High housing costs are a drag on California’s economy, report says

The pace of home sales in California should pick up in the second half of this year and into next, but a shortage of housing -- especially at affordable prices -- is becoming a bigger drag on the state’s economy.

That’s according to a new report out Thursday from forecasting firm Beacon Economics, which calls high housing costs “one of California’s biggest challenges” and one that’s driving low- and middle-income workers from the state.

The good news, Beacon says, is that home prices are cooling off. The firm predicts annual price growth of 4% to 6% for the next two years, a more sustainable pace than the double-digit gains seen for much of the last two years. Sales volume also should rebound as more homeowners have equity and banks loosen tough lending rules. And home building will continue to pick up, though it remains a long way from levels seen last decade.

But prices here remain high relative to incomes and relative to other regions that also have strong job markets.


“California’s most inexpensive markets are on par with the most expensive metro areas in places like Texas, while California’s most expensive markets are quickly approaching median prices of $1 million,” wrote study co-author Jordan Levine. “That is well beyond the reach of the average Californian.”

That is pushing growing numbers of workers -- especially middle-income workers -- to leave California for places where they may be better able to buy a house, Levine says.

For now, there are still enough unemployed and underemployed workers that businesses can find workers, but as the rolls of the jobless continue to shrink, those high housing costs will hurt companies trying to do business in California, because they won’t be able to hire the help they need.

“You can’t add jobs if there is no growth in the labor force because people are leaving because they can’t afford housing,” said Chris Thornberg, Beacon’s founder and co-author of the study. “It’s probably one of the single largest problems we have.”

Containing housing costs by adding supply should be “a top policy goal” for state lawmakers, Thornberg and Levine say. They say reforming the California Environmental Quality Act, which is often the basis for lawsuits that stall or shrink housing developments on environmental grounds, should be “at the heart of that process.”

Keep an eye on housing and real estate in Southern California. Follow me on Twitter at @bytimlogan