By David M. Greenwald
For years, some of our anti-housing commenters have argued that there is no housing crisis in California. They point to declining populations and projections that show at most a flatlining of residential growth over the next few decades.
They ignore or explain away the fact that it’s only in the last few years the projections have shown flat or declining growth and most of that is due to changes in migration patterns, largely due to the housing crisis.
There is a good analysis in the LA Times as to why, despite fewer people and more homes, there remains an acute housing shortage in California.
“In the last few years, (population growth) ground to halt and then dropped — and all the while developers continued to build,” the Times writes. “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.”
The answer, according to the Times and experts they interviewed is “because for decades — even in years of slow population growth — California hasn’t added enough housing to meet demand, creating a backlog so large that it can’t be corrected by a few years of population loss.”
The Times adds, “Making the situation more acute: a generational bulge of millennials who — in larger numbers than the preceding Generation X — have exploded into a housing market that wasn’t ready for them.”
The Times notes that California, since 2020, has nearly three-quarters of a million fewer people and a total of 378,000 additional housing units.
However, John Boyne, a researcher with the state Department of Finance, believes that “although the state and L.A. County are adding homes and losing population, the trend is probably exaggerated because of data issues that will soon be corrected.”
When that gets corrected, “the population losses — and to a lesser extent the housing gains — will probably be smaller even though they will still exist.”
Some more interesting analysis comes from Hans Johnson of PPIC. For example, he noted that Rust Belt communities, that don’t have expensive housing markets, have seen far greater population declines over a much longer period.
For example, Wayne County, Michigan, home of Detroit, has lost 34% of its population since 1970. Gary, Indiana, has lost 39%.
“L.A. County, on the other hand, has lost 4.2% of its population since its peak several years ago and statewide there are 1.8% fewer people — drops that state number crunchers consider somewhat inflated,” the Times notes.
People think the “sky is falling and everyone is leaving California,” Johnson said. “That is not true.”
The other problem with the notion that we don’t need housing because of declining population is that population patterns—particularly in and out migration—are largely determined by cost of housing.
The Times points out, “To some extent, the current level of housing construction serves as a lid for how many people live in California, because there’s a limit to how much people can, or want to, cram together into one unit.”
However, there remains “high demand to live in a state with a temperate climate, diverse economy and 1,200 miles of coastline.”
The problem is that “the rich tend to win out” and they end up grabbing existing housing, “in the process, gentrifying older low-income neighborhoods as affluent couples or singles move into apartments formerly occupied by larger families that left for cheaper housing elsewhere.”
The Times thus notes, “In such a scenario, an area’s population immediately declines, but the demand for housing does not.”
“The cost of living in California and Los Angeles is so high … that we know a lot of people can’t move here and we know a lot of people can’t remain here, because they are priced out,” said Michael Lens, an associate professor of urban planning and public policy at UCLA.
The solution of not building housing because of declining population will, if anything, exacerbate these trends, make them worse, and in the process cause severe harm to the economy.
Another problem is taking an instant snapshot is a bit misleading.
KTVU in San Francisco reported, “Renters in the Bay Area may be getting a little bit of relief from high rental prices. Recent data shows that rents across the state have dropped over 2% in a year and more than 4% in the San Francisco Bay Area.”
So does that mean that the housing crisis is over?
No. Not according to housing advocates who believe “the slight dip in rents is temporary and long-term affordable housing solutions are still desperately needed in California.”
“Even if they’ve gone down slightly, it’s not going to solve the housing crisis because rents are so high already,” said Sandy Perry, president of the Affordable Housing Network of Santa Clara County.
This is only temporary relief.
Rent prices in San Francisco County fell by 4.3%, San Mateo County fell by 3.6%, and in Santa Clara County, 3.1%.
Perry told KTVU that he believes “the small decreases may send the wrong signal to private builders.”
“So, if rents are projected to go down or stay low, they simply won’t build. When they don’t build, rents will start going up again. So, this is not a solution to our housing crisis,” Perry said.
California is not going to solve its housing crisis by costing people out of housing and the housing market. It’s going to solve it through creating the kinds of housing that meet the needs of the market. Until that happens, California’s economy will be more tenuous than it needs to be.