OK, California Housing Market: First-Ever Population Decline Meets Biggest Home Construction Boom since 2008

The state lost 182,000 people in 2020, but added 100,000 homes, for 270,000 people. Los Angeles lost 52,000 people, added 18,000 homes. San Francisco lost 14,800 people, added 4,000 homes.  

By Wolf Richter for WOLF STREET.

California’s population didn’t exactly “collapse” or anything, but it declined by 0.46%, or by 182,083 people, in 2020, the “first negative growth rate” since population estimates have been collected, according to the California Department of Finance on Friday. At 39.47 million, California’s population has fallen to the lowest level since 2017, culminating a multi-year trend of declining but positive growth rates.

As we’ll see in a moment, many of the most populous, congested, and expensive coastal counties lost population not only in 2020 but also in prior years, including Los Angeles. The Pandemic merely accelerated the trends. But many less expensive inland counties gained population.

Folks in government are now praying that this decline at the state level was just a one-time thingy, and that population growth will return in 2021, and the Department of Finance said so. The idea is that more people are going to pay more taxes.

But I’m not going to lament this drop in population. I’m in line with many others who are not in love with the congestion, ballooning distortions of the local economy, and housing costs, which are a drag on the local economy because too many people don’t have enough money left over to spend on other things. We have encouraging words for wannabe leavers that keep jabbering about it: “Just Do It.”

And the movement from the coastal cities to the inland cities has already become glaringly apparent in apartment rents, with rents plunging in San Francisco, and dropping sharply in Silicon Valley and Los Angeles, while soaring in inland cities such as Sacramento and Fresno.

Southern California.

In Los Angeles County, where over one-quarter of Californians live, the population dropped by 0.9%, the third year in a row of declines (%, columns, right scale), after years of slowing growth. The population had peaked in 2017 at 10.19 million people. In 2020, it dropped by another 91,200 people, to 10.04 million (red line):

In the City of Los Angeles, the population dropped by 52,000 people, to 3.92 million.

San Diego County and Orange County, the next most populous counties in California, also experienced “negative growth rates”; San Diego for the second year in a row, -0.48% in 2020, to 3.32 million people; and Orange for the third year in a row, -0.85% in 2020, to 3.15 million people:

In Ventura County, north of Los Angeles, the population dropped by 0.7% in 2020, the fifth year in a row of declines. Since the peak in 2016, the population has dropped by 1.7%, and at 835,000 is now back at the 2011 level.

A similar trend has played out in Sonoma County in the Bay Area’s Wine Country, as we’ll see in a moment, and could be the result of surging second homes and vacation rentals. While their owners don’t actually live in these housing units, the purchasing activity drives up home prices, which then push out people with lower incomes, and the county’s population declines even as home prices explode higher.

But in the most populous and also less expensive inland counties, Riverside and San Bernardino, the population rose 0.56% and 0.02% respectively in 2020, for a combined increase of 0.3%, to 4.63 million people, continuing the ceaseless upward trend:

San Francisco Bay Area.

San Francisco County’s population (same as the City’s) had soared by over 10% between 2009 and 2019, with growth slowing in 2018 and 2019. But in 2020, it dropped by 1.7%, the largest single-year drop of any of the larger counties, losing 14,800 people, which knocked the population down to 875,010 – the lowest since 2015:

Silicon Valley: Santa Clara County’s population (includes San Jose) fell by 0.6% in 2020, the first year of decline, after having been nearly flat in 2018 and 2019, to 1.934 million. San Mateo County’s population fell by 0.8%, the second year in a row of declines, to 771,000 souls. And combined, a measure for Silicon Valley, the population declined 0.62% to 2.70 million people:

The East Bay counties of Alameda and Contra Costa have for years been the target for San Francisco housing refugees. It can be a mess commuting by car to San Francisco or Silicon Valley, but working from home has largely solved this issue.

Alameda County (includes Oakland and Berkeley) declined by 0.4% in 2020, to 1.659 million people.

But Contra Costa County, which is largely suburban and goes from the Bay deeper inland, rose by 0.4%, to 1.147 million people, maintaining its incessant growth. The population in both counties combined fell by 0.1% in 2020 to 2.81 million:

Sonoma County, part of Wine Country, is turning into a weekend-home and vacation-rental mecca, with fewer people actually living there. Since the peak in 2016, the population has fallen by 3.8%, the most of any of the larger counties. At 484,000 people in 2020, the population is back where it had been in 2009.

Its red-hot housing market, now focused on vacation rentals and weekend party-palaces for San Franciscans, has likely been pushing out lower-income households, thereby reducing the overall population for four years.

And given the horrendous wildfires the county has experienced in recent years, turning the county over to visitors and weekenders may not seems to be such a bad idea:

The inland counties have picked up some of the leavers from the coastal areas. For example, each of the four most populous inland counties north of the Southland – the counties of Sacramento, Fresno, San Joaquin, and Stanislaus – have experienced growth every year. In 2020, they grew between 0.2% (Stanislaus) and 1.2% (San Joaquin). All four counties combined grew by 0.6% in 2020, to 3.93 million people:

Major reasons for the population decline in California.

The Department of Finance laid out two groups of reasons for the decline in population: long-term trends visible in the slowing growth and “plateauing” population in past years; and now the issues related to Covid.

Birthrates have been declining for years, but the current sharp drop in birthrates attributed to the Pandemic was just beginning to show up at the end of 2020.

“Excess deaths”: Covid raised California’s deaths by 19%, or by 51,000 deaths, above the three-year average in 2017-2019.

“Negative net international migration,” with more people going back than arriving, due to the suspension of visa issuance starting in March 2020 and global travel restrictions. This includes a drop of 53,000 international students.

Domestic net out-migration has been the rule for many years, with more people leaving California for other states than coming to California from other states. This trend has accelerated in recent years, and further accelerated in 2020, though the report does not shed light on it.

In past years, positive net international migration more than made up for the negative domestic net migration. This trend includes immigrants that arrive in California and eventually move on to other states. It kept California’s population growing, albeit at slowing rates – until the Pandemic reshuffled the deck.

Biggest construction boom since 2008, despite declining population: So who is buying?

While the state lost 182,083 people in 2020, a net 99,917 housing units of all types were added – 103,073 new housing units, the most since 2008, minus demolition of old units, according to the California Department of Finance.

The average housing unit in California is occupied by 2.7 people. So, 100,000 housing units adds room for 270,000 people, even as 182,000 people have left. Think about that for a moment.

The number of housing units rose by 0.7%, to 14.43 million. Of them, 64.3% are single-family houses, 31.8% are multi-family homes, such as rental apartments, condos, and “group quarters,” such as dorms; and 3.9% are mobile homes.

These are the cities with the most growth in housing units in 2020, which are also the cities with the biggest population losses:

For example, the City of Los Angeles lost 52,000 people but added 17,851 housing units in 2020.

And San Francisco lost 14,800 people but added 4,048 housing units in 2020. So who is buying or renting all those units?

The apartment market in San Francisco has already reacted to the high vacancy rates and the new units coming on the market, even as people have left the city: rents have plunged by 30%. Condo prices too are down though not that much, but house prices are up. Which brings us back to the theory that homeowners have left, but haven’t put their old and now vacant homes on the market as they’re trying to ride up the home price surge.

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