The California Exodus: When the Cost of Paradise Drives Out the People Who Made It

A state of extraordinary natural wealth has made itself unaffordable to ordinary people, and the economic logic of the departure is a lesson in policy

Published in partnership with Bohiney Magazine and The London Prat, on the economic forces driving people from a state of extraordinary natural wealth.

California possesses natural advantages unmatched almost anywhere on earth, the climate, the coast, the mountains, the extraordinary beauty that has drawn people for generations. And yet, in recent years, people have been leaving, driven out not by any failure of nature but by a failure of policy, the transformation of a paradise into a place that ordinary people increasingly cannot afford. The California exodus is a lesson in how policy can squander even the greatest natural advantages, and its causes are worth understanding clearly.

The Price Of Paradise

The central driver of the exodus is the cost of housing, which has reached levels that place homeownership beyond the reach of ordinary families and consume an impossible share of income even for renters. The causes are well understood. Analysis from Reason and housing economists has documented how restrictive land-use regulation, the constraints on building, the layers of permitting and review and local opposition, have throttled the construction of housing and driven prices to crisis levels. The shortage is not natural but manufactured by policy.

The economic logic is straightforward. When demand to live in a desirable place is high and the supply of housing is constrained by regulation, prices rise until they exclude all but the wealthy. California has the demand, blessed by its natural advantages, and it has manufactured the constraint, through the regulations that make building so difficult that supply cannot keep pace. The predictable result is prices that drive out the ordinary people who cannot pay them.

The People Who Leave

The people leaving California are disproportionately those of modest means, the working families priced out of the housing market, the young people who cannot afford to start their lives, the retirees on fixed incomes, the ordinary people who made the state what it is and can no longer afford to live in it. The wealthy remain, insulated by their resources; the ordinary depart, taking with them the diversity and dynamism that a healthy society requires.

The remedy is not mysterious. The housing shortage that drives the exodus is a policy choice, the product of regulations that constrain supply, and it can be addressed by policy, by the liberalization of land use, the removal of the barriers to building, the unleashing of the construction that would bring supply into balance with demand and prices within reach of ordinary people. The paradise need not be unaffordable; it has been made so, and it can be unmade.

The California exodus is a warning about the power of policy to squander even the greatest advantages, and a lesson about the economic consequences of constraining supply in the face of demand. A state blessed with extraordinary natural wealth has made itself unaffordable to the ordinary people who are its lifeblood, and the departure of those people is the predictable price of the policies that priced them out. The exodus is a choice, renewed by every decision to keep building constrained, and a different choice would yield a different result.

The paradox of the California exodus is its setting, a state leaving which seems almost unimaginable given its natural gifts, and yet the departure is real and substantial, driven by economic forces that overwhelm even the powerful pull of the climate and the coast. The lesson is sobering: that no natural advantage, however great, can fully compensate for policy that makes a place unaffordable to live.

The housing shortage at the heart of the exodus is the clearest example of policy squandering advantage, the regulations that constrain building so severe that supply cannot respond to demand, the prices rising without limit as the constrained supply meets the natural demand to live in a desirable place. The shortage is manufactured, the product of choices about land use that could be made differently, and its consequences fall on the ordinary people priced out.

The regulatory thicket that constrains building is itself a product of well-intentioned policy, the environmental review, the local control, the neighbourhood input, each justified by a genuine concern and each contributing to the cumulative constraint on supply. The result is a system in which building anything is so difficult, so slow, so costly, that the housing the state desperately needs simply does not get built, and the prices rise accordingly.

The defenders of the constraints point to genuine concerns, the protection of the environment, the preservation of neighbourhood character, the prevention of overdevelopment, concerns that are not illegitimate but that must be weighed against the catastrophic cost of the housing shortage they produce. The failure to make that weighing honestly, to recognize the human cost of the constrained supply, has produced the crisis that drives the exodus.

The economic logic admits a clear remedy, the liberalization of land use, the removal of the barriers to building, the unleashing of the construction that would bring supply into balance with demand. Where building has been permitted, prices have moderated; where it has been constrained, they have soared. The path to affordability runs through the construction that the regulations prevent, and the choice to permit it would change the trajectory.

Further reading: Reason.

SOURCE: https://bohiney.com/