Reasons for California’s High Housing Costs

Excellent report by the California Legislative Analyst’s Office (LAO) on why California’s land and housing prices – particularly in the coastal regions – are so expensive.1. Bottom line is that enough housing is not being built.

California would have to build significant more housing, especially in coastal urban areas

The lack of housing and the resulting lower ownership levels impacts lower income households much more than middle and upper income houses.

Renter median net worth totaled $5,400 in 2013, a small fraction of the $195,400 median homeowner’s net worth.

To make up for the lack of density in housing, multiple people will share households, which is undesirable for both the occupants as well as the spillover effects :

California’s overall crowding rate is four times higher than the U.S. average, partly due to demographics and partly to other factors, including higher housing costs, as discussed below.

And the lack of affordable housing costs all of us in terms of economic growth:

Economists at the University of California, Berkeley and the University of Chicago recently estimated that annual U.S. economicoutput—the total value of goods and services produced each year—is 13 percent lower today than it otherwise would be due to “increased constraints to housing supply in highly productive cities.”

The authors have no silver bullet, but they do make the following suggestions that the California Legislature could consider:

  • Aim to Build More Housing in Coastal Cities, Densely.

  • Put All Policy Options on the Table.

  • Recognize Targeted Role of Affordable Housing Programs.

  • Understand That Some Factors Are Beyond Policy Makers’ Control.

1The LAO is a nonpartisan office which provides fiscal and policy information and advice to the Legislature.


3 thoughts on “Reasons for California’s High Housing Costs”

  1. Do housing impact fees help or hurt? It looks like they could hurt in people who are looking for their first homes. In cities like San Francisco (and probably San Jose), the fees are a significant amount of a lower priced home (e.g. a starter home), so builders tend towards constructing more expensive homes where it is easy to pass on the fees. Secondly, the higher cost of homes makes it difficult to qualify for FHA financing, squeezing out some people who would otherwise be able to purchase their first home.

    The study, by Zelman and Associates, is also referenced in this article.

    The article suggests up to 24% of an average new home’s cost is tied up in governmental regulations and permit fees, “Effectively, every new home built comes laden with 24.3% of its final price tag consisting of governmental fees and taxes, not to mention delays that cost money.”


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