High Housing Prices Motivating Companies & Employees to Leave California

Today’s Wall Street Journal carried an excellent story about California’s affordable housing crisis, noting that some employers must leave the state as they expand because home prices and rents are “higher on average than anywhere else in the country [and] have surged to the top of concerns for businesses and workers.”

I can verify the accuracy of those observations because my report “Why Companies Leave California” covers that topic extensively (the report served as one of many sources for the Journal’s story).

Following are examples of what is in the Unaffordable Housing section of the report – themes that are similar to the WSJ story:

California Tops the ‘Severely Unaffordable’ Housing Purchase Prices

Of the 175 metropolitan markets in the United States studied for housing prices, not one California housing market was in the Affordable or Moderately Unaffordable range. Most conspicuous is that in the Severely Unaffordable category, 17 out of the 30 markets are located in California. In other words, 56.6 percent of all such listings nationwide are in California. They are Fresno, Merced, Modesto, Sacramento, Vallejo, Riverside-San Bernardino, Stockton, Oxnard, San Luis Obispo, Santa Rosa, San Diego, Salinas-Monterey, San Francisco, Los Angeles, Santa Barbara and San Jose, with Santa Cruz ranking as the worse of all in unaffordability. The source is a 2018 study by Demographia.

Rents Sky High, Too

When it comes to rents, a report from the National Low Income Housing Coalition determined using averages that the most expensive at No. 50 is Hawaii, with California holding the No. 49 spot. Also, seven of the ten most costly counties in the United States for renters are California counties, as follows (starting with the most expensive): Marin, San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa and Santa Cruz.

People Live in Campers & Vans on City Streets

Housing costs in the region ranging from Oakland through Silicon Valley and San Jose is so severe that even fully employed people have priced out of Bay Area homes and apartments and have resorted to living in vehicles on city streets. East Palo Alto Nayor Ruben Abrica said, “They’re workers. Every day they get up and go to work.” The vehicles have sparked safety and sanitary concerns there as well as in San Jose, Mountain View and Union City along with the counties of Santa Clara, San Mateo, Alameda and Contra Costa.

Housing Prices to Worsen

Don’t expect the situation to improve. The California Energy Commission has decreed that beginning in 2020 all new single-family homes and low-rise multi-family residential projects must be built with rooftop solar panels, which would add perhaps $10,000 to a new home’s cost.

Cost of Living

Housing is a major component of the cost of living. A reliable way of measuring the relative cost of living between locations is to compare their Regional Price Parities (RPP) issued by the U.S. Bureau of Economic Analysis. It found that California ranked No. 48, meaning that the cost of living is lower in 47 states and higher only in New York and Hawaii.

Quality of Life

One reason for California having a low quality-of-life ranking is unaffordable housing, which led to a publication’s headline in 2018 that said, “One symptom of California’s housing crisis? State agency says someone making $200K deserves house-buying help.”

Companies Look Elsewhere to Expand

In San Francisco, Santa Clara County, San Mateo County – Silicon Valley in general –  high housing costs have resulted in high-tech companies selecting non-California locations in which to expand. In 2018, a Facebook executive told investors that “Bay Area housing costs need to be addressed if tech firms, such as Facebook, want to remain in Silicon Valley,” Realty Biz News reports. “If we can’t solve the housing and transportation issues, Silicon Valley won’t be Silicon Valley. These companies, like ours, will expand elsewhere.”

Yes, More People Will Leave California

A poll by the University of California at Berkeley Institute of Governmental Studies found that about 56 percent of individuals surveyed said that they have considered moving out of state because of rising housing costs and of those about 25 percent specified that the would likely relocate to another state.

Who Leaves for Greener Pastures?

California continues to hemorrhage people at a high rate, with particular losses among the family-formation age demographic critical to California’s future. Again, housing costs are a major factor.

Quick Summary of a Comprehensive Out-of-California Study

The sampling of information about housing is but one part of the wide-ranging report about how California’s business climate continues to deteriorate and why a record number of companies are leaving the state. The study is brimming with information about companies that left, why they did so, where they moved to, and what CEOs and business owners said to support their decisions. One finding is that many companies relocate even though they have not been offered economic incentives in their new state or community. Topics examined include the types of facilities and industries moved out of state, high utility and labor costs, punitive laws and regulations, and how California lags behind other states in acquiring facilities that are being reshored from overseas.

How You Can Use the Report

Corporate CEOs may relay findings in this study to their Board of Directors to help justify shifting facilities, capital and jobs to business-friendly states. Small Business Owners will find helpful information to explore with their families and partners about relocating to a location that offers an attractive business climate and excellent quality of life. New Entrepreneurs can share the report with their financial supporters to consider options for building an ROI at a healthier rate outside of California. And Economic Development Agencies can find an information treasure trove useful in facilitating discussions with California-based companies; in short, when you can convey to them what their peers have done regarding expansions and relocations, they will listen.

Purchase Information

To purchase the study, see “Why Companies Leave California.”

Joseph Vranich is a site selection consultant providing location advisory services to corporations and small businesses. His motto is “Helping Businesses Grow in Great Locations.” In recent years, he has discussed California’s difficult business environment with more than 100 economic development agencies located in North America and Europe. The official name of his company is Spectrum Location Solutions LLC, but he also has been known as the Business Relocation Coach. If you found this posting useful, please forward it to a friend and subscribe to Joe’s blog here (see the top right-hand side of page; your email will not used for any marketing purposes whatsoever).

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