Rising home prices add to California’s slowing economic growth: report

The median household must pay over 7 times its income to afford a home, according to LA County Economic Development Corporation

Los Angeles /
Feb.February 20, 2020 04:11 PM
Economic expansion in California and Los Angeles County is slowing
Economic expansion in California and L.A. County is slowing amid rising housing prices and a housing shortage. (Credit: iStock)

After years of robust growth, the economic expansion in California and Los Angeles County is slowing because of gloomy statistics on housing affordability and a lack of population growth.

The statewide housing shortage coupled with rising home prices will force more people to leave and create a long-term drag on “prospects for growth without significant policy action,” according to a report released this week by the Los Angeles County Economic Development Corporation.

While the group is forecasting that statewide employment and income growth will continue through 2021, “housing costs and population loss, which started in 2018, must be addressed to ensure future economic vitality,” the report said.

The LAEDC’s findings were released on Wednesday, the same day Gov. Gavin Newsom used his entire State of the State speech to address the worsening homeless crisis in California. 

“It’s a disgrace that the richest state, in the richest nation — succeeding across so many sectors — is falling so far behind to properly house, heal and humanely treat so many of its own people,” Newsom said.

The housing crunch has been felt across a broad range of income levels. For those with the means to purchase a home, it is especially acute in L.A., where the average sale price continues to creep upward, past $600,000, though the number of sales has declined, according to recent CoreLogic numbers.

In 2018, the median home in California cost 7.3 times more than median household income, according to the LAEDC report. That contrasts to the rest of the U.S. where a home cost only 3.7 times the median household income.

“The fact that the median Californian household must pay more than seven times its income to afford a home should be grounds for grave concern regarding sustainable economic growth,” the report found.

California has also been experiencing “a substantial amount of domestic outmigrationover the past two decades. During that period, international immigration and investment made up for some of the shortfall, but even that is disappearing.

Now, with an “uncertain immigration policy environment emanating from Washington, immigration has not provided this supplement,” according to the report.

China in particular — which poured massive amounts of money into California real estate — has been tightening its belt and shedding big commercial properties. In late 2016, the Chinese government imposed a series of new rules aimed at curbing overseas spending. Since then, the inflow of money from China has dropped dramatically.

The decline in population also causes another problem: A loss in political power for California. Projections for the 2020 census show the state is likely to lose a congressional seat, according to the report.

But despite all the bad news, the LAEDC expects growth in the region to continue at or slightly below the 2 percent mark. And here’s some more mildly positive news: A recession this year, “predicted by many in 2018, or even in 2021 is not preordained,” researchers found.


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