Ben Christopher | CalMatters
This month Californians worried about the cost of housing were offered the rarest of gifts: a glimmer of hope.
New numbers released by the Newsom administration show that California added homes to its housing stock at a faster clip than any time since the Great Recession — 123,350 additional units, or an increase of 0.85%.
Over that same period, the state’s population declined, marking the third year in a row that it’s fallen from one new year to the next.
Put those two numbers together and a surprising statistic emerges: There are now more homes per person — 3,770 units for every 10,000 Californians — than there have been since at least 1991.
For a state that has long suffered from too many people trying to cram themselves into too few homes, that’s an encouraging number at first glance.
It’s also the kind of news that might lead a person to wonder: Does this California exodus mean the state’s perennial housing shortage is finally coming to an end?
The long answer is “it’s complicated.”
Though many analysts have tried, no consensus exists on just how many more homes the state would need to build (or how many more people would need to leave) before we can call an end to the crisis and start to see rents and home prices fall within reach of working and middle class Californians.
But the short answer is “almost definitely, no.”
Much of the outflow of residents is itself driven by the high cost of living. In March, the median price of an existing single family California home was $791,490, more than twice the national median of $375,700.
“When house prices go up, people leave,” said Dowell Myers, a demographer at the University of Southern California.
Gov. Gavin Newsom said as much in a recent interview with UCLA’s Blueprint, naming the cost of living as the “principal driver” and its chronic shortage of homes “our original sin.”
And while experts don’t agree on exactly how much additional housing the state might need to attain an ill-defined “affordability,” they do agree on this much: it’s a whole lot more.
How Big Is the Housing Shortage?
In 2000, a report issued by California’s Department of Housing and Community Development estimated that the state would need to build 220,000 additional units each year for two decades to meet the needs of what was then still a growing population.
Needless to say, that didn’t happen. Even last year, a relative high-water mark for home construction, the total was roughly 100,000 units below that goal.
The department published another estimate in 2018 urging 180,000 units per year through 2025. And last year, in putting together housing goals for regions across the state, the department’s total prescription added up to 2.5 million new homes over the next eight years (or 315,000 per year).
The administration acknowledged the state’s sluggish population growth in its latest proposed budget for next year, which gauged the need at 148,000 new units per year.
One of the reasons these estimates vary is because there’s no single definition of a “housing shortage.”
In 2015, for example, the Legislative Analyst’s Office, an agency that serves as a think tank for state legislators, framed the issue with the following question: How many units would the state have had to build between 1980 and 2010 to keep the median value of an owner-occupied home increasing at the same rate as the rest of the nation, rather than skyrocketing so much higher, as it has for the last half century?
That definition of the state’s shortage led the office to estimate 210,000 each year. Alas, the state has only hit that annual mark five times since 1980 — and not once since 1990.
A year later, the global consulting firm McKinsey & Company, put out its own figure — 3.5 million homes by 2025. Newsom took that eye-popping figure as a rallying cry during his first gubernatorial run, when the then-candidate vowed that California would reach that total by the end of his second term. He’s since scaled the pledge back to 2.5 million, a goal the state is still unlikely to reach.
McKinsey based its estimate on its own version of the state’s housing problem: the number of new units required to bring California’s houses-to-people ratio in line with that of the rest of the country.
The common thread behind all these estimates is they are all very, very big. And whichever shortfall estimate you choose, the state has never hit the mark.
A Moving Target
But the numbers have been moving in a more encouraging direction in recent years.
The totals since 2020: roughly 430,000 new homes and some 821,000 fewer Californians competing to reside within them. That necessarily narrows the gap, however we define it, said Hans Johnson, a researcher at the Public Policy Institute of California.
If the shortage is relatively modest, he said, and “if we continue like this for another decade, with very slow population growth or essentially no population growth, and with fairly robust housing construction, then it should start to eat into that lack of housing,” he said.
But if the state needs to hit McKinsey-esque levels of new production, counted in the millions of units, “we’re still a long, long way off,” he added.
That’s in part because the size of the hole is so large. But it’s also because the shortfall is “a moving target,” explained Len Kiefer, deputy chief economist at the Federal Home Loan Mortgage Corporation. The building industry booms and busts. Young Californians grow old enough to live out on their own while older ones begin to die off. And people’s housing wants and needs change, too.
COVID Worsened the Housing Crisis
A particularly dramatic driver of such change: the pandemic.
Eager to keep COVID at bay and seeking more space to work from home, Californians dumped their roommates when they could and sought out places to live on their own, resulting in a great “spreading out,” as analysts at the Public Policy Institute of California put it. The trend toward fewer people living in each home is nationwide and long term. Over the last 40 years, the number of people living alone doubled across the country. But the pandemic put the trend on overdrive.
That worsened the state’s housing shortage. Even if the total number of Californians continues its gradual downward drift, more homes are needed to house the roughly 38 million sticking around.
Starting in June 2020, the median price of an existing single-family home shot up from $626,170 to a peak of $900,170 in May 2022, according to data compiled by the California Association of Realtors. That’s an increase of 44% in less than two years.
Since then high interest rates have brought California’s housing inflation back down to earth slightly. But the median price in March was still 29% above where it was three years earlier.
Whether Californians will begin clustering together again as COVID concerns ease is an open question. But there’s no sign that’s happening yet. By the beginning of 2023, with the worst of the pandemic presumably behind us, the number of Californians per household hit a record low of 2.77.
A shrinking population, driven largely by outward migration, provides an escape valve for some of that extra pressure, said Meyer, the USC demographer. But based on analysis he and his colleagues conducted for the California Association of Realtors, it’s easy to imagine demand for homes staying strong, given how large the millennial generation is and how many are now reaching a baby-having, roommate-jettisoning age.
Plus, if the California exodus is a cure to the state’s housing shortage, it’s also a symptom, said Dowell.
“The ones who are older are leaving because they’re (homeowners) cashing in their gains,” he said of the nearly 8 million ex-Californians who exited the state last decade.”The young people who are leaving, we now think, are leaving because they can’t buy a house here.”
And even if those departures do ultimately alleviate the state’s scarcity of homes, it’s not the solution to the problem that anyone should want, adds Johnson from Public Policy Institute of California.
“I don’t think any of us who have been advocating for building more housing in California — to help alleviate the shortage of housing we’ve had and to improve affordability in the state — thought that the best path was just to have the state start to depopulate.”
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