What Record Low Population Growth Means for California’s Housing

The latest population data from the California Department of Finance, released 18 December, signal what may be a significant turning point for California’s housing crunch. According to a statement released by the Department, “California’s population increased by 21,200 between July 1, 2019 and July 1, 2020… a growth rate of 0.05 percent, down from 0.23 percent for the prior 12 months – another record low state population growth rate since 1900.”

For decades, California’s household population has been growing at a faster rate than its housing supply. Between 1990 and 2017, the population expanded 33.4 percent whereas the housing supply has only increased 25.8 percent, or about 32 new housing units for every 100 new residents. For comparison, the rest of the U.S. added approximately 40 new housing units for every 100 new residents over the same period. The excess demand correlates with lower vacancy rates, larger household sizes, and higher housing prices. While California’s population growth rate has slowed since 2014, the growth in housing demand continued to exceed the growth in housing supply until 2019. For the last two years, housing supply has expanded more than the number of households and 2020 marks the first year where the net increase in new single- and multi-family units exceeded the net increase in household population.

Source: California Department of Finance

This historic downshift in population growth relative to housing supply further complicates an already complicated picture of housing in California. Does this signal the start of softening demand and lower housing prices? Homes sales and prices have remained strong through the pandemic. RDN’s research indicates that rents have also remained relatively stable – though this is at least partially attributable to federal assistance and protections for renters. That assistance would be temporarily extended through the newly proposed Coronavirus relief bill, which reportedly includes $25 billion in rental assistance for states and local governments and extends the national moratorium on evictions through the end of January 2021. If California’s housing inventory continues to outpace its population growth, we can expect to see rents and median home prices level off or even decrease over the next few years. That may be bad news for the state’s 7.2 million existing homeowners, but welcome relief for the 5.9 million renters and potential first time home buyers whose incomes have stagnated relative to their increasing housing costs.