Since about 1970, California has been experiencing an extended and increasing housing shortage, such that by 2018, California ranked 49th among the states of the U.S. in terms of housing units per resident. This shortage has been estimated to be 3-4 million housing units (20-30% of California's housing stock, 14 million) . Experts say that California needs to double its current rate of housing production (85,000 units per year) to keep up with expected population growth and prevent prices from further increasing, and needs to quadruple the current rate of housing production over the next seven years in order for prices and rents to decline.
The imbalance between supply and demand resulted from strong economic growth creating hundreds of thousands of new jobs (which increases demand for housing) and insufficient construction of enough new housing units to meet demand. From 2012 to 2017 statewide, for every five new residents, one new housing unit was constructed. In California's coastal urban areas, (where the majority of job growth has occurred since the Great Recession), the disparity is greater: in the Bay Area, seven times as many jobs were created as housing units. By 2017, this resulted in the median price of a California home being over 2.5 times the median U.S. price. As a result, less than a third of Californians can afford a median priced home (nationally, slightly more than half can), 6 percent more residents are in poverty than would be with average housing costs (20% vs. 14%), homelessness per capita is the third highest in the nation, the state's economy is suppressed by $150–400 billion annually (5-14%) (because of lost construction activity, and money that must be spent on housing cannot be spent on other consumer goods), and the long commutes caused by unaffordable housing in the urban centers where jobs are is hindering California's ability to meet its CO2 emissions goals.
Several factors have together caused constraints on the construction of new housing: density restrictions (e.g. single-family zoning) and high land cost conspire to keep land and housing prices high; community involvement in the permitting process allows current residents who oppose new construction (often referred to as NIMBYs) to lobby their city council to deny new development; environmental laws are often abused by local residents and others to block or gain concessions from new development (making it more costly or too expensive to be profitable); greater local tax revenues from hotels, commercial, and retail development vs. residential incentivize cities to permit less residential; and construction costs are greater because of high impact fees, and often developments are only approved if union labor is used.
In 2016, the Obama Administration recommended that cities across the nation with high housing costs reform their land use regulations to enable opportunity for people at all income levels to access jobs being created in growing cities. Since then, the California legislature has passed several bills: some reduced the fees and bureaucracy involved in creating ADUs, while others have added fees to real-estate document recording to finance low-income housing; yet even the most optimistic projections find that relative to the scope of the problem, these will have minimal effect. In addition, proposed bills that would have legalized higher density development close to public transit failed in the legislature. In 2019, the Council of Economic Advisers estimated that deregulating the housing market would lead to rents falling by 55 percent in San Francisco, 40 percent in Los Angeles, and 40 percent in San Diego.
Background
Issi Romem, an economist at the Terner Center for Housing Innovation at the University of California, Berkeley said: "...as long as abundant new housing was built to accommodate those drawn to California, housing price growth was limited and the state's allure was channeled into population growth: From 1940 to 1970 California's population grew 242 percent faster than the national pace, while the growth of its median home value was only 16 percent faster than the nation's."
Starting in 1970, three major forces caused housing prices to increase dramatically: land use restrictions limiting housing density (zoning many areas to single-family homes, or to at most two stories), increased concern for the environment (which led to environmental laws and designating land for preservation and not development), and community involvement in the development process (which allows current—but not future—residents a say in land use decisions.)