Housing Costs Slow Migration, Data Suggest

Despite the booming economy, California wound up with a surprisingly small net gain of domestic residents last year, signaling to analysts that high housing costs are dissuading people in other states from moving here, which threatens California’s economic growth.

Between July 1998 and July 1999, California gained 15,366 more people from other states than it lost, according to new figures from the state Department of Finance.

That compares with a net domestic migration of 15,467 in the previous yearly period and 28,181 from July 1996 to July 1997. Before 1997, California had several years when it lost residents to other states, as hundreds of thousands more people left California than moved here, because of the deep recession.

Since then, however, demographers and analysts had been expecting net domestic migration numbers to increase. California’s robust economy has created a hefty batch of jobs and the state has regained its luster after being pounded by recession, riot and earthquake. Last fall, U.S. Census Bureau figures showed that more whites were migrating to California than leaving for the first time since the early 1990s.

Still, the overall net domestic migration into California in the past three years pales in comparison with the 1980s, when the state would often gain 100,000 residents per year.

Last year California continued to draw many immigrants--about 229,000--who have helped fill many job openings. But analysts expressed concern that California wasn’t attracting enough residents from other states to help keep its economy growing robustly.

“With such a great economic boom, these [domestic migration] figures should be highly surprising,” said G.U. Krueger, an economist at the California Assn. of Realtors. “And there can be only one answer,” he said. “That is home prices.”

Indeed, some of the biggest net loss of people occurred in the counties with the most exorbitant home prices. In Santa Clara County, for example, domestic net migration turned negative last year for the first time since 1995, according to the state figures. That county, home to Silicon Valley, lost a net of 13,000 non-immigrant residents from July 1998 to July 1999. The county’s median home price, as of last December: $411,000.

Orange County, where median home prices shot up by 9% to a record $258,000 in December, lost about 700 more residents than it gained from elsewhere in the United States--the first negative net domestic migration since 1996.

Los Angeles County also had a negative net domestic migration: about 39,000 more residents moved out of the county than moved in. But that negative figure was about half the net outflows in 1998.

Given such statistics, William Frey, a demographer at the Milken Institute in Santa Monica, doesn’t expect a surge of residents from other states into California. With nationwide unemployment at a 30-year low and wages being bid up everywhere, he said, people in other states who previously might have considered California are now more likely to settle elsewhere or simply stay put.

“Times are so good in other parts of the country that nobody is beating a path to California anymore,” said Ted Gibson, chief economist at the Finance Department.

California’s adult population growth, analysts said, will continue to be driven by immigration. By the Finance Department’s calculations, California’s population in July 1999 was just over 34 million, an increase of 542,000, or 1.6%, from July 1998. About 55% of that came from natural increases--births minus deaths--with almost all of the remainder from immigration.

Analysts have been increasingly concerned about California’s ability to compete for workers because of its soaring housing costs, a trend driven by the state’s strong job growth, wealth creation and unusually weak new home building.

On average over the past five years, employment growth has exceeded new homes by more than a 3-to-1 ratio. Builders last year received approval to put up 140,000 homes statewide, nowhere near the levels of the 1980s and far short of the number analysts say is needed to accommodate new families. Affordable homes, in particular, are in short supply.

Out-of-state residents wanting to move to California areas where job growth has been strongest--such as Orange County and Silicon Valley--are finding “prices that are unaffordable except to a two-earner household,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. “It will eventually be a barrier to economic growth in the whole region.” (BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Priced Out

California’s net domestic migration the number of people from other states moving here minus California residents leaving declined in the 12-month period ending July 1, 1999. Analysts say one reason more residents from other states aren’t moving here is high housing costs in major counties.

Sources: Acxiom/DataQuick, California Department of Finance