By Jack Horrigan
California is a divisive state. It is the sweetheart of America’s left – a populous and prosperous paradise with liberal laws and a culture conducive to social justice – and the boogeyman of America’s right, who sees vices where the left sees virtues. But the Californian dream may be coming to an end.
In the past five years, homelessness has doubled in parts of the Bay Area, a region of California containing roughly a fifth of its residents. California is home to 30% of America’s homeless, all while the state constitutes just 12% of the country’s citizens. At the same time, California’s population has fallen by over 1% between 2020 and 2022, marking the first decline in the state’s population since its inception. California is, in a sense, a microcosm for its fellow 49 states: the most pertinent policy challenges, including a meteoric rise in the cost of living and, as a result, burgeoning homelessness, are not unique to the Golden State. They are, however, more extreme on the West Coast. Of the ten cities in the US with the highest homeless population, California is home to six, while another city, Seattle, is politically similar to California.
There have been various diagnoses for why California has been the epicentre of the housing crisis. These explanations are almost always tinged with ideological bias. One such explanation is the state’s politics. California is divisive, but it is hardly divided – in the past 30 years, there have been 16 Democratic trifectas, meaning Democratic control over the executive branch and both houses of the legislature. Only in one year, 1996, did Republicans even control two-thirds of state government. Perhaps as a result, California has the second highest state expenditure per capita in the US. One argument is that such a gargantuan level of state spending, stirred with a lackadaisical attitude towards drugs taboo in most other states, has resulted in a concoction perfect for the growth of homelessness. It is handy for this argument that California Governor Gavin Newsom’s plan to fight the housing crisis, which involved even more public spending to the tune of $15 billion, has seen very few results.
This argument is almost wholly spurious. Gluttonous public spending is not to blame for California’s homelessness epidemic, and the oft-cited duo of “drug addiction and mental illness” is a scapegoat, not a root cause of homelessness. (States like Arkansas and West Virginia have much lower levels of homelessness despite much higher rates of drug addiction). The real reason California has felt these issues more severely is much more intuitive: a lack of affordable housing. The median cost of a San Francisco home in 2023 is over a million dollars, while the average cost of renting is over $3,313 per month. Compare that to San Francisco’s median income of around $55,000, and a rise in homelessness seems like a foregone conclusion – a worker on median income would work years before affording a home, and the average rent in the meantime would constitute over 70% of the median income before tax.
To purchase a home in America is difficult anywhere. To purchase a home in a Californian city, however, is a herculean feat. There are myriad reasons why housing in California is so scarce; in some parts, restrictive zoning laws prevent the building of new residences; in some regions (most notably the Bay Area) an influx of high-earning tech workers has driven housing prices upwards, leaving the elusive status of “homeowner” out of the grasps of California’s millions of middle- and low-income workers.
So while public spending is not the culprit of homelessness in California, neither is it a panacea. This may explain why Mr Newsom’s proposed plan to combat homelessness has thus far produced only meagre results. Though a hefty financial commitment is needed, it has been only a stopgap measure to provide more beds and fund more outreach programs for the homeless. Eviction moratoriums, rent-rise freezes, and rent subsidies are all fine measures to stop the bleeding as policymakers conduct a triage of the crisis, but the state faces legal challenges to these actions – rent cannot be frozen forever. More structural changes are needed. Rather than converting motels into makeshift apartment blocks, new houses must be built; Los Angeles’s new “mansion tax” will dissuade developers from continuing to create gaudier and gaudier houses while hundreds of thousands are without a home entirely.
Some of these structural changes may come without any initiative by the state government. California’s population flight is a result of these new housing prices (though some claim that it is really a result of progressive taxation, and naturally, wokeness). This is a simple economic calculation. The market for housing prices has risen out of control, but the market will correct itself. The pandemic has sped along this operation: as tech firms were among the first to go remote, their workers found they could work from anywhere. This has a knock-on effect as those (usually high-income) workers leave their nannies, grocers, Uber drivers, and other service workers behind. Should they leave to find work elsewhere, the cycle continues. But this is not a perfect process – nor is it a painless one. The state should smooth this transition as best it can. Mr Newsom, with his eyes on the White House, will no doubt owe his political life (or death) to his handling of this crisis.
Supreme Court Justice Louis Brandeis once labelled states as America’s “laboratories of democracy” – that is, isolated systems where states may experiment with policies without risking the whole of the country. America’s West Coast has “experimented” with a slew of liberal policies: currently, the increased cost of living in America is most acutely felt in those same states. But as any high school statistician is eager to tell you, correlation is not necessarily causation. There are lessons to be learned from California to be sure: a mixing of the über rich, who simultaneously require huge estates for themselves and a plethora of low-income workers to service them, will naturally go awry if the state does not intervene sooner. But with the advent of a remote world, this may not be as prevalent an issue much longer. Silicon Valley no longer needs to be in one place; companies, like people, are fleeing California in droves. Californian policymakers are no doubt irked by this, as a decline in population nearly always means a decline in economic growth. It may yet be a blessing in disguise. Yes, California may lose its status as the richest of the 50 states – but perhaps soon it will be able to house its people.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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