California has managed to add a remarkable 677,000 housing units in the last six years, but the population has only increased modestly by 39,000 residents. This data is telling in light of California’s ongoing housing crisis.
At first glance, this could signal a positive change—more homes and a stable number of residents typically suggests some relief. Yet, the realities are more complicated.
Despite the boom in construction, many Californians are still facing high rents, intense competition for available units, and a scarcity of options.
The underlying reasons extend beyond mere economics, touching on how lifestyle choices impact demand for housing.
“Even with more housing units than people, we’re still in such a deep crisis that recent successes in building aren’t enough to shift the overall situation,” comments Joel Berner, a senior economist at Realtor.com.
Central to the challenge is a demographic trend: households are getting smaller. This shift, while quiet, is significant.
It’s not just about the number of people in California; it’s about how they choose to live. Where once many shared a home, there’s a growing trend towards individuals living alone or in smaller groups. This shift means the same population now needs many more housing units.
“If fewer people occupy the same house, then the number of required roofs increases,” Berner explains, noting that this demographic change is likely the very dynamic California is experiencing now.
Two essential factors are driving this trend: a decline in birth rates and an aging population. Fewer families are having children, and older adults are tending to remain in small households longer.
Californian birth rates have plummeted from around 613,000 in 1992 to about 420,000 in 2021, with expectations of slowed growth in the future. On the flip side, the population over 65 is expected to rise by 59% by 2040, increasing from 5.7 million to over 9 million.
This means larger homes have virtually vanished from the market, while demand for smaller living spaces and starter homes has surged, leading to a shortage in those areas.
Meanwhile, California is coming out of a long-standing housing shortage.
The new houses being built aren’t necessarily affordable for most residents.
Much of the new housing caters to high-income buyers, leaving lower and middle-income residents with few choices. This imbalance only worsens affordability across the state.
Another factor to consider is the vacancy rates.
In a balanced housing market, more empty units would typically compel landlords to lower prices. However, California’s vacancy rates remain suppressed.
The rental vacancy rate in California stands at 4.3%, contrasting with the national average of 5.9%. This indicates that vacant units are occupied quickly, giving landlords solid pricing power.
That said, there are some encouraging signs.
Young adults, who have been heavily impacted by soaring housing expenses, are beginning to establish their own households after delays. This could be a small indication that the increase in housing supply is starting to relieve some of the pressures, albeit slightly.
Policymakers are also working on boosting the supply, particularly by promoting accessory dwelling units (ADUs).
“The state has made noteworthy progress in policy terms to advance ADU construction, and this is worth recognizing,” Varner remarked. “Efforts are underway to reduce local barriers to ADUs, which enables more of these units to reach areas with the highest demand.”
However, these initiatives don’t fundamentally alter the situation.
“The pace of change is still too slow,” he adds.
