A year later, the global consulting firm McKinsey and Company, put out its own figure — 3.5 million homes by 2025 (PDF). Newsom took that eye-popping figure as a rallying cry during his first gubernatorial run, when the then-candidate vowed that California would reach that total by the end of his second term. He’s since scaled the pledge back to 2.5 million, a goal the state is still unlikely to reach.
McKinsey based its estimate on its own version of the state’s housing problem: the number of new units required to bring California’s houses-to-people ratio in line with that of the rest of the country.
The common thread behind all these estimates is they are all very, very big. And whichever shortfall estimate you choose, the state has never hit the mark.
A moving target
But the numbers have been moving in a more encouraging direction in recent years.
The totals since 2020: roughly 430,000 new homes and some 821,000 fewer Californians competing to reside within them. That necessarily narrows the gap, however we define it, said Hans Johnson, a researcher at the Public Policy Institute of California (PPIC).
If the shortage is relatively modest, he said, and “if we continue like this for another decade, with very slow population growth or essentially no population growth, and with fairly robust housing construction, then it should start to eat into that lack of housing.”
But if the state needs to hit McKinsey-esque levels of new production, counted in the millions of units, “we’re still a long, long way off,” he added.
That’s in part because the size of the hole is so large. But it’s also because the shortfall is “a moving target,” explained Len Kiefer, deputy chief economist at the Federal Home Loan Mortgage Corporation. The building industry booms and busts. Young Californians grow old enough to live out on their own while older ones begin to die off. And people’s housing wants and needs change, too.
How COVID worsened the housing crisis
A particularly dramatic driver of such change: the pandemic.
Eager to keep COVID at bay and seeking more space to work from home, Californians dumped their roommates when they could and sought out places to live on their own, resulting in a great “spreading out,” as analysts at the PPIC put it. The trend toward fewer people living in each home is nationwide and long term. Over the last 40 years, the number of people living alone doubled across the country. But the pandemic put the trend on overdrive.
That worsened the state’s housing shortage. Even if the total number of Californians continues its gradual downward drift, more homes are needed to house the roughly 38 million sticking around.
Starting in June 2020, the median price of an existing single-family home shot up from $626,170 to a peak of $900,170 in May 2022, according to data compiled by the California Association of Realtors. That’s an increase of 44% in less than two years.
Since then high interest rates have brought California’s housing inflation back down to earth slightly. But the median price in March was still 29% above where it was three years earlier.
Whether Californians will begin clustering together again as COVID concerns ease is an open question. But there’s no sign that’s happening yet. By the beginning of 2023, with the worst of the pandemic presumably behind us, the number of Californians per household hit a record low of 2.77.
A shrinking population, driven largely by outward migration, provides an escape value for some of that extra pressure, said Meyer, the USC demographer. But based on analysis he and his colleagues conducted for the California Association of Realtors (PDF), it’s easy to imagine demand for homes staying strong, given how large the millennial generation is and how many are now reaching a baby-having, roommate-jettisoning age.
Plus, if the California exodus is a cure to the state’s housing shortage, it’s also a symptom, said Dowell.
“The ones who are older are leaving because they’re (homeowners) cashing in their gains,” he said of the nearly 8 million people who exited the state last decade. “The young people who are leaving, we now think, are leaving because they can’t buy a house here.”
And even if those departures do ultimately alleviate the state’s scarcity of homes, it’s not the solution to the problem that anyone should want, adds Johnson from PPIC.