The Economic Consequences of California’s Housing Crisis

housing construction

California’s housing crisis has received a heightened level of attention in 2019 and rightfully so.

A statewide survey conducted earlier this year by the Public Policy Institute of California made headlines regarding the overwhelmingly high level of public apprehension over skyrocketing housing costs. Not only did a record-high share of Californians say that the lack of affordable housing is a big problem in their region, but an eye-opening 35 percent said that high housing costs have them seriously considering leaving the state.

In Sacramento, the housing crisis has come to the forefront as well, with a myriad of housing bills introduced in the state legislature. The most notable of these bills, Senate Bill 50 by Sen. Scott Wiener, D-San Francisco, generated a vigorous discussion over the issue of local control, eventually failing to pass out of committee. Other issues such as environmental regulations and rent control have fanned the flames of debate among various stakeholders.

As part of this debate, it’s critical not to overlook the negative economic consequences that accompany such a massive scarcity of affordable housing. Not only has the lack of new home construction in California caused a substantial financial hardship on individuals renting or purchasing homes, but the state’s overall economy has suffered as well.

A study by the well-respected McKinsey Global Institute found that due to the state’s housing shortage, California’s economy loses over $140 billion per year in economic output.

Included is an estimated loss of over $50 billion per year in consumer consumption due to the state’s high cost of housing. When people are spending a substantial portion of their paychecks on rent or mortgage payments, they have less to spend elsewhere. For low-income residents, this often means that income that would ordinarily be spent on basic necessities like food and clothing is redirected towards housing costs.

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