Saving California One House at a Time

By Adam Pryor

California, known for its vibrant economy and idyllic lifestyle, has been experiencing a significant outmigration of its young population in recent years. This trend has raised concerns among policymakers and business leaders alike, as it carries potential catastrophic economic implications for the state. In this article, we will delve into the factors contributing to this outmigration, with a specific focus on the impact of rising housing prices. Drawing from reputable sources such as the American Homebuilders Association, US Census data, and industry research, we aim to shed light on this complex issue and its business implications.

The outmigration of young Californians has become a pressing concern. According to US Census data, between 2010 and 2020, California experienced a net domestic outmigration of approximately 1.6 million residents, with a significant proportion being young adults. Since 2021, 841,000 people left the state further illustrating the dire situation California is in. To put it simply, California is bleeding people. This has not just immediate economic consequences but also political consequences as well. With California losing population it is going to lose representation on the national level. This means less likelihood of more much-needed federal money flowing into California, for instance. That money could be used to further drive the California economy by creating jobs and building more infrastructure and housing to ensure the future of our state.

This migration trend has sparked discussions about the underlying factors driving this demographic shift.  One crucial factor driving outmigration is the soaring cost of housing in the state. The American Homebuilders Association highlights that California consistently ranks among the most expensive housing markets in the country. In fact, according to redfin.com, the median sales price for a home in California in 2023 is just below $800,000 whereas the median home price for the entire U.S. is $436,800. It is almost twice as expensive to buy a house in California than most of the U.S., so it becomes difficult to envision a future as a young person living in California. The temptation to move out of state where home prices are more affordable is strong for many young Californians. The scarcity of affordable housing options, particularly in urban centers, creates further challenges for young individuals and families looking to establish roots in the state. High housing prices relative to income levels make it difficult for young Californians to enter the housing market. This has led to increased financial burdens, a reliance on rental housing, and limited opportunities for wealth accumulation. If young people cannot accrue some form of wealth, they will not be able to afford the inflated cost of housing in California let alone the ever increasing cost of living. With a lack of capital to put aside for a down payment, it becomes increasingly difficult to stop renting and take out a mortgage. We are slowly creating a generation of “perma-renters”. So, if young people are faced with two choices, one of them being stay in state and rent for the rest of their lives or moving out of state, buying a house, and paying the same amount on a monthly mortgage than they would on rent in California, most of them will pick the latter, particularly for young people in professions that allow remote work.

Renting is meant as a steppingstone to home ownership, not to be a permanent housing solution. If we keep on the same track, we will run out of rental housing as well and the cost of renting will continue to go up. Currently, according to The National Low Income Housing Coalition, we are already starting to see the effects of this with rental prices in large urban areas in the state seeing an average increase of 105.89% for Fair Market Rate 2 bedroom apartments since 2000. One root cause for the high housing costs is the imbalance between the supply of housing stock available to choose from and the ever increasing demand for it. While zoning laws in California are becoming less restrictive such as incentivizing the construction of low-density infill housing, California is still the most heavily regulated state with over 395,000 regulatory restrictions. These regulatory restrictions which require lengthy approval processes coupled with local communities who do not want to see new development make housing development a tough business here in the Golden State. All these are just some of the many issues exacerbating the affordability crisis.

The outmigration of young Californians carries several economic implications that warrant attention and require solutions as quickly as possible. One of the biggest issues right now for many businesses is workforce retention. That becomes harder if the young talent meant to fill key positions and drive economic innovation instead goes to other states. This is the beginning of a brain drain that becomes harder to stem as the crisis goes on. According to Census data, 63% of young people choose to leave the state for economic opportunity.  California is shooting itself in the foot by not embracing these young professionals. In fact, young entrepreneurs and startup founders are vital drivers of economic growth. 99.2% of all businesses in California are small businesses according to the Small Administration’s Small Business Profile. This illustrates how vital young entrepreneurs are to the Golden State but the high cost of living and, in particular, the high housing costs act as a deterrent, making it harder for aspiring entrepreneurs to justify taking a risk and launching a small business or investing more into a fledgling business. They might just choose to cut their losses or not even try all together. This also has a cascading effect on the state’s tax base by eroding it. This will lead to reduced revenue for public services like police and firefighters, road maintenance, and schools. As young Californians relocate to more affordable states, the tax burden will shift further to existing businesses and more established residents of California, further exacerbating the economic disparities that already exist and driving more people into desperation, crime, and drug use.

Addressing the outmigration challenge and housing affordability crisis requires a collaborative effort from policymakers, industry leaders, and community stakeholders and will require more than one solution. There is no “silver bullet” when it comes to policy issues and California’s housing crisis is no exception. To resolve this crisis and keep it from getting worse, proactive measures need to be taken by stakeholders across various sectors. Policy makers, both on the local level, and in Sacramento need to streamline the development processes by simplifying regulations and expediting approval processes for housing construction to incentivize developers to invest in affordable housing projects. Meanwhile government should be teaming up with private industry to facilitate the creation of housing to help further alleviate the crisis. These public and private partnerships can establish programs that provide affordable housing options specifically targeted at the workforce, enabling employees to live closer to where they work. Taking these measures will not only help retain and even attract talent to California but also foster a probusiness environment that drives economic growth. By implementing pro-business solutions that prioritize housing affordability and economic dynamism, California can retain its appeal as a vibrant and inclusive state, ensuring a bright future for generations to come.

Sources

State-to-State Migration Flows (census.gov)

Small Business State Profile, California (sba.gov)

California Housing Market: House Prices & Trends | Redfin

NLIHC Releases “Out of Reach 2020” | National Low Income Housing Coalition