California creates many jobs but builds few houses
California creates more jobs than houses, so people leave the state for cheaper housing.
In the early 1970s, California began restricting new development. At first, it wasn’t a problem, but when California voters later passed Proposition 13, they made residential real estate much less desirable than commercial properties because the latter provides both jobs and sales tax revenue, whereas housing barely provides enough revenue to cover the cost of providing services.
Municipalities began shunning housing in favor of commercial development, and nimbys joined the chorus, complaining about traffic and the “loss of neighborhood character,” whatever that means. The natural advocates for housing are realtors, but since they only make money on resale houses, their advocacy for new construction is tepid at best. Further, many real estate agents actually oppose new developments because restricting supply makes houses more valuable, increasing the size of their commissions.
Homebuilders and residential developers are the only people left to advocate for housing. Renters and future homeowners rarely join to become a potent political force, so the forces against providing new housing grew much stronger than the forces in favor of new housing. As a result, California produced too few houses for decades, and house prices are very high relative to income.
As those circumstances persisted for decades now, we can witness first-hand the results of these incentives. First, the shortage of housing drives house prices very high as workers compete intensely for the scarce resource. This weakens the economy as people put large percentages of their income toward obtaining even modest accommodations. Second, since California doesn’t provide enough housing for its children, net domestic outmigration is very high.
DEC 23, 2016, By Justin Fox
The U.S. population keeps shifting to the West and South: as of July 1, 61.6 percent of Americans lived in those two regions, the Census Bureau reported this week. That’s up from 60.4 percent in the 2010 census, 58.1 percent in 2000, 55.6 percent in 1990 — and 44 percent in 1950.
Some of that population shift can be chalked up to southern and western states having a wider margin of births over deaths than their neighbors to the north and east — which makes sense given that the median age is higher in the Midwest and Northeast. Immigration from abroad is a mixed bag. There’s been more of it (relative to overall population) in the South and West than the Midwest since 2010, but the Northeast has seen the highest immigration rate of all.
The really dramatic difference is in domestic migration. People have been leaving Midwestern and Northeastern states, and mostly ending up in Southern and Western ones.
The big anomaly is California, which is very much in the West, yet has lost an estimated 383,344 residents to other states since 2010.
A few of the states that have been seeing a lot of domestic out-migration are still experiencing solid overall population growth (4 percent or more since 2010, compared with a national average of 4.7 percent): California mainly because births are far outpacing deaths, Massachusetts mainly because of immigration from abroad, Maryland because of both.
Also — and I find this really interesting — some of the states with the biggest out-migration since 2010 have also been among the biggest job creators during that period:
Some caveats: With employment growing nationwide, the biggest states are naturally going to see some of the biggest job-growth numbers. Also, some manufacturing states that were hit especially hard during and even before the recession have bounced back since then, but still experienced dismal job growth over the longer term (Michigan, for example, now has 296,200 fewer nonfarm jobs than it did in January 2000; Ohio has 113,000 fewer).
Still, urban centers such as San Jose/San Francisco, Boston and New York City have been thriving during the past decade-plus, creating jobs — a lot of them high-paying — at a much faster rate than the nation as a whole. California and Massachusetts rank first and second in Bloomberg’s 2016 state innovation index, which was released this week. These places are not withering away.
So much for the theory that the policies of blue-state Democrats on the coasts fail to create jobs.
So why are people leaving? …In California ever-rising real estate prices, high taxes and crowded roads are driving even well-paid people away (these are surely factors in Massachusetts and New York as well). In all of these places, the seeming inability to build enough new housing near to where jobs are being created seems to be holding back growth. …
Is this what “smart growth” advocates want? By limiting the expansion of the housing stock, house prices become inflated relative to incomes. This drives away businesses that rely on inexpensive labor — and it forces those without high-dollar skills to move out of the state. We become a state of high wage earners and the peons serving as maids and butlers who service high wage earners.
Perhaps those who are part of the favored class like this state of affairs, but it seems remarkably hypocritical for a state known for its progressive politics to function as a bastion of elitism.
Maybe the problem can be solved with conscious-soothing affordable housing mandates?
Or maybe, we could just let the poor eat cake.