What Are the Impacts of California’s High Home Costs?

The impacts are negative. If anything, they threaten California’s future. After all, 2020 was a year of loss for California. It marked the first time the state experienced a population loss in ages.

That loss wasn’t unnoticed though. Many high profile individuals such as Elon Musk have relocated to other states, citing California’s high cost for business and life as off-putting.

But, if this is the opinion of the ultra-rich, then how would lower-income homes fare? What impact do high home costs have on California’s low and middle-income homes?

That’s what we’ll discuss below…

First – The Problem in Detail

The Public Policy Institute of California has further touched on the topic, implying that the issue isn’t of middle/low-income homes leaving, but rather that rich adults are settling there less.

In fact, the Institute sees that the high living costs of the state are driven almost entirely by home price tags. And with a lack of affordable homes, middle-income families will have to relocate, while immigrants must choose to settle elsewhere.

The Problem Reaching Public Eyes

The issue first sprouted after California lost a House seat in 2020. With that, the state still has the largest delegation, with 53 representatives. This is a reversal in California’s seat acquisition history, where the state did gain 29 seats since 1950.

Still, population growth has been falling throughout the past few decades. Even worse, as the Institute’s data shows, the population was kept high by international migration and high birth rates.

Plus, net outmigration did become a phenomenon, with the 2010s seeing 1.2 million total leave the state.

Is it All Negative?

Not entirely. California has gained adults with higher education. From 2010 to 2019, the state saw:

• 154,600 college degree holders migrate in (and)
• 777,400 B.A. or lower holders migrate out

This implies that California is now a state for the higher educated and rich only. And it also points fingers at high housing costs, with areas like Southern California, Silicon Valley, and Bay Area growing to unbearable levels.

Massive Price Hikes

The past decade saw housing prices shoot up considerably. Between 10/2012 and 10/2021, California’s house price index doubled, with a 105% increase.

Case-Sheller index showed similar values, with Los Angeles rising by 73% during that timeframe. San Francisco was similar, shooting up by 140%.

Why Are Housing Prices So High?

Lack of supply seems to be the driving force.

California (like many states) has increased construction difficulties throughout time. This has come from multiple sources, from homeowner opposition to single-family zoning, and Suburban resistance of multi-family homes.

As the state’s economy grew, less home supply was available to match. Only high-cost homes were available. And they weren’t produced fast enough to accommodate working classes.

In fact, Stessa analysts have ranked California as the worst state in building permits issued relative to job growth, all between 2010 and 2020. 2.54 jobs were created per house, where home prices would rise as fast as the economy’s expansion.