California’s Housing Costs Threaten The State’s Future

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My previous blog documented California’s 2020 population loss, the first since the state’s inception. Billionaire Elon Musk has moved to Texas, but the biggest concern for the state is the loss of low- and middle-income residents, possibly driven by California’s high housing costs. The state must fix its housing affordability problem for a more secure future.

Some media coverage claims that the losses are among the rich. a yahoo finance story Claims that “millionaires and billionaires have fled California in large numbers” are motivated not only by high taxes but by “political correctness”.

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But, he Public Policy Institute of California Shows that is not the real problem. Rather, the institute finds that “California has been losing low- and middle-income residents to other states for some time while continuing to gain high-income adults.”

The institute, like other analysts, sees “the state’s high cost of living, almost entirely driven by comparatively high housing costs” as a major culprit in the migration story. Without a large supply of more affordable housing, middle-income families will continue to be pushed out, while new immigrants will not be able to afford a living in California.

California’s demographic troubles were highlighted by the 2020 loss of a House seat, based on the census, although the state’s delegation of 53 delegates is the nation’s largest. We had become accustomed to California gaining seats because of population growth – the state added 29 seats as it became the largest state since 1950.

But as the institute shows, population growth has been slow for several decades, especially after 2000. Although births and international migration continued to increase the population, the state began to see net migration, with a net migration of about 1.2 million people during 2010.

The state has also gained highly educated adults. Between 2010 and 2019, California gained 154,600 adults with college degrees, while 777,400 dropped out with less than a BA.

A primary culprit? High housing cost. Economists have puzzled over the years how parts of California, particularly the Bay Area, Silicon Valley and Southern California, continued to grow while their housing prices continued to rise.

Between October 2012 and October 2021, the all-transaction house price index for California more than doubled, increasing by 105%. The Case-Shiller index for Los Angeles rose 73% over that period, while the index for San Francisco rose by 140%.

And those housing costs are driven by a lack of supply. California (like many other jurisdictions) has made it increasingly difficult to build new housing through a combination of single-family zoning, homeowner opposition to new development, and suburban resistance to permitting multi-family housing.

All this happened while the economy was growing and jobs were being created. But a supply of new housing, especially multi-family and affordable housing, is needed for families working in a region. California, like other places, has stymied job growth while not producing enough housing to accommodate working families.

By analyzing building permits relative to job growth, Stesa. analyst of Ranked the states on their housing production. And between 2010 and 2020, California was the nation’s worst on this measure. The state added 2.54 new jobs per new housing unit, so as the economy expanded, housing prices rose sharply.

Economists are confused about how the regions can develop despite persistently high housing prices. In places like Silicon Valley, Enrico Moretti found that the continuous migration of highly skilled technical labor led to what is called the “brain hub”.

Firms need highly skilled workers, while workers looking for technical jobs are attracted to the sector, allowing firms to grow, specialize and expand, woo new workers, etc. Meanwhile, support services like research and entrepreneurs wooing venture capital. Rising income and wealth can, for some time, support rising home prices.

But this process cannot continue indefinitely, especially for low- and middle-income households. And California’s population problems reflect California’s years of inadequate housing development, which have disproportionately harmed people of color and low-wage workers. But the lack of adequate housing supply can now affect the entire economy of the state.

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