California has a housing shortage. As a result, rents are high and vacancies are low. And yet:
Housing construction has surpassed population growth and is within a hair's breadth of keeping up with job growth. So where does the shortage come from?
37 thoughts on “Why does California have a housing shortage?”
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Housing wears out or gets converted to other uses.
A lot of single family homes have been converted to vrbos. Not the reason, but a reason.
Or second homes or fractional ownership vacation homes. Or older apartments near beach areas converted entirely into AirBnB,
Thousands and thousands of units have been taken out of the full time occupancy market.
And REIT's buying housing and increasing rents for a better ROI. Because they can.
Not thousands, millions. San Diego alone has over 6,000. - down from almost 10,000.
There are around two million nationwide. As iamr4man said, not the only reason but right up there in the top 5.
Sure, but how many are “a lot?” 1% of the stock? 10%?
That's just uncounted demand. Demand for short term units is still demand,
Also, this assumes were wen't already in the hole in the 90s. (Narrator: We were already in a hole.)
Second houses/vacation homes as people move into higher brackets?
In my city in NC the new homes are for people with higher incomes, not starter homes.
That is how older towns work. New houses go to the rich, older houses go to the the lower class.
The houses generally don't evaporate.
might not just be a raw numbers thing, there are social trends that might effect the types of houses in demand
the population is aging and downsizing, birthrates are falling and remote work has become more common, etc
Prop 13 keeping older homes from turning over quickly - they get locked up for a generation or more to lock in the low tax valuation - combined with all the new construction being priced for upper middle class or wealthy people, as it is in most states?
Or perhaps that perennial blind spot of yours: skewed geographic distribution. The distribution of new housing may be nowhere near the job growth or the population centers? It doesn’t help much if inland cities are building tons of homes if all the jobs and people are still in SF, LA or SD metros.
A big factor is housing density: how many people live in a single residence. There are a lot more examples of residences with only one, or two, people than one would see twenty or thirty years ago.
in my East Coast city, we have lost residents but increased the number of households. Smaller families, fewer couples
Private Equity and AirBnB
Air BnB is just a demand. They wouldn't exist if there were enough hotels.
Virtually all of the housing being built is at the high end -- "luxury" condominiums that rent for $5k a month, and $800k-$1million McMansion tract homes.
So there's plenty of housing if you're rich and can pay cash. If you're not? Yeah, you're sort of SOL in Ca. There needs to be more incentives for lower-cost multi-unit buildings and smaller starter homes for, I don't know, less than $450k? But, as we've discussed here a million times, between the ferocious NIMBYism opposing multi-unit buildings in the suburbs and land costs, permits, and other regulations driving up costs for single-dwelling developments elsewhere, nothing but high-end McMansions can get done.
That's not how that works. If you don't have expensive housing, the people who'd buy the expensive housing will buy cheaper housing and kick out the next and the next, until those marginally able to afford are knocked out of the market.
Ugh. Housing doesn't stay expensive over time, because it wears out.
lots of good reasons here. something no one’s pointed out yet is the difference between population growth and household formation.
let’s walk through an example: John and Mary get married, buy a house. they have three kids in three years. so the population of their household grows 150% but no new housing is needed.
fast forward 22 years. all three kids move out and immediately get married; for simplicity’s sake we’ll say they marry three siblings from another household. so where we had ten people in two homes, we now need five homes (150% more) for the same number of people.
part of what is happening is some version of this: household formation lags population growth. John and Mary’s house isn’t available to their kids- they’ll still be using it for another 20 or 30 years, especially in CA where homeowners are punished for selling- and multigenerational households aren’t the norm in America anyway. so it’s not today’s population growth that you’re building homes for- it’s people who were born 20+ years ago.
Everyone wants to live in the same, few parts of California.
“Not I” said the Mainer..
All these "housing shortage" posts suffer from a lack of specificity. As some have said both already in this thread, and in other threads, its not "housing" per se, its either "desirable" housing (more on that below) or "affordable" housing, which, at the risk of being obvious, is a function of both affordabilty (what is the cheapest unit available) and location (on the banks of the Salton Sea? Let's go!).
At this moment, Zillow has 155 places for rent and 110 places for sale in zip code 90042, which is LA, Highland Park. Least expensive condo $500K, most expensive house $2.3M. If you can't afford that condo, not only is there a "shortage" as to you, there might as well be zero homes for sale.
Rent is $1700 per month (apartment) to $8,000 (house). Same analysis.
I have never seen the Zillow results go down to zero. Answer is more apartments if you want to see the cheapest rents at like $1K.
Single family homes are tougher, as when you commit to single family homes you have a land/density problem. As all of us Californians know, we ran out of cheap land within sane driving distances some time ago. Not that we didn't give it a good try.
There's another number there that's unseen: what portion of the units are for sale/available. If there isn't enough of them on the market, there's no available slosh to force some to lower their prices.
Housing construction has surpassed population growth and is within a hair's breadth of keeping up with job growth.
That's good news.
So where does the shortage come from?
The many preceding years when this was not the case. A few years of increased housing construction will not mitigate several decades of too limited construction. Also, California's (and New York's and Washington's and Massachusetts's and DC's and Dublin's and London's and Toronto's and Sydney's) housing affordability crisis isn't solely a matter of limited supply of housing units. There's also the issue of the underlying asset (land) being bid up: money has been chasing land just like it's been chasing equities.This last part, I'm pretty sure, does not account for the bulk of the affordability problem in the West's highly-in-demand cities (in theory there's no no reason we couldn't build our way into a far greater degree of housing affordability). But it surely doesn't help.
Sigh. The shortage is disguised by your arbitrary selection of 2000 as your reference point. If there was already a shortage in 2000, then if housing and population grew at the same rate since then, the original shortage will remain. In fact, since the growth is in percentage, equal growth in percentage terms means the shortage will be larger in absolute terms.
And as long as a shortage persists k the prices will climb, even if a stability is reaches, because it's the shortage and inflation that drives prices - and stability doesn't lower them.
Every time Kevin produces a chart and makes a wild claim about housing supply and demand, he is reminded that:
1) population change isnt a perfect (or even good) measure for change in the demand for shelters/places to live.
2) housing supply also isnt a perfect (or even good) measure for the supply of shelters/places to live.
3) showing the change from a randomly selected date and merely assuming that housing was in balance before that date isn't a reasonable way to understand the current situation.
Over and over and over. Asking what he is missing after refusing to consider the previous thousand reminders cant be taken seriously, can it?
Kevin doesn’t want to live in a world where his autocentric suburban Southern CA lifestyle is unsustainable and immoral, so he constantly invents alternative worlds.
I don't think anyone (certainly not I) thinks they can sway Kevin in his foolishness. I seriously doubt he even reads the comments. Pointing out the flaws are for the benefit of readers who might not have the background and expertise to spot them.
If the Wall St. firms thought housing prices (or rents) had been based on costs, then they may have bought-in to begin pricing at "what the market will bear". If that's true, then more houses won't change the pricing at all. They will continue to price to the customer's ability to pay. Apparently the costs are pretty minimal to billionaire funds/investors.
In the location of the city where I live rich people have second or third homes that are vacant during the summer. The wealthiest neighborhoods have the most of these 'winter' homes. I have a very rich relative who owns two winter homes. One for her nuclear family and one next door for visiting relatives and friends. Another relative has an Airbnb for revenue and a condo in Huntington Beach so she can vacate the city in the summer. Tax cuts for the wealthy has produced surplus capital which is invested in (usually) empty homes. There are also Airbnb and group homes in these neighborhoods. I never noticed them until I started a daily walking routine throughout the neighborhood.
We really need to reduce the tax benefits of these.
Short-term rentals are better than vacant second homes.
There's a basic fallacy in the interpretation of the data. It shows percent change of housing to the previous year and percent change of jobs to the previous year. If there is a huge number of jobs and a much smaller number of houses, catching up might require a much larger percentage change for housing.
That too, only absolute changes can be compared.
Isn’t as simple as your chart only goes back to 2000? I thought I read somewhere that California had been severely under building for more than 50 years, if they started on the backlog in 2000 they are barely making a dent.
It's simple. Households are smaller today than they have been in the past, partly due to societal trends and partly due to rising incomes. Smaller households require more housing per person.
Even if we didn't change how many children per couple, an extended lifespan would do it, unless you also expanded childhood.
A google search suggests:
* the california housing shortage started as early as the 70s.
* From about 2010 to 2017, one new housing unit was created for each 5 new people.
* job growth is concentrated in the Bay Area and greater Los Angeles, contributing to exacerbated shortages near jobs.