I think people in Southern California, in general, make more money than the tax and census rolls suggest but less money than their lifestyles would suggest, if that makes any sense.
For reasons that I won’t go into I see a fair number of individual financial statements of people here in Southern California. There’s a large subset of real estate entrepreneurs that have huge cash flow but little or no reported income due to allowable depreciation. An extreme example: I saw financial statements for a developer of apartments that showed a net worth of almost $300 million (on assets of about $660 million), cash flow of almost $12 million/year but the guy hadn’t paid taxes in over 20 years; in fact, he reported losses due to huge depreciation and the fact that he keeps developing new projects (all over the U.S. – not just here in SoCal) to keep the depreciation train running.
In addition there are a lot of non-real estate entrepreneurs that run a lot of “otherwise personal” expenses through their businesses, thus reporting lower income for tax purposes than is really the case.
So part of the disconnect between household income and housing prices is due to the much higher rate of entrepreneurial activity in SoCal versus the U.S. in general. But the other part of the disconnect is that Californians tend to spend above their means to a greater degree than the rest of the U.S.
