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Don’t call it a comeback — in fact, many real estate professionals are calling California’s emerging migration patterns an exodus.

A great migration is underway from the Golden State to less costly states — Texas, Washington and Arizona, to name a few popular destinations.

These trends are worrying for real estate agents who depend on healthy population growth for their incomes.

Has the Golden State dream gone to rust?

California’s population is declining

California’s population declined for the first time in recorded history in 2019. The population shrank a modest 0.1% from 2018. Usually, the state grows at a rate of about 1% per year. As a result of this population shift, California lost a congressional seat in 2021.

Interstate migration reports ranking inbound and outbound moves published in the last couple years place California near the top in outbound moves — meaning more people are moving out than in.

For instance, California was the least preferred state to move to in 2020, according to U-Haul. In 2021, California was second to last, according to North American Van lines. For every 37 moves in California, there are 100 moves out in 2022, according to moveBuddha.

This trend highlights an inflection point in California’s population. Which demographics are moving out and what are their motivations for packing up? On the other side of the coin, which demographics are entering — and where?

Related article:

Nearly three times as many Californians are moving out-of-state than moving in

Outbound movers

California’s outbound movers relocating to other states differ demographically from those moving into the state. Outbound movers earn less and are less educated, on average, than those moving in, according to the Public Policy Institute of California (PPIC).

Most people who move states do so for housing, job or family reasons, leading the U.S. Census Bureau to track how frequently moves for these reasons occur. California lost 413,000 adults since 2015, citing housing as the primary reason for their move. This is followed by 333,000 adults who cited jobs as their main motivator for leaving and 239,000 who cited family reasons, according to the PPIC.

California’s housing costs are notoriously high, leading these low- to mid-income residents to consider how their incomes stretch further in other states. Especially enticing are states like Texas, Nevada and Florida, which have no state income taxes.

Related article:

Goodbye Golden State: Ex-Californians seek out lower costs of living

Taxes are often cited as a deciding factor in these moves. Nearly every other state offers a better tax environment — California ranks second-to-last in the nation (behind only New Jersey) for its tax climate in 2021, according to the Tax Foundation.

California’s individual income taxes and sales taxes are some of the highest in the nation, further enticing lower-income residents to move out. These types of taxes have a significant impact on working class families.

Although California’s corporate taxes fared better in 2021 (ranking 28th, around the middle of the pack), this ranking fell in 2022 — to 46th. The reason for this dramatic shift was California’s $76 billion surplus in 2021, which prompted the state to suspend net operating losses (NOLs) for companies with income over $1 million. This unfavorably altered the state’s treatment of business losses, according to the Tax Foundation. Overall, in 2022, New York surpassed California for the second-lowest spot, leaving California third-to-last (48th).

Regulations also play a role in outbound moves. They add additional barriers to housing construction and make it more difficult for businesses to operate, contributing to the state’s dwindling population. California has the most regulatory restrictions, clocking in about 396,000, according to the Mercatus Center. New York was second, at just under 300,000.

Large employers often point to this statistic as a major reason for moving headquarters. Tesla, Oracle and Hewlett Packard are among some of the recent California businesses to relocate to more business-friendly Texas, according to CNBC. Where the jobs go, workers follow.

Related article:

Fly free, my pretties ! What drives homeowners to move

Inbound movers

Despite the outflow trend, inbound movers won’t be swayed.

California drew 412,714 new residents in 2020 — 3rd in the U.S., according to an Orange County Register analysis of IRS data. But as a share of all Californians, inbound movers comprise just 1.3% of all taxpayers — dead last in the nation.

The average taxpaying American household making an interstate move in 2020 had 1.83 people. But households moving into California were 10% smaller — averaging 1.66 people. This data suggests new inbound households tend to have smaller families — when they have families at all. What’s more likely is the new Californian is single.

As far as their income, the PPIC stresses that inbound Californians earn more than Californians leaving. However, that trend has become more complicated during the pandemic. Compared to outbound Californians, new Californians in 2020 earned 20% less. New Californians made an average of $83,100 in 2020, while Californians leaving the state made an average of $105,000, according to the IRS.

The only regions in California which gained population in 2020-2021 were limited to less costly inland counties with less restrictive zoning, such as:

  • Riverside, which had a 1.7% increase;
  • Kern County, which had a 0.9% increase;
  • San Bernardino, which had a 0.6% increase;
  • Fresno, which had a 0.5% increase; and
  • Sacramento, which had a 0.2% increase, according to the U.S. Census Bureau.

Inbound movers are drawn to areas in California which have loosened zoning restrictions and thus allowed more residential and multi-family construction to take place — a soothing balm for the dried up inventory found in other areas of the state.

Related article:

California’s pandemic population decline — a mere blip, or a troubling trend?

An exodus from high housing costs

California’s pleasant climate, high-paying jobs, top-tier public education system and enormous economic output makes it highly desirable among a diverse group of people.

But California’s housing costs are becoming exceedingly intolerable, when not impossible, for current and prospective residents to maintain.

The median gross rent in California averaged $1,661 in 2020, according to the American Community Survey. The average across the entire U.S. was markedly lower — $1,129.

As for home prices, while an $800,000 home is considered mid- or high-tier in other states, any home under $894,200 is considered low-tier here in California as of 2022. A mid-tier home in California is anywhere from $894,200 – $1,413,200. The average home price is 18% higher in the low-tier than a year prior as of May 2022, and 22% higher in the mid-tier.

These higher-than-national average housing costs are getting difficult for Californians to bear. But there are steps California can take to ease its inventory shortage, which will have a cooling effect on rents and home prices. Some of these steps include:

Housing costs are exceedingly high in California, and are a major factor, along with jobs, which determines where people will go. [See RPI e-book Real Estate Economics, Factor 21: Population growth]

As long as inventory remains low, higher-than-average home prices and rents will continue — as well as the California exodus.

Read more about what local governments and the state legislature are doing to curb California’s housing shortage and how real estate professionals can get involved at our Legislative steps toward more affordable housing page.

Sign up for the firsttuesday Newsletter to track California homebuyer demographics as they shift going into the next recession.

Related article:

The people who move to California from other states, and those who leave

Want to learn more about California’s population trends? Click the image below to download the RPI book cited in this article.