Monday Morning Thoughts: California’s Housing Crisis Could Morph After Pandemic, but Probably Won’t Go Away

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By David M. Greenwald

A year ago with housing prices rising and a shortage of new housing, California’s housing crisis was the biggest problem facing the state.  A year later, however, with the COVID pandemic, we see a heavily disrupted market for a lot of different reasons.

First, with college students staying home in large numbers, places like Davis are seeing high vacancies in apartments as students are distance learning.

Second, the pandemic has forced many to work from home and telecommute.  For some, that might become a permanent or more permanent relationship—changing the need for office spaces and also the need to commute.

Third, the high cost of housing in California is for the first time stopping population growth and may lead to a decline.

Trying to predict the future is always dicey, and never more than now.  A big question is going to be how permanent these changes are likely to be.

Of the three points mentioned here, I think the college students staying home in large numbers is the most likely scenario to be temporary.  Distance learning doesn’t work well for a lot of study, it truncates the college and even the networking experience, and even with a cost savings on housing, the tradeoffs suggest this is likely to be a short-term shift rather than a long-term trend.

If true, that means, once the pandemic ends, places like Davis are again likely to experience housing crunches and increasing rents.

The area that is more likely to change is work from home and the telecommute.  This one bears watching because there are in fact a lot of advantages to telecommuting.  It saves the need for expensive physical space.  It reduces time spent commuting, which leads to a better live-work balance.  It reduces the need to put dense housing near transit and live-work arrangements.  And it reduces VMT which can help us better a better handle on GHG emissions.

In the long term, companies will need to worry about some things: (1) Is there a drop off in productivity working at home and can you overcome it perhaps with longer worker hours or other efficiency?  (2) You lose some of your collaborative work—putting people into close contact leads to cultivating innovation, which you may lose remotely;  (3) People are already getting stir crazy not leaving home, and therefore perhaps working from home is not ideal.

But at the very least you might do more hybrid or rotational models—having people come into the office or commute less.  Given the severity of global warming, this is a way to solve the transportation side of that equation.

Finally there is the question of whether California’s housing crisis will abate because people are starting to leave the state.  The problem with that view of course is that there may well be a causal relationship here—the high cost of housing and difficulty of buying new housing is likely a driver of this trend, and failure to address the underlying issue of affordability and scarcity will make this worse, not better, in the future.

In a piece a few weeks ago in CalMatters, Matt Levin, who writes on housing, posits three lessons he has learned covering California’s housing crisis.

First, Levin argues “there is not one housing crisis,” but rather, “three housing crises.”

“There are really three distinct housing crises roiling California. While often stemming from the same underlying problems, they impact different segments of the population and warrant different solutions,” he writes.

First is the homeless crisis, with 150,000 homeless people in shelters or living on the street.

Second is there are another 7.1 million Californians living in poverty “when housing costs are taken into account.”  He writes, “While not homeless, 56% of these low-income Californians see more than half of their paychecks devoured by rising rents. Skewing Black and brown, these are the renters who face intense displacement and gentrification pressures, live in overcrowded and unsafe housing conditions, and have fled urban cores for cheaper exurbs over the past two decades.”

Third, it affects the younger generation of middle-class and higher-income California, as “the average California home [has been costing] about three times the average household’s income. Now it costs more than seven times what the average household makes. High rents make saving for a down payment that much more difficult. While lower-income Californians have struggled to afford the state for decades, the term ‘housing crisis’ and its attendant publicity really only came into vogue once richer Californians started seriously considering moving to Austin or Portland or Las Vegas.”

If this analysis is correct—and it seems reasonable—we can’t simply sit back and let the market adjust the problem, because this is likely to impact the future sustainability of the state.

Second, he believes that the rise of telework will “dilute demand to live in dense, urban environments.”

He is not certain about this.

“There’s a very dumb debate happening right now over whether the pandemic-necessitated rise in remote work will spell the death of major cities,” he writes.  Instead, “The real debate is whether a meaningful number of households will eschew the priciest, densest parts of the state for cheaper, larger spaces once they’re guaranteed they’ll only have to commute two or three days a week.”

He believes, though, that this will cause enough to move, to cool the rents in places like San Francisco, Los Angeles and San Diego, but that “the price of single-family homes and larger rentals in mid-size cities, suburbs and exurbs will rise. “

We’ll see.

He notes, “Smart people can disagree — we very well may end up right where we were in February 2020, before San Francisco rents plunged 25% and there was no cool bar around the corner to justify cramming four people into a two-bedroom. “

Finally, he argues, “The big dividing line in housing politics is whether you think one more unit of market-rate housing is a good thing or a bad thing. It is mostly a good thing, but it depends.”

This is a conversation that needs to happen in Davis.  We are embarking on a General Plan and a Core Area Specific Plan.  In fact, the Downtown Plan once again goes to Planning this week.  But Jim Gray’s point from November is critical to take into account—while I don’t agree with the idea of pausing planning right now, we have to build our planning into a new reality.

How can we take into account change while not completely stopping the process of planning to build desperately needed housing?  That’s a challenge that our leaders will have to address.

In the meantime, join us on Friday for a discussion on COVID and UC Davis.

Vanguard Webinar: COVID, UC Davis & Educational Challenges During a Pandemic – Friday January 29 at Noon

—David M. Greenwald reporting


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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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18 thoughts on “Monday Morning Thoughts: California’s Housing Crisis Could Morph After Pandemic, but Probably Won’t Go Away”

  1. Chris Griffith

    I definitely got a disagree with your statement that there’s a housing crisis we have a business crisis we have Tesla moving out of California Oracle the investment firm Charles Schwab in all the other peripheral businesses.

    in the top it all off it’s been announced that our illustrious president is going to give San Francisco tens of millions of dollars for hotel rooms for the homeless. I have an idea maybe Gavin newsom can run television ads across the Nation announcing free hotel rooms for all homeless that’ll spur the economy in California what do you think boys think it’s a good idea 🤔

     

    1. Alan Miller

      in the top it all off it’s been announced that our illustrious president is going to give San Francisco tens of millions of dollars for hotel rooms for the homeless.

      Wow, you’re serious. The Kamala connection pulls through.

      President Biden orders 100-percent federal reimbursement for city’s Covid hotels
      https://missionlocal.org/2021/01/president-biden-orders-100-percent-reimbursement-for-citys-covid-hotels/

      Policies like this could be part of the reason why so many Americans would vote for Donald Trump (pre-insurrection, of course).

      1. Don Shor

        Why do you guys post misleading comments like this? It isn’t just SF, and it has nothing to do with Vice President Harris.

        President Joe Biden on Thursday directed the Federal Emergency Management Agency to completely reimburse cities and states for a slew of emergency services they set up during the pandemic. That includes the 2,300-odd hotel rooms San Francisco obtained for vulnerable homeless residents to safely shelter during the pandemic.

        It is a very sensible policy that funds an urgently needed program which got people off the streets during a pandemic.

    2. Richard_McCann

      We’ve heard the steady drumbeat that businesses are leaving California it will be the end of us since at least the 1980s. I was surprised that we didn’t fall to the living standards of  Appalachia after the 1991 recession! Meanwhile California’s economy has consistently outgrown almost every other economy in the nation over the long term, even up with the nuevo riche oil economies in the Dakotas.

      Instead, let’s ask why those businesses are now moving out of state–what’s changed? Taxes and regulation are pretty much unchanged over the last decade plus. The one thing that has changed is the rapid escalation in real estate prices, both for housing and commercial, since the recovery from the Great Recession. Simple observation and logic leads us toward the conclusion that its those price increases that are driving away both businesses and people.

  2. Alan Miller

    If this analysis is correct—and it seems reasonable—we can’t simply sit back and let the market adjust the problem,

    No, we (um, who is “we” now?) must manipulate the market!

    1. Bill Marshall

      No, we can’t let the market adjust the problem… that would be democratic, to let the market adjust…

      Right ‘hand of god’, Left ‘hand of god’, we ABSOLUTELY need to require all folk, society, economy, to carry out… so it is written… so many who want to compel others to further their agenda(s)… from ‘conservative’ to ‘progressive’, many, many want the power to complel others to believe or behave as they see fit.  We have seen a lot of that in the last year… Sanders, OCA, Trump, Retrumplicans…

      That is the biggest betrayal of the Declaration of Independence, US Constitution… to seek to compel others to ignore truths (many of which are self-evident), accept lies (like Trump won in a ‘landside’, and the “deep state” and Democrats stole the results of the will of the people, and you have to storm Congress to overturn those ‘fake news’ results… )

      Suggest Thomas Paine’s “Common Cause”… these are indeed “The times that try men’s  people’s souls…”… unless, of course, you do not believe in a soul…

    2. Richard_McCann

      We “manipulate” the market all  the time, most often to socialize private losses and excessively protect private gains. The problem is that markets are rampant with serious market failures, exacerbated by certain stakeholders diving in to protect their interests to perpetuate failures that enrich them (e.g., payday lenders). Environmental degradation and health care provision are two salient examples.

      That said, the best housing solution is likely to reduce market manipulation by reducing local regulatory barriers to increased housing.

  3. Ron Oertel

    Finally there is the question of whether California’s housing crisis will abate because people are starting to leave the state. 

    Already has started to, as demonstrated by the vacancies and 30% drop in rental prices in San Francisco, and a similar situation in Los Angeles.

    The problem with that view of course is that there may well be a causal relationship here—the high cost of housing and difficulty of buying new housing is likely a driver of this trend, and failure to address the underlying issue of affordability and scarcity will make this worse, not better, in the future.

    The only “problem” here is the conclusion, as demonstrated by the San Francisco and Los Angeles examples, above.

    People are moving to locations where the jobs/housing cost makes more sense for them.  That’s exactly how the system works, and is supposed to work. And, those “left behind” get cheaper housing costs, as a result. (Which they can then “lock in” via rent control, especially in places like San Francisco.) There are a significant number of predictions that “for-sale” housing will also fall, after the stimulus and eviction moratorium ends.

    The same phenomenon is responsible for the influx of people from the Bay Area to the Sacramento region (though it is probably less of a growth hub for new jobs, compared to places like Austin). The folks moving to Sacramento might be telecommuters, to their old jobs in the Bay Area.

    1. Ron Oertel

      There are a significant number of predictions that “for-sale” housing will also fall, after the stimulus and eviction moratorium ends.

      Forgot to mention the end of mortgage forbearance programs at some point, as well.  I do not know the extent of that.

  4. Rick Entrikin

    “… desperately needed housing?”

    So let me get this straight.  We had a housing “crisis” because there were too many people and not enough housing.  Now people are fleeing California, for a variety of reasons, so fewer people should be vying for the remaining housing units.  But The Founder is arguing that we have to build more housing because it is “desperately” needed?

    One of the growing complaints in California  (other than housing) has been the crowding and congestion caused by too many people and too many cars.  So now that the numbers of people and, presumably numbers of cars on the road at any one time are decreasing, we need to build more housing because of – what?

    1. Chris Griffith

      If I read in between the lines of this story basically the housing shortage is we need more hotels for the homeless and then I think we need more low-income housing for the immigrants who want to come here from Central and South America so basically  the haves are leaving and have nots are coming…

      Ah yes California the land of the fruits and nuts 😊

    1. Bill Marshall

      I’d re-word that… not everyone needs or wants to own a house… one of my favorite relatives always rented, altho’ she could have bought… I’d reword it to,

      “People who have shelter, on terms they choose, ‘need’, and/or are comfortable with, shouldn’t be so complacent about people who don’t.”

      My words… yours are equally valid… just a different nuance… I think we may be saying almost the same thing… just different terms of speech…

      Feel free to correct me… no harm, no foul…

    2. Alan Miller

      People who have homes shouldn’t be so complacent about people who don’t.

      When “people who don’t” are loitering and littering near me, selling drugs, leaving piles of trash and stealing bikes, I guarantee you that I am not complacent.

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