Report: High Housing Costs Responsible for California's Economic Woes, Not Taxes

The Golden State attracts high-end workers, while its high housing costs cause a disproportionate number of low and middle income workers to flee the state. The non-profit think tank, Next 10, delves into this crisis in three new reports.

3 minute read

March 7, 2016, 9:00 AM PST

By Irvin Dawid


The California Report nicely summarized the findings of the three reports in this one-and-one half-minute audio report:

San Francisco-based Next 10 delved into housing, employment, and California's economic development with the release of three reports all prepared by Los Angeles-based Beacon Economics

Too often politicians, particularly those from out-of-California looking for companies to relocate to their lower-taxed states, point the finger at California's high income taxes as the source of its problems. The reports, based on "the latest data from the U.S. Census Bureau’s American Community Survey and the U.S. Bureau of Labor Statistics’ Quarterly Census of Employment and Wages," according to Next 10's press release [PDF], should dispel that notion. High housing costs are the primary reason workers are leaving the state.

Home prices are more expensive than in all other states, particularly in major metropolitan areas. In 2014, California homeowners spent more of their household income on housing costs than homeowners in any other state, and California rental apartments cost 35.7% more than the national average.

At the same time that the state suffers from a lack of housing, it "leads the nation in both middle-wage and high-wage job creation during the post-recession recovery," writes Kelsey Thompson for HousingWire.

“California has an employment boom with a housing problem,” said Christopher Thornberg, co-author of the reports and founding partner of Beacon Economics. “The state continues to offer great employment opportunities for all kinds of workers. But housing affordability and supply represent a major problem. If we want to attract and keep low- and middle-income families in California, we need to address it.”

The migration data speaks for itself. Despite higher taxes, the report "shows a net increase in migration of high-wage earners—exactly those who would be most affected by higher personal income tax rates," states the press release [PDF].

More high-income people are moving in than moving out, and the margin continues to grow. Further evidence that people moving to California are not deterred by tax rates:

Thornberg doesn't hold any punches in pointing at some of the reasons housing production isn't meeting demand, writes Kevin Smith of the San Gabriel Valley Tribune.

This issue has been going on for the last 20 years,” Thornberg said. “We have been busily empowering NIMBYs (Not in My Back Yard) and disincentivizing cities from building enough housing to meet our needs.

“Left unchecked, housing costs could severely hamper the state’s ability to retain the low- and middle-income workers that help to power our economy,” sain Next 10 founder F. Noel Perry.

Readers can compare California to the U.S. and other states with the "Compare 50" tool. For example, this chart shows that California had the fifth highest tax paid per capita in 2014.

Hat tip to KQED News.

Thursday, March 3, 2016 in Next 10

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