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How does California’s slowing population growth impact the housing market?

  • Negatively. (43%, 82 Votes)
  • Positively. (29%, 56 Votes)
  • Population change does not impact the housing market. (27%, 52 Votes)

Total Voters: 190

The Golden State isn’t looking quite so shiny nowadays.

Steady population growth is essential for the long-term health of the housing market, including new household formations and demand for residential rentals and sales. But for the first time in living memory, California’s population experienced an annual decrease, according to preliminary January 2021 estimates from the California Department of Finance (DOF).

From January 2020 to January 2021, the total population decreased 0.46% in California. This translates to 182,000 fewer residents.

Across California’s largest cities, annual population decreased in:

  • San Francisco by -1.7%;
  • Los Angeles by -1.3%;
  • San Jose by -1.1%;
  • Anaheim by -1%;
  • Long Beach by -0.9%; and
  • San Diego by -0.7%.

However, annual population increased in:

  • Bakersfield by +0.8%;
  • Oakland by +0.7%;
  • Fresno by +0.6%;
  • Riverside by +0.6%; and
  • Sacramento by +0.4%.

These two contrasting lists demonstrate the move from high-cost areas of the state to more affordable suburban communities.

The state’s most notable decreases took place in the expensive regions of Los Angeles, Santa Clara and San Francisco. On the flip side, areas of the state with lower costs of living, like Bakersfield, Riverside, Sacramento and Fresno, continued to experience population growth, reflecting a turn to the state’s less costly inland regions. Here, less restrictive zoning has allowed more residential construction and thus a more stable housing supply.

Why Californians are leaving

Our present declining population trend will worry real estate professionals interested in a healthy and stable housing market.

The main causes for the decline can be traced to:

  • increased deaths due to COVID-19 (including 51,000 excess pandemic-related deaths);
  • the continually declining birth rate here in California and across the U.S. (including 24,000 fewer births in the state than the prior year); and
  • fewer international immigrants, the result of both the pandemic and federal policy which has made immigration more difficult in recent years (including 100,000 fewer international residents in California than the prior year), according to the DOF report.

While increased deaths due to COVID-19 are a temporary anomaly, the declining birth rate and lower immigration trends mentioned in the DOF report are not going away anytime soon.

In a typical year, international migrants more than make up for the number of residents who leave California for other states. However, this trend began to reverse in 2018, with emigration (individuals moving out of the state) overwhelming immigration of all types.

When jobs are plentiful, and housing is available at reasonable prices without the need for significant new construction, people feel empowered to remain in California. These conditions also encourage outsiders to seek out the California dream of residency, moving here from other states and other countries. Further, a strong economy is an incentive for both interstate and international immigration.

Therefore, it’s no surprise that California’s population has finally begun to decline. The Golden State is not only facing the obstacles of a struggling jobs market following the 2020 recessionary job losses, but it is also confronting a decade’s-long housing shortage. This lack of housing has pushed home prices and rents well beyond income increases, squeezing residents out, or else forcing them to accept a lower standard of living.

As long as inventory remains constrained and the cost of housing rises above the pace of incomes, expect California’s population to continue its decline. The solution will require greater construction and an investment in ensuring this construction occurs in the most-needed areas: low- and mid-tier residential neighborhoods near desirable job centers.

Related article:

Legislative steps toward more affordable housing