Were California real estate prices always so high? Not hardly! Not until the Democrats took over.

Richard Rider, Chairman, San Diego Tax Fighters Undesignated 20 Comments

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A common misconception is that California homes always been much more expensive than U.S. houses.  More expensive, yes — but until relatively recently not nearly as much as people think.

Until, that is, the CA state legislature became solidly Democrat, and the progressive policies started to take hold.  The legislature swung Democrat in the 1960’s.  Both houses have remained solidly Democrat since 1970 (with an odd 2 year State Assembly exception in the 1990’s).

Consider prices for average median value homes:

1960 —  California homes 27.0% higher than national median

2000 —  California homes 76.8% higher than national median

CA would be higher in 2000 but for the Golden State trend to move to condos — purchased at a considerably higher rate than condos in other states because of the scarcity of (and resulting high price for) CA detached homes.  Note:  This U.S. Census chart stops at year 2000.

http://www.census.gov/hhes/www/housing/census/historic/values.html

To adjust for that house size disparity and to use current figures, look at the Zillow website:

Using the PER SQUARE FOOT cost for comparison, we find that for December 14, 2014, California prices per square foot for a sold median home were 114.2% higher than the national average.

http://www.zillow.com/home-values/

But it gets worse.  The disparity is actually greater, considering that about 1/8 of the national average includes the CA homes — based on California having about 1/8 of the nation’s population.  Comparing with just the other 49 states (a more accurate comparison) would likely make the difference more like 154% — vs. the 1960 disparity of only 27.0%.

Of course, apologists would say that this growing disparity is caused by people flocking to California.  It was partly true when I moved here in 1969, but for every year since 1992 but two (1999 and 2000) , more people have left California for the other states than have moved here from the other states.

Our total population is still growing as a state — thanks to childbirths, longer life expectancy and international immigration — legal and illegal.  But the international immigrants put much less pressure on home prices than do migrants from other states.

Here’s a dramatic example of the pronounced reversal of domestic immigration patterns — comparing California between-state migration 1955-1960 with 1995-2000.

http://www.census.gov/dataviz/visualizations/051/

Net Migration Between California and Other States: 1955-1960 and 1995-2000

March 7, 2013

This graphic shows the 10 largest state-to-state migration flows in and out of California for the period 1955-1960 compared to that of 1995-2000. In the late 1950s, the largest flows involving California were all inflows to the state, generally from states in the Midwest or Northeast. This pattern contrasted with the flows in the late 1990s, where nearly all of the largest migration streams involving California represented out-migration to other states.

All told, from 1992 through 1 July, 2014, California has had a net domestic out-migration of over 3.7 million people. And I can’t emphasize this point strongly enough — that’s NET domestic migration — since 1991, 3.7 million MORE people left California than came to California from other states.

Most of those migration numbers can be found in this reference, Table 1. The most recent three years I had to dig out from various sources:

http://www.manhattan-institute.org/html/cr_71.htm#.VTWFz_nF98F

The bottom line is that our high housing prices are not some act of nature — and certainly not free market forces. It’s primarily the result of much land being removed from potential housing, high fees for building housing and regulations that both slow the process and drive up costs dramatically.  For instance:

Average 2012 CA impact fee for single-family residence was $31,100, 90% higher than next worst state. 265% higher than jurisdictions that levy such fees (many governments east of the Sierras do not). For apartments, fee averaged $18,800, 290% above average outside state. The fee is part of the purchase price, so buyer pays an annual property tax on the fee!

Our water problems are very real and getting worse, but that should be driving housing prices DOWN, if anything.  Imagine what our housing prices would be if those 3.7 million California residents hadn’t left, and we had plenty of reasonably priced water.  Not to mention average priced electricity!

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Comments 20

  1. Great analysis Richard. The interesting fact is that you see no analysis by the Democrats on the housing crisis or the water crisis laying the blame on the extremist environmentalists or their own policies.

    Another thing you don’t see in the media or from the Democrats are any workable solutions to alleviate the problems. You think you’d see proposals to eliminate fees, and anything else that contributes to high housing costs and proposals for more dams, water storage, and elimination of the wacko EPA policy for the Delta smelt. What say you Hypocrisy?

  2. Dan,

    Water and housing are separate (although admittedly somewhat intertwined) issues:

    On the water issue, the State should be doing more of what San Diego is doing and San Diego should be doing more of it: Desalination, storage, purple pipe, “toilet to tap” and conservation.

    As for the Delta smelt issue, I completely agree with you. It is crazy to prioritize a fish, especially one that be relocated, over people. That said, even if that policy is changed, we will still have to do all of the above.

    As for building a water pipeline from parts of the country or Canada where water is plentiful, as someone suggested, I just don’t see that being even close to economically feasible. Interstate pipelines work for oil and gasoline because gasoline sells for $3 per gallon. If that was the price of water, a 5-minute shower would cost $75.

    On the housing issue, we certainly could, and should, reduce some of the fees that are assessed to developers, but that would only marginally affect the price.

    The only way to significantly reduce the cost of housing is to either dampen the demand (see 2009 recession) or increase supply. I certainly don’t want to see the former and the latter is not going to happen, but not for the reason you think. Politicians (of either party) will not do anything to significantly reduce the cost of housing because homeowners vote at a much higher rate than renters and neither I, nor my fellow homeowners will be very happy if our largest single investment loses a significant amount of its value.

  3. HQ raises a VERY valid point. The constituency for keeping housing prices high is strong, and they VOTE.

    Doing the right thing requires some unselfish decision making, coupled with getting the general public to connect the dots. Sadly, us aging seniors don’t seem to care much for the costs faced by our offspring — and more important, THEIR offspring.

    Like HQ, I don’t think that substantially increasing the housing supply is gonna happen. I just HATE it when I agree with HQ 😉

    And that’s not even factoring in the long term water shortage we are facing. We are doomed.

    Only solution? A CA economic decline coupled with an increasing housing price spread between CA and the other states — to the point that enough people leave CA (with their wealth and productivity) that the present supply of housing becomes MORE than we “need.” Prices WILL fall then, but the cost to us all will be substantial.

    Well, the cost to those who are LEFT in California will be substantial. Which is why the exit highways may become crowded sooner rather than later, as people try to “beat the rush,” and take their housing “profits” before it’s too late.

    Don’t panic — it will be an orderly departure for several years yet. So say I — don’t panic and drive down the price of MY house.

    My opinion on the coming exit rate may shift once I depart. Not before.

  4. Thoughtful analysis both of you. Hypocrisy, sometimes you surprise me.

    At least in San Diego we have the long-delayed desalination plant to help us. When the Democrats prioritize an unneeded bullet train over water projects, you know California is screwed.

    The retiring boomers are already selling. As I drive through Point Loma and Loma Portal, I see many houses for sale that have NEVER been for sale before in the 15 years I’ve lived in San Diego.

    The dampening of demand will happen. As the baby boomers retire, it has been predicted in several articles I’ve read that many of them will downsize their housing and move to retirement places like Florida and other warm weather places where their money will stretch a lot further.

    My nephew in Dallas who moved there from SD 5 years ago said Texas is booming, fueled in a large part by California companies lured by far fewer crazy regulations, much cheaper operating costs and people fleeing the lack of well-paying jobs and huge cost of living in California.

    If only we could bring the great SD weather with us when we flee.

  5. Dan,

    The Bullet Train debacle is not as much of a partisan issue as you think. In fact, The 2014 Republican nominee for State Controller is one of the Train’s staunchest supporters.

  6. HQ. Yes, there are a few delusional Republicans on HSR. But make a list of politicians in two columns. In the left column, list the Democrats who support HSR. In the right column, list the Republicans who support HSR.

    I’m pretty sure that for every ten Democrats you list who support HSR (admittedly a dwindling group), you’ll be hard pressed to find one Republican. Let’s be fair — Democrats now own HSR. Especially so in this day and age, when the lies touting HSR have all been exposed for what they are.

  7. Richard,

    You are correct that more Democrats than Republicans support this boondoggle, but there was one man who could have killed it in its infancy but didn’t, and that man was a Republican – Governor Schwarzenegger.

    More to the point, by trying to make every issue into a partisan one, you immediately make half (or more in California) of the populace very unlikely to even listen to your ideas. If your goal is to simply cheer for “your side,” you can keep on the same path. However, if you actually want to accomplish productive change, I suggest focusing on the issues and not the partisanship.

  8. HQ, I’m focused on the issues, AND on who SUPPORTED (and supports) the policies that exacerbate such issues.

    Man up! Democrats Rule! Youse guys run things, now take responsibility for the consequences.

    Certainly Democrats love to take credit for all the GOOD things in California (primarily the weather, I guess), so own up the much more relevant negatives as well. After all, it’s the DEMOCRATS who are blocking reform, and perpetuating bad policies.

  9. Sorry Richard, there is plenty of blame to go around. The (Republican) Governator could have kept the Bullet Train off of the ballot and the Republicans in the Legislature could have stopped its funding.

    If the Democrats deserve the lion’s share of the blame for all of California’s faults, it is only because the Democrats are in the majority. They don’t get all of the blame, however, because except for a very brief time, the Democrats couldn’t even pass a budget without Republican help. From what I have seen, when given the opportunity, the Republicans haven’t done much to prevent bad ideas from becoming bad laws.

  10. Hypocrisy

    At least you acknowledge the

    “Democrats deserve the lion’s share of the blame for all of California’s faults, it is only because the Democrats are in the majority.”

    So they have the lion share of the power to fix things. Yet they haven’t.

  11. Oh COME ON, HQ. Sometimes you are fairly honest. This ain’t one of ’em.

    The legislature has over a 60% Democrat majority, and with rare exception, has HAD such majorities for most of the past 30 years. They need only a COUPLE of GOP votes (well, they USED to) to pass a 2/3 vote to approve a budget.

    And yes, a couple RINO’s too often would cave. So with 100% of the Democrats voting (with their party’s enthusiastic encouragement) for boondoggles and 6% of the GOP voting (AGAINST their party’s wishes) for such boondoggles , the two PARTIES are equally culpable?

    Funny — if the boondoggles turned out to be great improvements, you’d be crowing about it being the DEMOCRATS who made it happen — over the objection of the GOP. But now that these projects are seen for the flawed, fraudulent beasts that they are, you’re trying to claim equal responsibility with the Republican Party.

    You should be embarrassed.

    But you’re not.

  12. Richard,

    We started this discussion in total agreement and yet your need to:

    1. Turn this into a partisan issue and

    2. Personally insult me

    have resulted in me having no interest in joining you in what would be a righteous cause. Perhaps this is why, despite your obvious intellect, passion and energy, you have so few actual victories to your credit.

  13. Chris,

    Democrats have controlled the legislature made up the majority of voters in California for a very long time. Of course they deserve the lion’s share of the blame for our state’s ills. They also deserve the lion’s share of the credit for much of what makes our state great. The credit, or the blame, always goes to the one in charge.

  14. Hypocrisy

    You got me. I forgot I love paying sales tax on internet goods.
    I guess its that people are leaving California because they are sick of the great weather here.

  15. HQ, admittedly my acerbic style and uncompromising stances worked against me when seeking to win political office. That was never my destiny — especially since I remained a Libertarian until a few years ago.

    But I’ve had significant success on ISSUES, which is what I care about most. If I cared about winning OFFICE, I would never have remained a member and leader of the Libertarian Party.

    Yet I think it’s fair to say I’ve had a greater impact on California taxes than all but a handful of GOP-elected politicians.

    With a grass roots effort and next to zero funding I’ve led successful campaigns against a number of bond issues and sales tax increases (I’m not counting the city’s recent Prop D — well funded opposition and broad-based). Two 1990’s city sales tax props were defeated, with me being the major opponent.

    But while my victories are few, occasionally I can hit a home run. “Rider vs. the County of San Diego” repealed an improperly passed 1989 “jails” county sales tax, saving county taxpayers about $3.5 billion. Moreover, it’s widely conceded that, as a result of this precedent-setting CA State Supreme Court ruling, numerous taxes statewide were blocked — conservatively $14 billion, but likely MUCH higher. Indeed, the San Jose Mercury News made me into a verb — discussing how politicians had to “Rider-proof” future tax increases.

    So I guess it’s how you define “success.” I’m pretty pleased with my results, but others doubtless would see it differently.

    One thing I DID fail miserably at — I never got paid for my efforts. But then, the results were not too bad for a volunteer, don’t you think?

  16. Richard,

    The successes you tout were 25 years ago. That being said, I do respect for your efforts, even today. That is why I wish you would not attempt to alienate those who may only agree with you on a particular issue or two. Berating people you think you are better than is easy. On the other hand, building consensus, especially a consensus of people who are generally not like-minded is a difficult, but rewarding, task.

  17. It’s nice to see HQ and Richard agree and Richard is spot-on on his analysis of the “legislative real estate boom.” Democrats (and some Republicans) have nobody but themselves to blame for the “lack of affordable housing.”

    A comment to HQ about this: “The successes you tout were 25 years ago.”

    We stand on the shoulders of giants, HQ.

    To wit: “numerous taxes statewide were blocked — conservatively $14 billion, but likely MUCH higher. Indeed, the San Jose Mercury News made me into a verb — discussing how politicians had to ‘Rider-proof’ future tax increases.”

    That means today, Sac pols are trying to “Rider-proof” future tax increases. TODAY…not 25 years ago.

    We stand on the shoulders of giants; one of those giants posts here.

  18. Brian,

    As I have said repeatedly, I respect Richard’s intellect and passion. However, when you say ““numerous taxes statewide were blocked — conservatively $14 billion…” I have to ask if you really believe that the government didn’t simply find another way to tax us.

    More to the point, Richard has repeatedly made it abundantly clear that California is the highest tax state in the USA. If his life’s mission has been fighting taxes and this makes him a “giant” in your eyes, we simply have a different definition of the word “giant.”

  19. Post
    Author

    A giant I ain’t. I just do what I do.

    We have billions of dollars less money taken from us as a result. When the “jail tax” was overturned, the jails (and courtrooms) were built out of existing tax revenue. And future “special taxes” now require a 2/3 vote (as the state Supreme Court affirmed in my court decision). Imagine how high our taxes would be with only a simple majority vote.

    Am I going to single-handedly reverse the high tax mentality of California? I’m a taxpayer activist, not the taxpayer Messiah. Parting the Red Sea would likely be easier!

    Here’s the funny part — when I was in my prime, having the best successes, I was a far bigger asshole than I am today. I’m a senior pussycat. To say my blunt approach doesn’t work, doesn’t work.

    After all, was Howard Jarvis — obviously the most successful taxpayer advocate in CA history — a gentle soul who tried (like Arhold ET AL) to get along with the opposition (yeah, THAT went well!), or was he an effective grumpy old man?

    BTW, my last extensive public campaign was for Mayor of San Diego. While my vote total was abysmal, my three main IDEAS caught on with the other candidates, and were later adopted — two rather quickly (the third depended on DeMaio to make it happen):

    1. No further pension enhancements without a vote of the people (passed as a prop).
    2. Managed competition (passed as a prop), but later gutted by the unions’ pressure on the city council majority (the “manual” for implementation).
    3. Switching from defined benefit to defined contribution — which would never have happened without DeMaio — a force of Nature.

    I’ve been pretty much retired from active politics since 2005. Obviously the state is much the worst for it as a result! 😉

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