California’s lousy housing market has gone from a trivial issue
to a major crisis that may soon turn into a statewide economic downturn. From
low-income laborers to high-income doctors, there are few industries that are
safe from the state’s crumbling real estate market.
The
housing market itself is troubled by two factors: a lack of supply and rising
costs. The Legislative Analyst’s Office (LAO), the state’s agency responsible
for fiscal and policy advice, has estimated the shortage is between 3.5 million
to 4 million units. The lack of housing has not only driven up prices by 24.9
percent (for two-bedroom homes) since 2010, but it has also had a noticeable
effect on migration. In another report, the LAO found that between 2007 and
2016, net migration in California was negative one-million individuals.
Interestingly,
this mass exodus of people is siphoning off not just low-income earners but
high-income earners as well. The tech firms and financial service giants of
Silicon Valley and San Francisco will likely be the first to feel the effects
of this squeeze on their workforce.
Though
many of the techies and financial gurus employed by these firms can afford San
Francisco’s median monthly rent of $3,700 (for a one-bedroom unit), a report
from Urban Habitat showed that their tech industry counterparts in Seattle had
an average of $5,500 more in disposable income at month’s end. For entry-level
tech workers, this sum can add up quickly and makes the prospect of living
elsewhere far more attractive.
For
firms, the impact of expensive housing for their workers can be devastating.
Without affordable housing that is proximal to their workplace, employees have
good reason to pack up and leave for areas that strike a better balance between
housing affordability and worksite proximity. Not only that, but expensive
housing makes it more difficult for firms to attract new talent. Thus, if
housing prices continues to rise in these areas, it would not be unexpected if
firms began to move to more fiscally attractive areas, of which there are
plenty.
Providing
affordable housing for low-skilled workers is also important for California’s
economy. A recent report from PolicyLink showed that in any given region, each
new tech job creates between four to five new service industry jobs. Though we
ought to praise the job creation effects of the tech industry, the National Low
Income Housing Coalition still found that low- and moderate-income Californians
are rent burdened at a rate of 65 percent and 35 percent, respectively. This
creates an unfortunate dilemma. The economic growth that creates low-income and
high-income jobs has a resultant effect of decreasing housing affordability due
to the influx of workers into an area. This pushes out low- and middle-income
families, making it difficult for companies to recruit and retain these
workers.
This
issue is particularly pronounced in the public sector, where middle-income
workers constitute the majority of municipal workers. Moreover, for cities with
high housing costs and substantial low-income populations, city government takes
the brunt of the damage through unpaid utility bills, homeless services, and
lower property tax revenue.
Treating
the housing problem as just a housing problem is a step in the wrong direction.
Instead, policymakers ought to consider the economic ramifications that a poor
housing market will have on both individual regions and the state as a whole.