A California Exodus?
By David Rosen, Residential and Commercial Real Estate Markets Advisor
Over the last few years we have seen an increasing discussion regarding the California Exodus. Those opposed to many of the state’s policies portray the exodus as a massive flow of people leaving the state because of economic ruin and taxation. Those in support of the state policies downplay the exodus as simply rhetoric. In reality, both are wrong, and we’ll show you why.
Let’s start by putting what an exodus is into context. The most famous exodus from a state is probably from Oklahoma during the Dust Bowl and Great Depression of the 1930s, and during WW2 in the 1940s. From 1931, the pre-exodus peak, to 1945, the trough, Oklahoma went from 2,403,000 to 2,028,000. This is a decline of 15.6%, or 1.2% per year. From 1982 to 1989 Oklahoma experienced another large, but much more normal in the boom-and-bust cycle in economies, outward migration as its population fell from 3,290,000 to 3,146,000, or a decline of 4.4%. To match this 1980’s outflow as a percent of population California would have to lose 1,750,000 people. To match the 1930’s and 40’s outflow California would have to lose 6,240,000 people. But today, Oklahoma is larger than ever, just shy of four million people. And so is California, adding 21,200 people to come within a hair of 40 million, and far from a loss of millions of people.
Figure 1a highlights the lack of an exodus from California. For the latest data available from the Census (2019), California had the 4th lowest proportion of people leaving in the nation, at just 1.7% of the population. This is around the same number as the state held up as the antithesis of California, Texas. Additionally, it is much lower than growth wunderkinds of Colorado, Nevada, and Idaho, all of whom had more than 3% of their populations leave. The real difference comes from a lack of people moving to the state, where Figure 1b highlights that California is the second lowest in the nation. We all are aware of the issues California faces, crowded cities filled with traffic and high housing prices. But we are also aware of the benefits of living in California, great weather, amazing higher education, and a robust tech, transportation, and entertainment economy. This is still a state people want to live in, even if high housing costs prevent people from being able to move here.
So then what is the issue that has started this discussion? Well it is that the end of California’s great growth may be upon us, not by becoming a policy induced dystopia, but because of the natural cycle of growth that occurs in any state. Look at the classic “rust belt” states that stopped growing 50 years ago as to what our future looks like. California, like those states, is much denser than the national average. California is the 11th most dense state, right behind Ohio and Pennsylvania. And in reality we are even denser when you factor in the towering mountains that restrict development. Additionally, these states have very low rates of outward migration. Pennsylvania, Wisconsin, Ohio, and Michigan are four of the lowest six states in outward migration. Additionally these states have robust economies, with above average incomes when adjusting for cost of living according to the BEA. When looking at real estate investments in the state we would also expect that going forward CAP rates will increase and prices stabilize as lower growth rates are expected, a trend that is already occurring when looking at surveys like those done by CBRE. These higher CAP rates and lower rates of appreciation would also be more similar to the Midwest markets discussed above.
In conclusion, both sides are wrong. Those who play up an exodus are factually wrong, the numbers do not show an exodus, people who are in California are staying here. Those who downplay the exodus are wrong in the spirit of what they say. California is no longer attracting people, and more people are leaving than are arriving. The state has clearly entered a slow growth phase driven by migration patterns. But as the largest, most crowded state in the union, maybe the focus on growth is the wrong focus. Our policy leaders should focus on the real issues that face this state like a homelessness crisis, lack of homeownership, and massive wage gaps.
Figure 1a
Figure 1b
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About the Author
David Rosen, the Residential and Commercial Real Estate Markets Advisor at Hilgard Analytics, has a proven track record of success in the real estate and automotive industries and currently works full-time at Mazda (North America) as a Senior Analyst in the CPO Repurchase Promotions Department. At Mazda, has has become a leader in terms of providing excellent customer service, advising management on various regulatory issues, and vehicle lifecycle management.
David is also the Founding Partner of a real estate investment company specializing in repositioning distressed assets in walkable communities that exist in America’s most underinvested in neighborhoods. He has a lifelong desire to make the cities we live in more equitable and prosperous and has the ability to generate unique insights from his background in data analytics and knowledge of architecture and urban planning.
He holds a Bachelor’s Degree in Finance from California State University, Fullerton and an MBA from the UCLA Anderson School of Management.
