The Hidden Cost of California’s Housing Crisis

For many California families, the accelerating housing crisis affects not just their budget, but their way of life. Every year over the past decade, the state estimates, 100,000 fewer units of housing have been built than were needed to keep up with demand. The result has been spiraling housing costs that price all but the wealthiest families out of a place to live. That, in turn, is reducing the number and size of families across the state.

California’s birth rate has fallen every year since 2008, coinciding with the housing market’s recovery and then stratospheric liftoff following the Great Recession. The decline is found across women in all age groups, but is particularly perceptible among women under age 24, those least likely to be able to afford a house payment or to have stable housing.

Economists have found a surprisingly strong relationship between home prices and birth rates—one study found that a $100,000 increase in the value of a home over the prior four years was associated with a 16.4 percent increase in the probability of having a child. The University of Maryland’s Melissa Kearney and Lisa Dettling of the Federal Reserve found that areas with high homeownership saw a rise in fertility when house prices increased.

The catch? Both papers found that the increased likelihood of having a child only occurred among homeowners, who felt wealthier as a result of the increased value of their house. Renters were left out of the housing-fueled baby boom and may in fact have been less likely to have a child after a regional increase in home prices. For them, an increase in nearby home values led to higher rents, making them feel less financially secure. Kearney and Dettling found that the impact of a house price increase on birth rates turned from positive to negative when a locality reached about 30 percent renters. In England and Wales, with a constrained housing market and high percentage of renters, researchers estimate that the rise in home prices led to 157,000 fewer children being born between 1996 and 2014.

This dynamic is essential for understanding the California baby bust. The metro area of Los Angeles and Orange counties posted the second-lowest homeownership rate in the nation, and the renting percentage in those counties is upward of 50 percent and 40 percent, respectively. It should not be a surprise, then, that every single county in Southern California saw a decline in birth rate last year, as it has each year since 2011. And while San Francisco County, for all of its housing woes, has maintained a relatively flat birth-rate trend, much of the rest of California’s urbanized, high-cost counties show distinct negative correlations—the higher the rent, the higher the fraction of households renting and the lower the birth rate. As one-third of California renters devote more than half of their income to rent, research and experience should lead us to believe they are cutting back elsewhere, including family size.

In the decades following World War II, California was ground zero for the American baby boom. Tract homes exploded across the landscape as new families moved in and settled down to build up a state that would become the eighth largest economy in the world in its own right. Developers and bankers alike constructed housing to meet the demand, and the state benefitted greatly from it. Now, building slips ever further behind demand, continually driving up the cost of housing past the levels that discourage young families from forming.

All this means that the crisis of the Californian renter is even worse news than it is usually understood to be. Not only is it responsible for significant present-moment hardship for millions up and down the state, but it also poses a direct threat to California’s future health. Long buoyed by immigrants and their large families, Californians will now have to supply their own future as immigrant fertility rates are converging to the low levels of their new neighbors.

The generous welfare benefits, pensions and investments in education, in which Californians take pride, rely upon a strong flow of new workers to step into the place of retirees. The state’s culture of energy, innovation and activism is fueled by the young. As California’s legislature takes up new efforts to relieve the housing crisis, and as its cities begin implanting the package of streamlining measures passed earlier this year, politicians should remember that they are not just shaping the California of today, but building into place the California of generations to come.

Jonathan Coppage is a visiting senior fellow at the R Street Institute. Patrick T. Brown is a graduate student at Princeton University’s Woodrow Wilson School for Public and International Affairs, and was an urbanism research assistant at the R Street Institute.

This post originally appeared on Weekly Standard


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