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California housing crisis may lead to economic one, says report

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New reports from Next 10 underline economic pains felt from housing shortage

San Francisco, California

California often claims to be on the vanguard of national issues and trends. If that’s true, a trio of new reports commissioned by Next 10, a nonpartisan nonprofit, suggests substantial economic challenges ahead due to its severe housing crisis.

“It’s very straightforward, we just don’t have enough housing supply,” F. Noel Perry, the founder of Next 10, told Curbed.

While the new series of briefs, entitled “Growth Amid Dysfunction: An Analysis of Trends in Housing, Migration and Employment,” paint a picture of a state with both significant economic growth and heavy burdens, housing is at the center of nearly every issue.

Research finds that across the state, the shortage of affordable and accessible housing is restricting growth, inflicting economic and environmental damage, and causing many low-income and middle-class residents to seek opportunities elsewhere.

While Perry sees solutions, none are easy or immediate.

“I don’t think there’s any silver bullet,” he says. “But I think we can draw a picture of how great the challenge is. California is sinking deeper into a housing crisis, and this raises questions about the sustainability of the state’s overall economic growth.”

San Jose, California

“A strong economy can be dysfunctional”

An update from a similar series of studies undertaken in 2016, the report shows the many ways California continues to stratify. The tech industry is booming, while low-wage workers are falling behind. California continues to draw in high-earning, educated people from other states, while long-time Californians leave for affordable housing and opportunity. The state is still performing well overall, says Perry, but if this continues, there’s fears of a brain drain and a shortage of workers on the horizon. “A strong economy,” the report states, “can also be dysfunctional.”

By themselves, employment statistics paint a rosy picture. The booming high-tech industry in adding more jobs, increasingly concentrated in fewer industries and companies, and many low-wage sectors are also booming, including leisure and hospitality, retail, healthcare, and agriculture.

But pay for low-wage workers just isn’t keeping up with California’s high cost of living. Over the last 10 years, wages for low-income workers, who make an average of $27,000 a year, increased by 17 percent. Compare that to high-income Californians, who make $83,000 annually on average, and have seen their wages rise 42.5 percent in the previous decade.

San Francisco, California

It still boils down to the housing shortage

Factor in slow wage growth and inflation with a persistent housing shortage—one with no immediate end in sight—and that has led to significant out-migration for many caught between less purchasing power and higher rent payments. More than 180,200 former Californians working in lower-skilled, lower-paying fields left between 2006 and 2016.

There has been some slight relief from higher housing costs, or more accurately, things are slightly less terrible than they were a few years ago. Californians are paying less, as a percentage of what they earn, on housing. Homeowners put 21.9 percent of their income toward housing in 2016, as opposed to 22.5 percent in 2014, while renters put 32.8 percent of their paycheck toward rent in 2016, a slight dip from 33.6 percent in 2014.

But a lack of new supply has meant homeownership is becoming a fleeting dream for many. Only 24.7 housing permits were filed for every 100 new California residents, well below what’s needed to keep up with new arrivals, and half the U.S. average of 43.1 permits per 100 new residents. California issued as many housing permits last year as the whole state of Florida, which has 18 million less people.

California renters face similar pressure, with 52.6 percent considered rent-burdened (paying more than 30 percent of their income on housing), the highest rate in the nation.

These job trends and migratory patterns have created differing scenarios for the state’s major metro areas. While all face rising housing costs, San Francisco has attracted more high-paid, highly educated workers, while LA and San Diego have seen some employment opportunities contract.

The report concludes that if California is not able to support its growing population, residents will continue to see home prices increase, and those who turn to the rental market will find little relief. It’s a dire situation. But Perry believes that the state—and the legislators who have proposed dozens of housing laws in Sacramento—are at least finally starting to wake up to the severity of the challenge.

“I’m optimistic that California can rise to the challenge,” he says. “I do have some level of optimism, along with being very cognizant of the challenges.”