California Squashes Its Young

The Golden State’s suffocating economic policies are driving out a new generation.

Joel Kotkin, Wendell Cox

https://www.city-journal.org/

April 30, 2017

Skid Row, Downtown Los Angeles

In this era of anti-Trump resistance, many progressives see California as a model of enlightenment. The Golden State’s post-2010 recovery has won plaudits in the progressive press from the New York Times’s Paul Krugman, among others. Yet if one looks at the effects of the state’s policies on key Democratic constituencies— millennials, minorities, and the poor—the picture is dismal. A recent United Way study found that close to one-third of state residents can barely pay their bills, largely due to housing costs. When adjusted for these costs, California leads all states—even historically poor Mississippi—in the percentage of its people living in poverty.

California is home to 77 of the country’s 297 most “economically challenged” cities, based on poverty and unemployment levels. The population of these cities totals more than 12 million. In his new book on the nation’s urban crisis, author Richard Florida ranks three California metropolitan areas—Los Angeles, San Francisco, and San Diego— among the five most unequal in the nation. California, with housing prices 230 percent above the national average, is home to many of the nation’s most unaffordable urban areas, including not only the predictably expensive large metros but also smaller cities such as Santa Cruz, Santa Barbara, and San Luis Obispo. Unsurprisingly, the state’s middle class is disappearing the fastest of any state.

 California’s young population is particularly challenged. As we spell out in our new report from Chapman University and the California Association of Realtors, California has the third-lowest percentage of people aged 25 to 34 who own their own homes—only New York and Hawaii’s are lower. In San Francisco, Los Angeles, and San Diego, the 25-to-34 homeownership rates range from 19.6 percent to 22.6 percent—40 percent or more below the national average.

No big surprise, then, that California’s millennials are more likely to stay at home with Mom and Dad into their thirties. Approximately 47 percent of Americans aged 18 to 34 lived with parents or other relatives in 2015, according to the American Community Survey—but in California, the figure is 54 percent. California’s younger generation, particularly in the cities, seems increasingly destined to live as renters.

The biggest losers from California’s housing crisis are, ironically, the very people whom progressives claim to care about most: the poor and minorities, who also constitute most millennials. Hispanics, now approaching a majority of the state’s population, account for 43 percent of the 25-to-34 cohort. Rates of homeownership for African-American and Hispanic Californians have dropped at four times the rate of Asians and non-Hispanic whites in the last 10 years, while minority homeownership in the Golden State now lags most of the country, notably Texas and the southeast.

Much of this can be traced to California’s long-standing bias against suburban development. Reducing greenhouse-gas emissions remains an obsession. But unless the rest of the country (or the world) adopts California’s strict emissions rules, the state’s regulations are likely to have little or no impact on climate change. Recently passed legislation will make things worse by imposing even more stringent regulations on greenhouse gases, mandating a 40 percent cut from 1990 levels by 2030. This represents the ratcheting up of a regulatory regime that will slow California’s already-torpid rate of issuing building permits, which is well below the national average.

California’s housing policies pose a profound long-term threat to the state’s social stability and economic viability. The state has seen a net loss of about 1.7 million domestic migrants since 2000. After slowing during the Great Recession and its aftermath, out-migration is again growing, even in the booming Bay Area. Some 29,000 more people left the Bay Area than arrived in 2016. The San Francisco metropolitan area saw net migration plunge from plus-15,000 in 2013 to minus-12,000 three years later.

Contrary to some reports, the people leaving California are not predominantly poor and uneducated. IRS data show that California’s outmigration between 2013 and 2014 was concentrated among middle-aged people with higher average incomes than households that stayed in California or moved there. This trend contrasts dramatically with Texas, arguably the state’s strongest economic competitor.

Here again, new policies will only make things worse. The Bay Area’s 2040 regional plan calls for concentrating 75 percent of new housing development on barely 5 percent of the region’s developed land mass. One alternative plan assumes that 78 percent of new housing in the Bay Area would be multi-family and 22 percent single-family (detached and attached). The regional Air Quality Agency has drawn up intrusive plans, seeking to levy tolls on all freeways, ban gas stoves, and urge less meat consumption.

Young people overwhelmingly prefer single-family houses, which represent 80 percent of home purchases nationwide for people under 35. If millennials continue their current rate of savings, notes one study, they would need 28 years to qualify for a median-priced house in San Francisco—but only five years in Charlotte and just three in Atlanta. This may be one reason, notes a recent ULI report, why 74 percent of Bay Area millennials are considering moving out in the next five years.

Regional planners and commercial chambers should indeed look to California as a model—of exactly what not to do. The state’s large metro areas are no longer hot growth spots for millennials, who are flocking to suburbs and exurbs elsewhere. Since 2010, the biggest gains in millennial residents have been in low-density, comparatively affordable cities such as Orlando, Austin, and Nashville. Ultimately, the battle for California’s future—and much of Blue America’s—will turn on how these regions meet the challenge of providing housing and opportunities to a new generation of workers and young families. A California that works only for the wealthy and well-established is not sustainable.

America’s “youth culture” was invented, more or less, in California in the 1960s, from the surfing spots of L.A. and Orange County to the countercultural hotbeds of the Bay Area. But today, California is turning on its young, with policies that ensure that most millennials will never fully “launch,” leaving many destined either to move elsewhere or become wards of an ever-expanding welfare state. The Golden State can still create an environment for growth and family formation—but only if it reclaims its historical role as the nation’s beacon of opportunity and youthful enthusiasm.

Joel Kotkin is the presidential fellow in urban futures at Chapman University and executive director of the Center for Opportunity Urbanism. His new book is The Human City: Urbanism for the Rest of Us. Wendell Cox is the principal of Demographia, a public-policy consultancy, and a senior fellow at the Center for Opportunity Urbanism, based in Houston.