It costs too much to live in California
The cost of living in California is so high many lower-income people are leaving the state.
It costs too much to live in California because the chronic shortages of housing supply inflates California house prices and rents. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas.
When any commodity is in short supply, prices tend to rise; houses are no exception. There are not enough houses to go around, so people substitute down in quality to obtain a place to live. This downward substitution effect lifts house prices at every level of the housing ladder and prices out the lowest tier of the housing market.
This phenomenon has been going on for so long, that most Californians resign themselves to the idea of living in lesser quality housing than they could obtain elsewhere based on their income. I remember when I first moved to California: I made 50% more than I did in Florida, but I went from an 1800 SF 4/2 on a third of an acre to a 950 SF condo. That’s a huge drop in housing quality despite a major increase in salary.
I see nothing in California politics or the economy that’s likely to change this situation, and the problem pushes lower income workers out of the State, ultimately forcing everyone else to pay more for basic goods and services.
California’s high cost of living has pushed hundreds of thousands of low- and middle-income workers to other states, federal data show.
The trend points to a challenge for the state’s economy: how to attract workers of moderate means to some of the nation’s most expensive housing markets.
The answer is not to create more high-paying jobs because they will simply inflate house prices more. The answer is to allow more housing units to be built so supply and demand balance in a condition where everyone can afford to live and work here.
The state overall has been losing people to other parts of the country since the 1990s. A snapshot of more recent U.S. Census migration numbers shows that nearly three-quarters of those who have left California for other states since 2007 earn less than $50,000 a year.
I remember in high school teachers, parents, and administrators worried about student dropouts because they would have difficulty finding a job, even a menial one. Now in California, teachers, parents, and administrators need to worriy that if students don’t get a bachelor’s degree, they are forced to live in squalor or move away from their family and friends, probably out of state.
Experts point to the state’s increasingly unaffordable real estate markets as a major driver of the trends. More than half of the nation’s 50 most expensive residential real estate markets are in California, according to Coldwell Banker’s Home Listing Report, including nine of the top 10.
“It’s getting harder and harder for the middle-class Californian to buy a home,” said Jordan Levine, director of economic research at Los Angeles’ Beacon Economics, who points to the migration trends as a major hurdle for the state’s future economic growth. “People just keep looking for ways to maximize that residential dollar. That attracts people to inland areas of the state and to other states.”
At some point, it becomes very difficult for businesses to expand because the cost of living gets so high they must pay very high salaries just to support a modest, middle-class lifestyle. This can be seen in Silicon Valley right now. A $150,000 per year salary buys a great lifestyle in most areas, but in Silicon Valley, it doesn’t buy a decent house.
When workers realize the high salary doesn’t provide them a high quality of life, many will chose not to take the job, or if they do, the end up leaving in a few years because they know they will never own a house, and they will spend $4,000+ on rent for the rest of their working lives — only then to be forced to move for cheaper housing in retirement. Who wants to sign up for that?
Those moving to California tend to have higher incomes. About 35% of working-age people moving in make more than $50,000 annually, compared with 27% of those moving out.
The disparity gets progressively pronounced at the lower end of the income scale.
For those making $40,000 to $49,999, for instance, the net loss of population is 15,403 residents since 2007. The loss is 22,754 residents in the $30,000 to $39,999 range, then more than doubles to 46,318 residents in the $20,000 to $29,999 range.
“Housing prices are a primary factor, because that’s usually the first thing you deal with when you’re moving,” said Dowell Myers, a professor of demography and urban planning at USC. …
“Rents are going up very rapidly, as well as housing prices,” said Hans Johnson, a migration expert who is a senior fellow at the Public Policy Institute of California. “The economy is booming, but how do you supply housing for the workers who aren’t commanding high incomes yet are still in demand?“
The fact that both rents and house prices are rising more quickly than wages is a sure sign of a lack of housing. Those with jobs are competing with each other for the scarce housing stock bidding up both rents and house prices. Those at the bottom of the income ladder get priced out, and many simply leave the state.
Darren Hayes is a native of Oxnard who worked for 15 years as a teacher in Orange and Ventura counties. He earned bachelor’s and master’s degrees at California universities. He spent most of his life in California until moving to the Dallas area last year.
“If we stayed in California to buy a house, in my opinion we would have to settle,” said Hayes, 47. “Now we can be picky and choose the house we want.” …
The biggest recipients of the state’s out-migration have been Texas and other western states such as Arizona, Nevada, Washington and Oregon.
I lived in Texas while attending Texas A&M. It’s a diverse state with a strong economy, and although the weather is not as good as California’s, the quality of life is better on a lower income. Housing is generally affordable, far more so than California.
“For the people who can afford to go there, get the jobs and do well, the cost of living is not as much a problem,” Frey said. “It’s just difficult to live there in the middle.”
I’ve lived in a variety of states including Wisconsin, Texas, Florida, Nevada, and California. One thing I’ve come to believe after living in these places is that to have a high quality of life on a material level requires making more than the median income wherever you live. If you make more than the median, you will have more choice in housing, the housing you find will be higher quality, and your money will go further when buying local goods and services. Everything is relative financially.
California doesn’t have enough housing units for sale or for rent. Until this changes — and it may never change — everyone endures a lower quality of life as they spend too much to provide shelter, forcing many to leave the state.