In recent weeks we have had discussions on whether the proposed ARC (Aggie Research Campus) needs housing or not. In those discussions, we have cited industry leaders who have pointed out that prospective companies are concerned about the availability of housing – particularly now during the height of a housing shortage – when they make decisions on where to locate.
This, of course, is not limited to Davis. Some economists are concerned about the impact of the housing crunch on the state’s economy.
Christopher Thornberg, founder of Beacon Economics and director of the UC Riverside Center for Economic Forecasting, warns that while the job growth in California improves, a slowdown is “evident.”
In his report, he notes that California from May 2018 to May 2019 added, 282,700 jobs – which is equivalent to a 1.6 percent annual increase.
“This rate of growth represents a substantial slowing from the pace the state experienced a few years ago,” said Mr. Thornberg.
The problem, he said, is housing.
He said, “The problem isn’t labor demand, the economy is still very strong. The slowing is being driven by labor supply shortages that stem from California’s housing supply crisis.”
California’s labor force declined by 49,800 in the latest numbers, and combined with the 51,800 decline in April, has erased much of the labor force gain from earlier in the year.
As columnist Dan Walters put it, “Employers will not add jobs if they can’t find workers and workers either won’t come to California or migrate elsewhere, if they can’t find affordable housing.”
He adds, “That simple, but powerful, economic equation makes doing something about housing one of the state’s most important, but also most complex, political puzzles.”
This was a point made last year by the project manager at the University Research Park, who told the Vanguard that one of the challenges that businesses face “is hiring people because it’s so difficult to find housing in Davis. People I think have an expectation that if they’re going to work in Davis, they’re going to live in Dixon or Woodland or West Sacramento because the housing market is just so tight.”
Dan Ramos made a similar point when we spoke with him last month.
For many companies, Dan Ramos said, following many others we have spoken to, the need for housing is a huge consideration in where they will move their company.
He said, talking to Bay Area companies, he learned that housing is a huge issue and “so important for attracting employees. It’s a big priority for them in terms of recruiting and everything,” Mr. Ramos said.
As some have noted, the housing market in California has been softening. That may not be a good thing for the economy either.
Jerry Nickelsburg, an adjunct professor at UCLA and director of the Anderson School of Management’s forecast, said in May that “the slowdown in the state’s housing market also has implications for the California economy going forward.”
At the same time, the state continues to suffer from what experts are calling “a chronic housing shortage.”
“Home prices are falling in California as is the level of building,” Mr. Nickelsburg wrote.
One possibility is “higher mortgage interest rates are depressing prices but not the underlying demand.”
However, more likely, the problem is that prices have risen so much that people have given up finding housing and some are leaving. That may relieve the housing crunch (somewhat) but also harm the economy.
In his column, Dan Walters highlights Gavin Newsom’s continued efforts to cajole more housing.
He noted that the governor has vowed to withhold transportation funding from cities that fail to build additional housing.
In addition, “Last week, Newsom and legislative leaders announced a deal on housing. The legislation divvies up already appropriated funds for battling street-level homelessness, creates a new $1 billion fund to reward cities that proactively promote construction and imposes fines, up to $600,000 a month, on communities that continue to lag behind.”
“If cities aren’t interested in doing their part, if they’re going to thumb their nose at the state and not fulfill their obligations under the law, they need to be held accountable,” Governor Newsom said.
Withholding transportation funds did not work with the legislature, but the housing deal is moving forward.
Writes Mr. Walters, “[T]he broader carrot-and-stick approach will not generate any uptick in new housing starts in the near future, and perhaps little or nothing in the longer run.”
He argues, “Zoning more land for housing is just one factor in increasing production to the 200,000 units a year the state says are needed. Even if land is made available via zoning, projects still must clear often fierce local opposition, particularly to high-density development. Environmental impact reports, lawsuits and refusal to supply water are among the tools often used to block projects.”
He is also concerned that even if local governments overcome opposition, “developers must be willing to spend many billions of dollars to acquire the land and build” and he worries about “a growing lack of construction workers to do the actual work.”
A key problem there is “one reason for that lack is the reluctance of workers to come to California because they, too, cannot find affordable housing.”
He concludes: “What Newsom and legislative leaders are doing this year is only a baby step.”
—David M. Greenwald reporting