012) than owners with a mortgage ($4,061 per household), even though their homes are worth about the same amount.
How house rich are they? Total equity for this group of Californians amounted to almost $800 billion in 2012. Average equity was $444,600, far higher than the average of $199,900 in the rest of the country for those who own their homes free and clear. And more than 100,000 house-rich households in California had equity in excess of $1 million, making them millionaires on the basis of housing wealth alone. Clearly, the flip side of California’s high cost of housing is the tremendous wealth generated by housing for those who pay off their homes. Of course, converting that wealth to cash is not always easy or wise, but it is a resource that, used judiciously, can improve the lives of many Californians.