Last month, a Wall Street Journal op-ed posited that the new tax bill could create a mass exodus of roughly 800,000 residents from the state of California who will flee the state for low-tax red states.
“In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states. This migration has been happening for years. But the Trump tax bill’s cap on the deduction for state and local taxes, or SALT, will accelerate the pace. The losers will be most of the Northeast, along with California. The winners are likely to be states like Arizona, Nevada, Tennessee, Texas and Utah.” –WSJ
Taxes aside, a new report by Next 10 and Beacon Economics suggests the California exodus may get a lot worse, as new housing construction since the Great Recession has been tepid at best, and as a result, California faces a housing backlog of 3.4 million units by 2025 if the trend continues – and 2.8 million units at the current rate of construction.
From 2007 to 2017, only 24.7 housing permits were filed for every 100 new residents in California – much lower than the U.S. average of 43.1 permits.
By 2025, California would have a housing backlog of 3.4 million units if the trend continues. At the current pace of construction, California would add just a minimal amount of new housing – about 600,000 new housing units (net of housing unit losses due to demolition and other causes) – leaving the state with a housing gap of 2.8 million units by 2025. –Next10
“California’s current housing supply is not able to support its growing population,” the report concludes, and as such “the low levels of construction will likely result in further increases in home prices, such that fewer and fewer California residents will be able to afford homes.“
According to the report, California lost over a million residents in the decade between 2006 and 2016, due primarily to the high cost of housing disproportionately hurting lower income households. Over 20% of those who moved over that decade did so in 2006 – at the height of the housing bubble.
And since American consumers are genetically predisposed to never learning from their mistakes, median home prices in California are once again gapping well above the national average in a very similar pattern, making housing once again prohibitively expensive:
Meanwhile, migration out of California is mostly tied to income, as most of those leaving the state earn less than $30,000 per year.
Those migration patterns are shaped by socioeconomics. Most people leaving the state earn less than $30,000 per year, even as those who can afford higher housing costs are still arriving. As the report noted, California was also a net importer of highly skilled professionals from the information, professional and technical services, and arts and entertainment industries. On the other hand, California saw the largest exodus of workers in accommodation, construction, manufacturing and retail trade industries. –MarketWatch
Crunched California homeowners spent an average of 21.9% of their income on housing expenses in 2016, while home ownership rates are terrible at just 53.6% of homes owner-occupied; the 49th worst in the nation on both counts. California renters meanwhile come in 48th in the nation when it comes to percentage of income spent on housing at 32.8%.
And how are Californians coping with the skyrocketing costs of housing? One strategy is doubling up – as nearly 14% of renters have more than one person per bedroom, making it the state with the highest percentage of overcroweded renter households.
In a separate analysis noted by MarketWatch‘s Andrea Riquier, “Realtor.com found that the number of people searching real estate listings in the 16 top California markets compared to people living there and searching elsewhere was more than double that of other areas — and growing.”
Searches for homes in pricey California towns – primarily Santa Clara, San Mateo and Los Angeles – experienced virtually no increase over the past year, while views of listings in other parts of the country were up 15%.
So where do most broke Californians move? Texas, Arizona, Nevada, Oregon and Washington .
Read the report below:
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