November 26, 2022
COVID’s role in California’s housing crisis
SAN FRANCISCO – (INT) - California’s housing crisis stems from too much demand chasing after limited supply. That’s the conclusion of the Public Policy Institute of California.

Policymakers have been taking steps to address the supply side of this equation by paring back regulatory burdens and pushing local governments to promote more new construction. But the demand side is not static. COVID and changing demographic patterns have also conspired to place additional strain on the housing market, despite the state’s declining population.

During the pandemic, demand-side pressure on the housing market has emerged in part from a “spreading out” of Californians across more housing units as people sought to limit their exposure to the virus and as remote work allowed many to live farther from their job location. The number of people per household fell sharply at the outset of the pandemic, dropping 2.7% from 2.93 in 2020 to 2.85 in 2021. It then declined again by 1.4% to 2.81 in 2022. During this time, the share of adults heading a household went up. These changes mean that there are now more households for a given population—and that more housing is needed to support this population.

The pace of new housing construction has not kept up with the number of Californians forming new households. Between 2019 and 2021, the state added 366,000 households but only 254,000 housing units, according to the Department of Finance. Household formation during the pandemic outpaced net new construction by nearly 112,000 units, further tightening the state’s housing market.

As new households form, they fill up new units and vacant homes, pushing up prices and rents. Between January 2020 and January 2022, vacancy rates declined from 7.6% to 6.7%, according to the Department of Finance, while home values and rents increased 23% and 17% respectively, according to Zillow.

Trends in household formation varied across age groups.
Story Date: November 17, 2022
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