During the past decade, population growth here in California remained below the national average, experiencing the smallest increase in population in at least a century. In 2019 alone, California experienced its first year-over-year decline in population since Census recording began.

California’s population grew 6.1% from 2010 to 2020, according to 2020 Census estimates. For comparison, the national average population grew 7.4% during the past decade. Population increase is experiencing a steady decline, as during the 2000s, California’s population grew 10.0%, and during the 1990s, growth was 13.8%.

Due to this demographic shift, California will lose a congressional seat. With 52 members, the state will still hold the largest number of congressional seats and remains the most populous state in the union.

California’s slowing population growth can be attributed to:

  • younger generations waiting to have families, with the birth rate for women falling across California from 2010 to 2016;
  • California’s aging Baby Boomer population, resulting in higher death rates over the past year, with a 26% increase compared to the prior year as of the third quarter (Q3) 2020;
  • increasingly expensive housing, with low-tier home prices increasing 14% over the past year as of February 2021; and
  • slowing immigration, with the state’s international migration rates increasing only 6% in the past ten years, compared to 15% in the 2000s, and 37% in the 1990s.

A comparatively low growth rate for the state’s population means trouble for the real estate market. Some relief may be introduced by loosening zoning restrictions, increasing residential construction and creating jobs California has yet to regain during the 2020 recession.

Population growth drives real estate

Steady population growth is essential for the real estate market.

2019 was a record year for the state, as it was the first time California’s population declined year-over-year, down 0.1% from 2018.

The greatest percentage of population decline occurred in the more expensive, coastal counties of Los Angeles, Santa Clara, Orange County and San Diego. In these counties, the population decreased by:

  • 0.7% in Los Angeles;
  • 0.5% in Santa Clara;
  • 0.3% in Orange County; and
  • 0.2% in San Diego.

Conversely, areas with a comparatively lower cost of living experienced population growth for the year, increasing by:

  • 0.8% in Riverside;
  • 0.7% in Sacramento;
  • 0.5% in Fresno; and
  • 0.4% in San Bernardino.

These population trends have occurred due to the less costly nature of the more inland counties. Here, less restrictive zoning has led to more residential construction being completed, in turn creating a more stable housing supply.

Single family residential (SFR) construction starts in California were 26% below one year earlier in the six-month phase ending March 2021, accelerating a downward trend that began in 2019. Compared to the 150,000 SFR starts that were built in 2005, the 49,800 SFR starts built in 2020 is far below what is needed to meet demand.

The lack of residential construction has led to low inventory, resulting in a heavy supply-demand imbalance, causing prices to rise faster than incomes. Unable to qualify to buy, many homebuyers with the flexibility to move have left for cheaper pastures, choosing the lower cost of living available in other states. The remedy to California’s housing shortage is more construction of entry-level homes.

Significant job losses from the 2020 recession have made builders cautious. Adding to this, the eviction and foreclosure moratoriums are scheduled to expire later this year, which will result in a rise in residential vacancies.

The lower-than-average population growth here in California is comprised of several factors, not least of them being the high cost of living, particularly for housing. Without new residential construction to meet demand, inventory will remain low and home prices will continue to rise faster than the pace of incomes– an unfavorable situation for those looking to buy real estate in California.

Related article:

Residential construction trails growing demand, stunting homeownership; Monthly Statistical Update (March 2021)