California’s housing market is seeing an uptick in inventory as the state’s population growth slows, but demand remains strong due to a history of housing scarcity.
A recent analysis by the Public Policy Institute of California (PPIC) revealed that the state added 677,000 housing units over the past six years, even as its population grew by only 39,000. Despite this increase in housing, the market remains tight. Owner vacancy rates dropped from 1.2% to 0.8%, while rental vacancies stood at just 4.3% in 2024, well below the national average of 5.9%.
“The state has made some headway in adding housing units, but it’s been playing catch-up for so long that the progress hasn’t been enough to significantly ease the market,” said Joel Berner, senior economist at Realtor.com.
California’s housing shortage remains a major issue, with the state needing an estimated 2.5 million more homes, according to a 2022 estimate by the state’s housing agency. PPIC’s report also highlights a demographic shift that’s influencing the market, as household sizes have decreased over time. Between 2019 and 2024, the state lost 82,000 households with children and gained 722,000 households without them.
“Fewer people in each household means we need more households overall,” Berner explained.
The aging population of California is also contributing to this trend, with 16.5% of the state’s population now 65 or older, a figure projected to rise to 24.9% by 2050.
In response, homebuilding has picked up, with accessory dwelling units (ADUs) becoming more common. ADUs are secondary living units on the same property as a primary home, and California has encouraged their construction through policy changes aimed at reducing local restrictions.
“The state has made notable progress in encouraging ADU construction, which should be recognized,” Berner said. “These units are playing an important role in addressing the housing shortage where it’s most needed.”
While these efforts show progress, they haven’t fully addressed the crisis. New homes continue to be quickly absorbed, and vacancy rates remain low. Berner pointed out that despite California housing 11.5% of the U.S. population, the state only accounted for 7.3% of newly permitted housing units last year. “The pace is still not fast enough,” he said.
PPIC’s analysis also noted that household formation among young adults has risen, suggesting more younger residents are starting their own households. However, the state will need more affordable housing to allow these residents to take that next step.
Of the 1.2 million housing units planned for California, only 712,000 are designated for moderate-income or lower households, which is about half of what is necessary to meet demand, according to Realtor.com. This gap could pose a significant challenge moving forward.
