Californians flee state as housing costs bite

By Leith van Onselen

CNBC has published an interesting report on the large number of Californians that are leaving the state due to crippling housing costs:

Californians may still love the beautiful weather and beaches, but more and more they are fed up with the high housing costs and taxes and deciding to flee to lower-cost states such as Nevada, Arizona and Texas.

Based on the U.S. Census Bureau’s American Community Survey data, “lower income Californians are the ones who are leaving, not higher income,” said Christopher Thornberg, founding partner of research and consulting firm Beacon Economics in Los Angeles.

He said housing is the chief reason people are leaving California, pointing out there are frequently bidding wars for what limited inventory of homes is available…

“The rate at which California has been losing people to other states has accelerated in the past couple of years, in part because of rising housing costs,” said Jed Kolko, chief economist with employment website…

He said the latest Census Bureau data, from July 2016 to July 2017, show “more people moved out of California to other states than moved in from other states. In other words, California lost people due to domestic migration.”

During that 12-month period, California saw a net loss of just over 138,000 people, while Texas had a net increase of more than 79,000 people. Arizona gained more than 63,000 residents, and Nevada gained more than 38,000…

“High housing costs are a challenge for employers, who need to offer workers enough so they can afford to live here,” said Kolko. “Despite this, California is still hiring, and job growth was strong over the past year.”

California’s $550,990 median price statewide for an existing single-family home compares with the national median price of $247,800, according to the National Association of Realtors and its state association…

Kotkin believes the outmigration from California may start to rise among higher-income people, given that the GOP’s federal tax overhaul will result in certain California taxpayers losing from the state and local tax deduction cap.

It’s not hard to see why Californians are leaving. The below chart plots the Median Multiple (i.e. median house price vs median household income) across the major Californian metropolitan areas against the New York metropolitan area, as well as against the various major Texan, Nevada, and Arizona metropolitan areas, and the national average:

As you can see, California – especially the cities near the coast – is way out in front on housing costs.

Apart from being a desirable place to live due to its pleasant climate and proximity to the coast, California has operated strict growth management (“smart growth”) policies since the 1970s, whereas Los Angeles and San Francisco are also hemmed in to a degree by the ocean, mountains and in the case of Los Angeles / San Diego the Mexican border to the south. This has cause housing supply to be unresponsive to changes in demand, with frequent boom and bust cycles and unaffordable housing the result.

ScreenHunter_1433 Feb. 28 07.18

As long as California continues to restrict land/housing supply, property prices will remain prohibitively expensive (and volatile), and residents will continue to flee the state.

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Unconventional Economist
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  1. I heard NSW is losing people for the same reason ??
    I also think melbourne will too as employment gets tighter over the next year

    • SchillersMEMBER

      Sydney in particular is losing many of it’s best and brightest. They are leaving for anywhere that offers a better standard of living, shorter commutes and especially… more affordable housing. Interstate, intrastate and overseas. They are being replaced (and then some) by people born overseas…desperate (they believe) for a better life downunder.
      The NSW Department of Planning and the Environment has the data.

      • There is no industry here. Although the Geneva Motor Show is neutral territory because Switzerland does not make normal cars, it does make F1 cars/engines.

        Britain makes 3 metre wide jet engines – USA will too. Boffins in USA, Britain, etc are developing better batteries.

        So smart Aussies leave for Europe/California while exam cheats and visa frauds are imported en masse!

    • I know a few NSW Public servants who house share simply because they cannot afford to live. These are people with young families who are spending half their time not at home while not getting the benefit of a FIFO wage. We hear the stories of cleaners living under a bridge because they can’t afford the $30 airport train but it hits the middle class just as hard. No surprise a lot of Vic jobs are snagged by higher qualified Sydney folks who on paper take a pay cut in exchange for some life quality back.

  2. reusachtigeMEMBER

    If I were to live in the USA I’d be totes up for living in Cali! I’d say only successful people make it there, like Sydney, and Melbourne to a lesser extent.

  3. Leith: it probably also has quite a bit to do with the recent tax changes.
    SALT (State And Local Tax) deductibility from federal taxes was capped.

    It allowed taxes paid locally to be deducted from federal tax liability.
    Thus, these states were able to tax high but not really affect the income of the people there.

    Since that’s changed, a lot of people would have done the sums and gone “Holy crap.”

  4. They are also leaving CA, as I did, because the climate is changing and getting dryer. This is happening to all west coasts of major continents, including here (WA rain down ~30% in the last ~30 years). Chile getting dryer. Cape Town and Western Cape getting dryer.

    But please, keep planning the Adani mine. Coal is good for humanity.

    • reusachtigeMEMBER

      Have you ever been to Ireland? Fark it would be great if their west coast was getting drier, but alas…

      • I did say “west coasts of major continents”. Last time I looked, Ireland was not that

      • Lol Galway will be paradise in future because it will be the only place in the world with plenty of water… I couldn’t live there… Nice in Summer absolutely miserable in winter.

      • reusachtigeMEMBER

        ^^ Yeah the rain is a little bit warmer in the summer in Ireland, on the west coast of the European continent.

      • Reus, you are as dumb as you like to pretend to be. If you look at mainland Europe, you’ll see it is following the drying trend I described. For example Portugal: “A decrease in annual precipitation amounts is the general tendency observed in mainland Portugal, since the 1960s.”

        That’s from the study “Precipitation variability in Portugal from 1960 to 2011”

        Sorry to intrude facts into this discussion….

    • I think you are referring to areas which are a Mediterranean climate (CS) type in the Koppen classification.
      These have a wet winter and dry summer.
      You have to go further north or south to get a more temperate maritime (CF) type climate. However I think any of those with a hot summer (i.e. Sydney) are f***ed as well!

  5. wasabinatorMEMBER

    I’m in CA now, it’s pretty ridiculous. Being an Aussie has prepared me well for it though, sadly.

    I personally can’t see what the fuss is about anyway, going to head straight back to Aus soon.

  6. Anecdote – While recently waiting for a flight over there another passenger was talking of how they had left CA for the east coast due to $14K p/a property tax in marina Del Mar

  7. Too bad we don’t have differing tax regimes between states like the U.S.

    Watching Illinois implode is priceless:- State Govt spending spiralling out of control, lawmakers cranking up taxes every chance they get, upper middle classes and the wealthy selling up and moving to low-tax states. Soon Illinois won’t have anyone left to tax! Not the brightest people, pollies …