The Economic Consequences of California’s Housing Crisis

Jeff Montejano
CEO, Building Industry Association of Southern California

California’s housing crisis has received a heightened level of attention in 2019 and rightfully so.

A statewide survey conducted earlier this year by the Public Policy Institute of California made headlines regarding the overwhelmingly high level of public apprehension over skyrocketing housing costs. Not only did a record-high share of Californians say that the lack of affordable housing is a big problem in their region, but an eye-opening thirty-five percent said that high housing costs have them seriously considering leaving the state.

In Sacramento, the housing crisis has come to the forefront as well, with a myriad of housing bills introduced in the state legislature. The most notable of these bills, SB 50 by Senator Scott Wiener, generated a vigorous discussion over the issue of local control, eventually failing to pass out of committee. Other issues such as environmental regulations and rent control have fanned the flames of debate among various stakeholders.

As part of this debate, it’s critical not to overlook the negative economic consequences that accompany such a massive scarcity of affordable housing. Not only has the lack of new home construction in California caused a substantial financial hardship on individuals renting or purchasing homes, but the state’s overall economy has suffered as well.  

A study by the well-respected McKinsey Global Institute found that due to the state’s housing shortage, California’s economy loses over $140 billion per year in economic output.

Included is an estimated loss of over $50 billion per year in consumer consumption due to the state’s high cost of housing. When people are spending a substantial portion of their paychecks on rent or mortgage payments, they have less to spend elsewhere. For low-income residents, this often means that income that would ordinarily be spent on basic necessities like food and clothing is redirected towards housing costs

The lack of housing construction also eliminates the economic ripple effect that accompanies new home production. Architects, plumbers, roofers, and realtors are a small sampling of the numerous professions which stand to benefit from new housing development. According to the report, lost construction activity in California costs the economy over $90 billion per year.

In contrast, when homes are being built at a robust pace, a thriving housing construction industry has shown to be a considerable economic driver. A study funded by the California Homebuilding Foundation found that the industry’s most recent peak came in 2005 with new home construction supporting over 486,000 jobs.

The Building Industry Association of Southern California (BIASC) is steadfast in the belief that while the economic benefits of new housing are resounding, building new homes is far more than a business issue – it’s a quality of life imperative. Whether it’s working with policy makers both locally and in Sacramento, advocating in the courts through our Building Industry Legal Defense Foundation, or partnering with labor unions to address critical industry issues, BIASC is resolute in our commitment to a future of full and fair housing construction.

Ultimately, there is only one way out of California’s housing crisis, and that’s to ensure that home builders can do business in a legislative and regulatory environment where actual construction can take place. To do so, our elected leaders must acknowledge that when it comes to solving the state’s housing crisis, we must move away from the policies of the past that have created the dilemma in which the state finds itself today. As stated ever so eloquently by Groucho Marx, “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

Comment on this article


Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.