Opinion: California's Economy Is Sluggish, and a Lack of New Housing Is the Most Likely Culprit - Times of San Diego
Summary of Housing and Unemployment Trends in California
1. California Unemployment Trends:
California's unemployment rate has historically been volatile, often influenced by broader economic conditions and industry-specific factors. Here are some key points:
- - During the 2008 financial crisis, California's unemployment rate peaked at around 12.6% in 2010.
- - There was a steady decline in unemployment from 2011 to 2019, reaching a low of about 4% in late 2019.
- - The COVID-19 pandemic caused a sharp spike in unemployment in 2020, with rates jumping to over 16% in April-May 2020.
- - Post-pandemic recovery led to a gradual decrease in unemployment rates.
- - As of early 2024, California's unemployment rate was hovering around 4-5%, which is close to pre-pandemic levels.
2. California Housing Occupancy Rate Trends:
Housing occupancy rates (the percentage of occupied housing units) in California have been influenced by factors such as population growth, housing development, and economic conditions. Here are some general trends:- - California has consistently had high housing occupancy rates due to high demand and limited supply in many areas.
- - The homeownership rate in California has typically been lower than the national average.
- - Rental occupancy rates in major metropolitan areas like San Francisco, Los Angeles, and San Diego have generally been high.
- - The COVID-19 pandemic initially caused some fluctuations in occupancy rates, particularly in urban areas, as some residents moved to less densely populated areas.
- - As of 2024, housing occupancy rates remain high in most parts of California, with continued pressure on housing availability in major urban centers.
Opinion: California's Economy Is Sluggish, and a Lack of New Housing Is the Most Likely Culprit - Times of San Diego
Dan Walters • CalMatters ColumnistCalifornia’s unemployment rate, 5.2% of its labor force in July, is no longer the nation’s highest after months of having that dubious distinction.
While California’s July rate was unchanged from June, Nevada’s creeped ahead — or behind — with a 5.4% rate, so California is now tied with Illinois for second place among the states.
The jobless rate translates into slightly over 1 million of California’s 19.4 million-person labor force being unemployed. The labor force is defined as adults of working age who either hold jobs or are seeking work.
As high as it may be in relative terms, California’s unemployment rate is merely one piece of an economic puzzle. Other pieces include a population that has been declining due largely to out-migration to other states, a chronic shortage of housing that pushes housing costs upward and pushes people out of the state, increased numbers of workers who have retired and a decline in the labor force due to all of those factors and more.
Overall, California’ economic recovery from the brief but sharp recession during the COVID-19 pandemic has been slower than the nation as a whole, or as a new analysis from Beacon Economics puts it, “There is little doubt that California is not doing as well as it has in the past. The only substantial argument is over why the state is faring so poorly, and the depth of the rot.
“California’s biggest problems are not a function of an economy that suddenly stumbled upon hard times,” Beacon continues, “they are the unintended consequences of policy choices made over the past decade. While the state continues to show real strength, and there is no recession in sight, these policies have limited the economy’s capacity to expand.”
While “the state’s economy is growing, just at a slower-than-typical rate (and) California’s problems relate to a number of unforced policy and fiscal errors, which have created a drag on the state’s ability to grow. A change in approach would serve California well, but this can only occur if we align the narrative about the state’s economy with the reality,” the strongly worded analysis declares.
Chief among those unforced errors cited by Beacon is California’s inability to jump-start housing construction despite the passage of numerous legislative measures aimed at reducing impediments, such as restrictive local zoning and design rules.
Beacon says, “California’s economy is being held back by the state’s housing shortage, not by housing affordability,” adding, “As the lack of housing supply drives up home prices, higher income families who enjoy lower price sensitivity are moving in, pushing housing prices up even further, and pushing lower income families, who face greater price sensitivity, out of the state.”
Beacon sees a geographic aspect to the state’s slow recovery, with jobs in inland areas growing markedly faster than those in coastal communities — and once again ties it to housing.
“The regions that have added significant payroll jobs over the last two years, such as the Inland Empire, Sacramento, Fresno, and Stockton, are all located in less expensive inland parts of the state and are able to grow because of their expanding labor force,” Beacon notes.
“In contrast, the more expensive coastal markets have seen much less labor force growth, and hence less payroll job growth. The differential impact on California’s coastal communities is a function of slower growth in their housing supply combined with a greater share of their labor market entering retirement.”
Aligning the narrative of the economy with reality, rather than ideology, is sound advice that Capitol politicians should heed as they draft nostrums purporting to improve the lives of their constituents but rarely succeed.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters.
While California politicians skirmish over housing, the shortage keeps growing
The current session of the California Legislature, like all recent sessions, has featured the state’s perpetual conflict over its acute shortage of housing.
Gov. Gavin Newsom and most legislators are striving to eliminate perceived constraints on construction of new housing – particularly laws and zoning policies in cities – while local officials, neighborhood activists and some legislators defend local land use controls.
One skirmish occurred this week in the state Senate’s Natural Resources and Water Committee over two bills that would have weakened the state Coastal Commission’s authority over housing development along the coast. One measure, Senate Bill 1077, would have removed the commission’s power to review “accessory dwelling units” – small cottages built in the backyards of homes. The other, Senate Bill 1092, would have compelled the commission to more quickly process apartment project permits.
Both bills were stripped of their meaningful language and reduced to little more than toothless bromides at the behest of the committee’s chairman, state Sen. Dave Min, a Democrat from Irvine.
The bills’ author, Sen. Catherine Blakespear, a San Diego Democrat, said, “I am absolutely forced to take these amendments and I am doing it willingly, but I did not want to.”
Min, it should be noted, is engaged in a very tight battle for a congressional seat in the uber-affluent 47th Congressional District along the Orange County coast. It includes Huntington Beach, where resistance to new housing, especially low- and moderate-income units, is particularly virulent.
What happened – or more accurately didn’t happen – in the Senate committee typifies the Capitol’s struggles over housing in recent years. Sometimes pro-housing forces win and sometimes their rivals prevail but regardless of political outcomes, California’s housing supply continues to fall short of demand.
The chronic shortage drives up housing costs, which are the major factors in California’s having the nation’s highest level of poverty, according to Census Bureau calculations that include living costs, and contributes to homelessness.
California’s laggard response to housing demand is apparent in a new report by Getac, a Taiwanese technology company whose U.S. offices are, by the sheerest coincidence, located in Irvine, the center of both Min’s Senate district and the congressional district he hopes to represent.
By using census data, Getac calculated rates of housing construction for all 50 states between 2010 and 2020 and California was definitely subpar. Overall, the nation increased its housing stock by 5.9% during the decade but California’s gain was just 4.7%, from 13.7 million units to 14.3 million.
North Dakota was No. 1 at 16.6% and West Virginia was No. 50, having lost 2.5% of its housing, while California was No. 29. Texas (No. 3) and Florida (No. 9), two states often seen as rivals, far outstripped California with gains of 14.6% and 8.6%, respectively.
In raw numbers, both states surpassed California, with Texas adding 1.5 million new units – more than doubling California’s 648,458.
To put it another way, between 2010 and 2020, California’s population grew by 6.1% while its housing supply rose by just 4.7%, increasing the already wide gap. Moreover, since 2020 the state has fallen about 50% short of the 180,000 new units the state says are needed each year.
In 2017, while running for governor, Newsom pledged, in a social media post, that if elected “I will lead the effort to develop the 3.5 million new housing units we need by 2025 because our solutions must be as bold as the problem is big.”
Newsom may have been been much more active than other recent governors on promoting housing construction, but what he and the Legislature have done still has not made a measurable dent in California’s housing shortage.
Dan Walters is one of most decorated and widely syndicated columnists in California history, authoring a column four times a week that offers his view and analysis of the state’s political, economic,...
California is building fewer homes. The state could get even more expensive - Los Angeles Times
Ken Kahan makes a living building homes.
A specialty? Luxury apartment complexes in Los Angeles neighborhoods such as Palms and Silver Lake filled with mostly market rate units, but with a handful of income-restricted affordable ones as well.
It can be a good business, but lately less so.
“We have pulled back,” said Kahan, the president of California Landmark Group. “The metrics don’t work.”
Across California and the nation, developers moved to start fewer homes in 2023, a decline some experts say could eventually send home prices and rents even higher as supply shortages worsen.
Developers cite several reasons for delaying new projects. There’s high labor and material costs, as well as new local regulations that together make it harder to turn a profit.
Perhaps the biggest factor — and one hitting across the country — is the high cost of borrowing. Rising interest rates not only make it more expensive for Americans to buy a home, but they add additional costs for developers who must shell out more money to build and manage their projects.
As a result, fewer projects make financial sense to build and fewer homes are built.
“More than anything it is debt costs,” said Ryan Patap, an analyst for real estate research firm CoStar.
In all, preliminary data from the US. Census Bureau show building permits for new homes nationwide fell 12% in 2023 from the prior year and 7% in California. Drops were recorded in both single-family homes — most of which tend to be for sale — as well as multifamily homes — which are chiefly rentals.
Dan Dunmoyer, president of the California Building Industry Assn., said one major reason for the decline is that many for-sale home builders foresaw “a massive downturn” and stopped buying lots to develop when mortgage rates soared in 2022.
Then a funny thing happened. Demand for their product didn’t crater as much as expected, in large part because existing homeowners didn’t want to sell and rid themselves of ultra-low mortgage rates.
“Builders kind of woke up and realized ‘Oh, it’s just us [selling homes],‘” Dunmoyer said. “But we don’t turn on a dime.”
As for-sale builders restart their engines to take advantage of a shortage of listings, there are signs of improvement. During the first two months of this year, builders in California pulled 35% more permits for single-family homes than during the same period a year earlier, according to census data.
Permits for multifamily continued to decline — dropping 33%.
The diverging paths are probably due to several factors, said Rick Palacios Jr., director of research for John Burns Research and Consulting.
On a whole, single-family home builders have access to a wider source of debt that isn’t as vulnerable to rising interest rates. In the single-family market, the supply shortage has also worsened and home prices are climbing.
Meanwhile, rents in many places — including Los Angeles — have dropped slightly as vacancies have risen, in part because apartment construction has been relatively robust in recent years.
“Single-family solid, multifamily weak is a pretty consistent theme across most of the country,” Palacios said. “You’re hard pressed to find a market where developers and investors are gung ho on apartments.”
In the city of Los Angeles, developers must contend with another factor — Measure ULA.
The citywide property transfer tax took effect last year to fund affordable housing and has drawn the ire of the real estate industry.
Though it’s known as the “mansion tax,” except for rare exceptions it applies to all properties sold for more than $5 million, no matter if they are gas stations, strip malls, apartment buildings or actual mansions. Under the measure, a seller is charged 4% of the sales price for properties sold above $5 million and below $10 million.
At $10 million and above, the tax is 5.5%.
Apartment developers and real estate brokers said additional costs from ULA make it even harder to earn a reasonable profit in what can be a risky business.
That’s because when building apartments, developers often sell their finished product, which would probably trigger the ULA tax for any building over 15 units, according to Greg Harris, a real estate broker with Marcus and Millichap. Even developers who hold onto their properties typically need to take out a mortgage on the finished building — and Harris said lenders are willing to give less because they too would need to pay the tax if they foreclose and sell the property.
“ULA is like the last nail in the coffin,” said Robert Green, a Los Angeles developer. “It couldn’t have come at a worse time.”
Many apartment projects got their start under different economic circumstances and have opened in recent years or will soon. That supply should help keep rents down for a while, but not forever, said Richard Green, executive director of the USC Lusk Center for Real Estate.
In two or three years, as fewer apartments are finished “we will see rent start to go up again,” he said.
That would be a hit for Californians struggling to find housing in an expensive state where thousands sleep on the streets.
Economic cycles, of course, ebb and flow and construction may rebound.
The Federal Reserve plans to cut interest rates later this year, which may help more projects make sense financially, as could rising rents.
Land sellers could also drop their asking prices to adjust for rising developer costs, including ULA in Los Angeles.
Normally, real estate analyst Patap said he’d expect apartment construction to rebound as land costs adjust downward. But he noted developers say they are also cautious about building in L.A. because of a broader political shift in the city that’s more supportive of restrictions on landlords and more supportive of protections for tenants.
In the city of Los Angeles, multifamily permits dropped 24% in 2023 compared with 19% in Los Angeles County, census data show. (Data from the Construction Industry Research Board show even larger drops: 49% in the city and 39% in the county.)
Laurie Lustig-Bower, a commercial real estate broker with CBRE, said some L.A. landowners have reduced their prices to sell, but “if they don’t have a gun to their head” they are waiting until developers can pay more.
In recent years, state lawmakers have taken action to make it easier to build housing, in part by eroding local control over land use decisions.
Los Angeles Mayor Karen Bass has also fast-tracked 100% affordable buildings under her Executive Directive 1, while the city recently exempted smaller projects from some storm water capture requirements.
Mott Smith, chairman of the Council of Infill Builders, said more must be done to increase the number of new homes in Los Angeles and cited the storm water decision as the kind of steps government should take.
“The city has no influence over interest rates ... [but] what it controls is the process to get a project approved,” Smith said. “There are so many opportunities.”
For now, developers say it’s tough to find opportunities.
Kahan said his company runs the numbers on potential land purchases constantly and at least once a week finds it doesn’t make sense to buy and build.
He expects to purchase some land in Southern California by year’s end, though mostly outside of the city of Los Angeles where Kahan said he’s increasingly looking because of costs from ULA, which unlike current interest rates aren’t expected to change.
So far, Kahan said he’s yet to find a deal that will work — within or outside city borders.
Closing California’s housing gap
Access to decent, affordable housing is so fundamental to the health and well-being of people and the smooth functioning of economies that it is embedded in the United Nations Universal Declaration of Human Rights. Yet in developing and advanced economies alike, cities struggle with the dual challenges of housing their poorest citizens and providing housing at a reasonable cost for middle-income households.
In a new McKinsey Global Institute report, A tool kit to close California’s housing gap: 3.5 million homes by 2025, we look specifically at the US state of California and offer remedies for fixing a chronic housing shortage. Our objective is to provide rigorous, fact-based analysis on a charged issue, and to present a practical blueprint for how cities, state authorities, the private sector, and citizens can work together to unlock housing supply and ensure housing access.
To understand the nature of the problem, we built a quantitative model to identify California’s housing affordability gap by household and location. To do this, we segmented the state’s more than 12 million households into 34 housing markets and 16 income bands, and assessed each household’s ability to afford housing in their local market. We learned that 50 percent of California’s households cannot afford the cost of housing in their local market. Virtually none of California’s low-income and very-low-income households can afford the local cost of housing.
Our model also allowed us to generate detailed, local insights into who can and can’t afford housing, where they live, and how much they pay. For instance, we learned that the problem is both rural and urban: while metropolises such as Los Angeles and San Francisco suffer from high housing prices, so do rural communities such as Watsonville and Salinas, where 50 to 60 percent of households are unable to afford the cost of housing. We also learned that high housing costs not only impact low-income households, but also squeeze California’s middle class. In Anaheim, Long Beach, and Los Angeles, households earning up to 115 percent of area median income, or $69,800 per year, are unable to afford local housing costs. In the city of San Francisco, a household earning $140,000 per year, or 179 percent of area median income, is squeezed.
In dollar terms, we learned that each year Californians pay $50 billion more for housing than they are able to afford. In total, California’s housing shortage costs the state more than $140 billion per year in lost economic output, including lost construction investment as well as foregone consumption of goods and services because Californians spend so much of their income on housing.
After quantifying California’s affordability gap to understand the size and distribution of the problem, we analyzed land across the state, parcel by parcel, to identify “housing hot spots” where large amounts of housing could be developed with attractive returns. McKinsey’s geospatial analytics team mapped cities such as Fresno, Los Angeles, and San Francisco and counties such as Contra Costa, Sacramento, and San Bernardino to identify opportunities to build housing.
We identified physical capacity to add more than five million units in "housing hot spots.” This is more than enough to close the state’s housing gap. More than a quarter million of these units could be built on urban land that is already zoned for multifamily development and is sitting vacant. Up to 3 million units could be built within a half-mile of high-frequency public-transit stations. More than 600,000 could be added by homeowners to existing single-family homes.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com
What are the barriers to converting these five million potential units into actual homes? There are many—whether regulatory, political, economic, or cultural. California’s challenge is to overcome these barriers, unlock supply on high-potential land, cut the cost and risk of producing housing, and ensure that low-income and vulnerable individuals who are priced out of the market have access to housing. To that end, we analyzed the current barriers to housing development in California and identified the public-sector and private-sector innovations with the highest potential to unlock new supply. These range from changing the rules to incentivize local governments and accelerating the land-use approval process to boosting construction productivity and deploying modular construction techniques.
Working together, cities, state authorities, business, and citizens can close the housing gap—but solutions must be highly tailored to local needs, and government, business, and citizens all need to step up to the challenge. We identified a five-step process for communities to close the local housing gap: create a housing delivery unit, define the local problem, identify local solutions and map “housing hot spots,” align stakeholders behind a local strategy, and execute the strategy and measure performance.
Our hope is that the analysis contained in this paper will serve as a blueprint to help communities in California—and beyond—close the housing gap. This is critical for improving social equality, enhancing quality of life, and boosting regional economic competitiveness.
Download an appendix of maps that details the extent of the housing challenge across the state and that identifies the“housing hot spots” that present an opportunity to close the gap. (PDF–1.71MB).
About the author(s)
Lola Woetzel is a director of the McKinsey Global Institute, where Jan Mischke is a senior fellow; Shannon Peloquin is an associate partner in McKinsey’s San Francisco office, where Daniel Weisfield is a consultant.
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| California Statewide Housing Vacancy Rate contues to drop |
E-8 Historical Population and Housing Estimates for Cities, Counties, and the State, 2010-2020
November 2023
Contents
This report provides population and housing data for California cities and counties from the 2010 Census to the 2020 Census and for each year in between. The intercensal estimate data have been adjusted to provide consistent growth patterns derived from actual changes that occurred between the 2010 and 2020 censuses using the Error of Closure (EOC) adjustment procedure.
Error of Closure Methodology
These revised intercensal estimates for 2010-2020 for the state, county, and city population and housing are produced by modifying previous estimates to account for differences between the Demographic Research Unit (DRU) test estimates on 4/1/2020 and enumerated census counts of the same day. The procedure to close these differences is called the “Error of Closure,” or EOC. The concept is to preserve the original growth patterns that transpire in the annual DRU estimates for population and housing but to realign the ten-year growth patterns with the bookend census data.
The EOC adjustment is applied after two consecutive censuses have been conducted; for this report, the two censuses are for 2010 and 2020. The EOC adjustment revises previously calculated intercensal estimates to mitigate the effects of estimation errors in a data series over the decade coupled with differential accuracy of two decennial censuses. For this report, the final adjustment was made after the 2020 Census data became available. This procedure statistically distributes the difference, called the error, between the 2020 Census counts and the DRU test estimate calculated as of the census date, April 1, 2020, to the previously calculated annual 2010 to 2020 estimates.
American Community Survey (ACS) data were used to distribute total 2020 census housing units into our standard housing types (single detached units, single attached units, two to four units, five plus or apartment units, and mobile homes). For the EOC report, to maintain historical consistency, housing unit types consist of single units (single detached and single attached units), multiple units (two to four and five plus units), and mobile home units. Accessory Dwelling Units (ADUs) have been recorded in the Annual Housing Unit Survey since 2018 but are included in the regular housing unit types as defined by the ACS. Due to difficulties in data collection surrounding the 2020 Census and the COVID-19 lockdowns, the Group Quarters (GQ) 2020 counts were adjusted. Jurisdictions that experienced large undercounts or overcounts of GQ populations were adjusted using administrative and survey data to better reflect the actual population residing at the location at the time of the census. In every jurisdiction where an adjustment was made to the GQ population there was an equal adjustment to the household population so that the total population still equaled the 2020 Census counts. The E-8 report will be updated with CQR corrections when they are reported and approved by the U.S. Census Bureau.
The E-8 report is the historical version of the annually produced E-5 population and housing reports with reduced detail for housing units by type.
Data Description
Population:
Total population: sum of household population and group quarters.
Household population: number of persons living in occupied housing units.
Group quarters: non-household population such as nursing homes, school dormitories, state and federal prisons, and military barracks.
Housing:
Total housing units: stock of all housing units, including year-round, vacant, seasonal or migratory units, and other vacant units.
Single units: family dwelling units include single family detached units (units which are detached from any other structure and have open space on all four sides) and single family attached dwellings (units which are attached to other units with adjoining walls extending from ground to roof that separate them from other adjoining structures and forms a property line). Each single family unit has its own heating system. Accessory Dwelling Units (ADUs) reside primarily in this category except where the jurisdiction indicates that the unit was built in a multi-family structure.
Multiple units: multiple family dwelling units include structures with two or more housing units.
Mobile homes: mobile homes used for residential housing.
(Note: Condominiums are considered an ownership classification, not a structural description, so they may be included in single or multiple types of units.)
Total occupied housing units: all housing units that are occupied. Equivalent to the number of households.
Vacant units: all housing units that are vacant.
Vacancy rate: the percent of vacant housing units for the area. The difference between total and occupied housing units divided by total housing units displayed as a percentage.
Persons per household: the average number of persons residing in occupied housing (household population divided by occupied housing units).
Acknowledgments
John Boyne prepared this report with subject matter expertise and technical contribution by Walter Schwarm. Jordan Bruhn assisted with review and data preparation.
Suggested Citation
State of California, Department of Finance, E-8 Historical Population and Housing Estimates for Cities, Counties, and the State, 2010-2020. Sacramento, California, November 2023.
Questions
Comments, suggestions, or questions? Please email ficalpop@dof.ca.gov.
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