California: Land of hot tubs and dry wine, mother of medfly and meditation, home of the latest in housing.
As with so many other trends, California was out front on the housing slump, feeling it earlier and stronger than most of the nation as interest rates added heat to the pressure cooker atmosphere already existing for housing along its choice coastline.
But, as with so many other problems, the state also has come up with unusual ways of dealing with its land and housing shortages.
Just as est finally came East, the methods now becoming popular in the state may well be the forerunners of techniques to spread across the nation for coping with the current extraordinary housing crisis.
The Californian approaches deal with home design and financing structure -- as well as with changes in the make-up of today's households.
Design is tighter, financing more flexible. More unrelated people are buying together, including more single women and single parents, and new construction reflects this "mingles" market with more mirror-image homes with two or more master bedrooms adjoining living areas. New spaces are being shared and are being used more efficiently.
"We could have an explosive social situation, with more of a split into haves and have-nots, unless we go back to the 'no-frills' home," says Seb Sterpa, vice president of the California Association of Realtors.
Detached homes are being built on smaller lots, and communities are being built with fewer streets so more space can be used for the homes themselves, not all of which face a street. Condominiums 10 years ago accounted for not even 0.1 percent of sales in the state, but now are 11 percent of all homes sold and may well constitute 50 percent of all homes in California in the next decade, Sterpa said.
The need for innovation in housing approaches and more creative financing in the California market is apparent: Construction of new homes is expected to be at 130,000 units this year -- compared with a demand of more than 300,000. At the same time, home prices are the highest in the country, with the median at $133,900 for resales in San Francisco and $120,100 in Los Angeles, according to the National Association of Realtors.
The high prices coupled with staggering interest rates sent resales plummeting by 14.6 percent from the first half of 1980 to the first half of this year.
The California market has relied heavily on assumptions of existing mortgages, and continuing assumability is a hotly contested issue being fought out in the courts between thrifts that want to cash out low-interest mortgages when a home is sold and buyers and sellers who want to take advantage of the lower rates.
But buyers and sellers also are starting to rely on other financing techniques, some of which are bound to remain once the housing market revives. Variable-rate mortgages and balloon payments have been used in the state for years. And now more novel approaches are being developed, including combinations of investors and live-in owners, various payment plans devised by financial institutions, and unique community assistance.
"If we had relied on conventional fianancing as we have known it, our sales activity would be down 90 to 95 percent rather than 43 percent" from several years ago, Sterpa said. Approximately 85 percent of all home sales in California use creative financing techniques now.
One example is Ticket, Inc., of San Jose, which has trained about 3,000 real estate agents in a method by which both seller and first-time homebuyer can benefit from a joint investment plan. Typically the seller would retain a 20 percent ownership of the home; the buyer would make no downpayment and would get a loan for 80 percent of the sales price, said Ticket general counsel Greg Moore. When the home is resold, the original seller and buyer split the appreciation, usually on a 50-50 basis, he said.
"Some people make enough money to qualify for an 80 percent loan but can't save enough for a down payment," Moore said. With the Ticket approach "buyers may pay about as much as they would in rent, but they get a foothold into the housing market."
The advantages for the seller include, first, simply the ability to sell the home, the prime consideration in today's depressed market. In addition, the seller gets future appreciation, which is treated as a capital gain for tax purposes, preferable to getting interest on seller financing to a buyer, which would be treated as regular income.
The Ticket approach just got a major boost last week when the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) agreed to buy these types of mortgages in the secondary market, Moore said. This could hasten the method's spread to other parts of the country.
The plan already is being offered in Northern Virginia through Heritage Homes, but it cannot be used in Maryland because of state usury laws.
Communities increasingly are working with developers and financial institutions to solve their housing problems. Some examples of unusual local community action, outlined in an extensive report by the California Realtors Association, include:
* In Mission Viejo a project was aimed at enabling lower-income households to buy homes. The county waived certain zoning, design and land-use regulations, and the developer then was able to build a "reduced-amenity," multifamily project. For the targeted lower-income group, the developer offered a plan for a reduced down payment and deferred payments on a second-trust deed that the developer held. A certain number were set aside for lower-income families, and the rest were to be sold to the public at fair market value.
* In San Diego a land-lease program was used for construction of new rental units for low- and moderate-income families. In this project, surplus city land was provided to a developer to build the rental units for lower-income persons. The city determined who qualified as tenants and leased the land to the developer at reduced rates in return for a percentage of the proceeds. It also allowed higher densities and reduced certain standards to lower the cost of the project further.
* In San Francisco, the city wanted to force rehabilitation of its aging housing stock. It established stringent building-code enforcement and provided low- or no-cost loans to help property owners upgrade their buildings, with the funds for the loans coming from tax-exempt bonds.
* In Los Angeles an abandoned office building was converted to low-income housing. The project used private financing but required the backing of the Department of Housing and Urban Development in the form of guaranteed rent subsidies for occupants and zoning changes by the city.
The types of homes being built throughout the state are changing, too. In the late '60s and '70s families were looking for larger three-bedroom, two-bath homes with about 3,000 square feet of living space, Sterpa said. But no more, as costs of land, construction and energy have started to make those kinds of houses obsolete.
For example, some of the smaller, higher-density homes put on a suggested California tour for builders by Professional Builder magazine, a trade publication, include:
* In Costa Mesa's Pentridge Cove complex, condos are stacked and packed in 20 units per acre. But they don't look like cereal boxes on a grocery shelf largely because of innovative design, including asymetrical placement of windows and entries as well as extensive waterscaping to avoid visual monotony.
The condos have only between 870 and 1,188 square feet, but high ceilings, large windows and open areas give a more spacious feel to them. They sell from $96,000.
* In San Jose at The Village the units have between 915 and 1,570 square feet and sell for $103,000 and $165,000. Lofts, open stairways, and high ceilings add a feeling of space despite their high density.
* In Forbes Mill in Los Gatos tiny 446-square-foot studios are selling for $110,000 and 1,725-square-foot units go for $252,000. This project appeals to those who want luxury but also are too busy to deal with large detached homes.
More luxury inside and some custom design outside is being added to smaller units for those who are are buying less but still want more.
California Realtor Sterpa believes the demand for housing in California will stay high as a transient population continues to be lured to the sun and sea.
In addition, businesses have been moving to the Southwest also, leaving the congested Northeast both for economic and esthetic reasons. Sterpa does fears that this business trend might end if the state doesn't find ways to house the workers that come there, however.
"Some businesses might even leave if we don't find an answer to the housing crisis," he said.
Another possibility, however, is that businesses may get more involved and help with financing or even start building their own housing projects for employes to help them live the good life in California, Sterpa suggested.