The LA Times writes today about California's declining population:
In the last few years, it ground to halt and then dropped — and all the while developers continued to build. Given the laws of supply and demand, one might think fewer people and more homes would equal lower prices. But California housing costs remain stubbornly high and have barely fallen — if at all.
So why have housing prices stayed so stubbornly high? In fact, getting higher even though California's ratio of housing supply to population has gone up every year since 2016:
This explains why California home prices are high: California's housing ratio may be up, but we would still need 2.2 million more housing units to catch up with the national rate. This hasn't changed since 2010.
But it doesn't explain why housing prices are increasing. After all, housing supply relative to population has gone up since 2016, both in California and nationally, and yet even after adjusting for inflation asking rents are 20% higher and home prices are 30% higher nationwide—and probably up about the same in California. It is indeed a bit of a mystery.
POSTSCRIPT: The Times suggests that California's population of millennials is shooting up, and since this is the prime age group for entering the rental market and buying a starter home, it's driven prices up. But it ain't so. The 20-34 age group has increased about 3% since 2010 and the 35-49 age group has stayed exactly the same. This compares to overall population growth of 5%. California is aging, not producing a bulge of millennials.
I know that these just-so stories about population are easy to believe, but I sure wish reporters would do a smidgen of basic research before passing them along uncritically.
Atrios also has some thoughts about this today, but generally it seems it's due to a combination of factors, including strong tax disincentives for long-time owners (who tend to be older) to sell leading to reduced supply (Prop 13 really screwed a lot of things up), material differences in profit margins for builders leading to shortages of particular kinds of houses (notably "starter homes"), and NIMBY-ist zoning regulations leading to lack of new housing in otherwise economically desirable areas (eg preventing "infill").
Well, all of those are important. But at least here, it’s because we now have so many couples making $300,000 or $400,000 a year.
Amazon has created tens of thousands of such people.
I can’t imagine why Kevin thinks that the number of bodies is the only determinant of housing prices. Obviously, the bigger driver is how much people can afford to pay for them.
I can only speak to the DC area, where I live and work as a real estate broker. Housing prices are increasing because LAND is getting more expensive. My inside-the-Beltway house is assessed at $1.127 million; $894K of that is the quarter-acre it sits on. Ten years ago, the land was assessed at $540K. It's virtually impossible for homebuilders to keep up with the demand for homes that people can afford when they're paying breathtaking amounts to buy a building site.
Land price going up isn't the cause of home prices going up. Land price goes up because more people want to live here (also DC area, but it applies basically universally) - the "highest and best use" of land determines its value. So two things pull that up: (1) home prices going up increases the market price of the highest and best use, or (2) increased density increases the market price of the highest and best use. One or both of those may apply to a given property.
Developers complain (or simply make statements) about land price being one of the biggest contributors to home price. And that's true, literally speaking, but it's often framed as the cause of the home price being higher. The causality, if there is one, is actually the other way around.
And the root cause is scarcity and housing being seen from both a policy and culture perspective as an investment. Number must go up.
Variety of factors, largely relating to "housing as an investment".
Lots of non-use citizens park cash in housing since the US is more stable than their local economies.
airbnb encourages people to buy housing in high demand areas for tourism and rent them out.
Private equity has been on a spree of acquiring properties to rent out.
I've seen some cities consider a tax on unoccupied housing units (apparently a huge problem in Vancouver). A tax on units that are not owner occupied is something that might be considered as well.
Ultimately, the "business" of investment housing is eating the ability of regularly people to afford to keep a roof over their heads.
"A tax on units that are not owner occupied is something that might be considered as well."
A lot of places already do that, and in general I think it's a good idea. But it costs me personally, because I own the house that my Mom lives in. When the city found out I wasn't living there the property tax shifted into the "rental property" category, which meant it doubled. The rent that I'm charging Mom is a fraction of the market rate. I'm not doing this for profit. Nonetheless, my tax is twice what the neighbors pay.
Pros and cons.
Or lose a correspondingly-sized number of people...
I don't even need to read the post or the charts because the answer is simple:
Artificially induced scarcity because housing is treated as an investment, not a good.
One element, seldom mentioned, is changing composition of households. As American's get more wealthy, they live in lower density (people per household).
This! So much this!
I also think expectations of square foot per resident have changed post-Covid. Three-bedroom homes that use to be a good fit for young families are now occupied by childless couples who each want their own WFH space. Even for people who don't WFH much or at all, expectations have shifted in the last few years.
Is the population decreasing everywhere, or just decreasing in less desirable areas while staying at maximum capacity in LA, San Francisco, etc? If it's the latter, the math makes sense. Someone who wants to live in California doesn't want to just live anywhere in the state, they want to live in the specific part of California that has the jobs/amenities they are looking for. If the desirability of living in San Francisco is going up, and the desirability of living in Random City, CA is going down, the state population will go down because San Francisco is maxed out, but people will move away from Random City. And the people who can no longer afford to live in San Francisco are as likely to move out of state as to move to Random City to take the place of the people who left. Random City prices will go down, but not enough to offset the price increases in San Francisco.
It doesn't seem complicated to me. People who can't afford California are moving out, but that doesn't mean that a lot of people who can afford to live in California are still moving in. The overall population stays flat but the demographic changes. The new people buy the limited housing supply and the prices remain the same or go up. Don't under estimate how much the tech industry has made living in California a world wide ambition.
Lots of people want to live in coastal California because it is paradise: mild climate, beautiful scenery, beaches. So we have a lot of the kind of people who can live wherever they want: rich people and retirees. This drives up demand for housing well above the level that economists would predict based upon the local job market.
Coastal Californie (with the possible exception of the northernmost bit) doesn't seem all that attractive to me. In fact, it looks kind of wierd.
Nobody wants to live in coastal California anymore. It's too crowded.
I was wondering if anybody was going to drop that line in this thread! 🙂
Yes. This seems like an obvious point and I don't know why it doesn't get discussed more as a factor in CA's lack of affordable housing. People on net are moving out of state, in large part because of affordability -- but still many are moving here for whom prices are not an obstacle.
California is one of the great places to live in the country, and in the world. The trends right now are leading toward a somewhat smaller and more affluent population.
I've read a lot of dumb things about "what California needs to do." One, in the Atlantic not long ago, argued that California has a moral obligation to build more housing to make it more affordable for red-state refugees (like women and minorities in FL and TX) to move here. I think the real solution is the opposite. If we could make other states more desirable (fix the scourge of red-state politics, improve schools and work opportunities, etc.), then California wouldn't have to shoulder the demand for the country at large. Likewise, for the other parts of the world. It's not a surprise why Asians, Middle Easterners, et al., come to America if they can, and when they do, many of them land in California. Our immigration policies cater to the well-off, while discouraging the have-nots, and that makes California, and America, a more expensive place to live.
Building houses is an easy thing to do, it's quite simple and can be done quickly. Building houses in desirable places is also a very easy thing to di.
Making undesirable places desirable is .... nearly impossible and we have no idea how to pull it off.
Your proposed solution isn't actually a solution at all. We should tackle the easy solutions first and save the impossible solutions for much later.
Referring to building houses as a heavy burden that is being forced upon you is both dramatic and silly. It is easy and it is no burden. Just as the current residents of Cali are not a burden on the residents of Cali, new residents would not be a burden. They would all just be California.
This is not hard.
"Building houses is an easy thing to do.... This is not hard."
This sounds like the simple solution to our traffic problems that people have been pushing for decades. Build more lanes. It's an easy thing to do. Well, we've built more lanes. Traffic is now slower. I would suggest that the housing problem is perhaps more complicated than you think.
For the record, I'm in favor of more housing. I'd like to see California continue to grow and be a home not just for the affluent and immigrant poor, but for a thriving middle class. That's the future I want to see.
California is building more housing, as the article at the link says. We need to build more. We need to build all the things that go along with more housing -- transportation, schools, other infrastructure. It takes time and money. Nimbys deserve some blame, but not all of it. There are other constraints to deal with. Markets incentives weren't there after the GFC. Geography is another constraint. We also have a history of decisions that were made decades ago. Those decisions impose limitations. You can't just wave your hand and pretend they don't exist.
Making undesirable places desirable is .... nearly impossible and we have no idea how to pull it off.
The Atlantic article talks about refugees from Florida. Ron DeSantis took office by winning an election with a margin of less than 34,000 votes in a state with more than 8 million votes cast. That is a helluva lot easier problem to solve than building millions of new homes, and highways, schools, and what-have-you to go with it, so that people in red-state hell have a safer place to go to all the way across the country.
Besides, it's political suicide to think that the solution for people living in hardship here in America is for them to move to California. The political reality is that we need more states turning blue in this country, not blue voters abandoning their homes for the coast.
We are talking about housing a residents of the US state of California, not a city in Colombia.
Seattle is not shy about slapping up housing. We’ve built tens of thousands of beautiful apartments and condos in the past decade.
But Amazon has created over 40,000 jobs, nearly all of which pay well over $100,000 a year.
That flood of money is going to drive up the cost of housing.
Bigger houses. Average size of a house has greatly inceased since 1970. People want the best education for their smaller number of children which is strongly associated with new houses. So it's a combination of factors.
An example is Reston. As originally conceived it was going to have a lot of townhouses. By the late 70's they'd given in and gone to detached houses. When they tried to sell 1,000 sq ft houses to fight the high cost, they didn't sell.
For Kevin of all people, I mean, housing is not anywhere near as simple as "fewer people in a state ought to mean lower prices in that state."
The simple market analysis isn't "houses per number of people" if you want to be that basic its "houses for sale per number of potential buyers."
I think it's just low inventory right now. Who cares if there are millions of houses that exist. What matters is how many houses are currently on the market relative to how many buyers there are.
People are unwilling to give up their 4% mortgages, so they aren't moving. But buyers still exist, which keeps prices high and rising.
Over the long term you have continued shifts to smaller household sizes and continuing urbanization. That drives up need for housing units and increases costs in already expensive cities.
All of the above and more contribute to high housing costs. On the west coast we get a lot of people from Asia buying homes here so the competition is not just among the locals, we are competing to some extent with the rest of the world.
Hard to quantify but the cost of building houses has gone up a lot. We just replaced a 100 year old home. The new home is built to a much higher standard. It is earthquake safe, hugely better insulated, better appliances, better HVAC, and on and on.
Materials have risen a lot in price over the years. My 100 year old home was built with lumber harvested locally. Not so anymore. Lumber, copper, double pane windows etc. have all gone up a lot. Even if we tried to duplicate the original house it would have been very expensive.
Land prices, as pointed out above, are quite high. Just the empty lot alone is often above what many can afford. I recall some decades ago when the first empty lot in Palo Alto sold for over $1M. This area, just south of San Francisco, was open farmland about 100 years ago. It was broken up and became a tract of homes near a train station. This being a peninsula there is no longer any empty space that can be used for building homes.
You add all that together and you get high home prices. With all these costs so high builders don’t want to make cheap homes, they want to build up-scale so they can make more profit on the scarce opportunity to build a new home.
Perhaps the state could build homes and sell/rent them at below market rates with the justification that it is for the common good. Teachers, police, fire, nurses and such would be eligible.
One thing that the units/population makes me think of is that in Pasadena, CA there has been a known effect of certain areas transitioning from a single unit that was housing 2+ low income families being taken over by higher income single families. It’s well documented *within Pasadena*, though I don’t know how this applies to the state as a whole
I suspect California had grown somewhat "underhoused" by the time it reached its recent population peak a few years ago, and since then the decline in population, while real, is actually modest—about 1.5%.
Given the pent-up demand for housing in California, it will take a lot more than a 1.5% decrease in population to provide meaningful relief in terms of housing affordability.
Also, California likely has the highest work-from-home numbers in the country, and WFH effectively boosts demand for housing.
Finally, as others have noted above, even in an era of population decline, assets can still increase in price. Needless to say, land is an asset.