Job growth is booming across the U.S. but not in California. Here's why
latimes.com> “The reason why Texas and Florida are doing well and California isn’t, it’s the cost of housing and high taxes,” said Sung Won Sohn, an economist at Loyola Marymount University in Los Angeles. “We have lost a lot of small businesses.”
This former is the crux of the problem: California entered into a suicide pact with real estate speculators in the 70s, from which it seems entirely unwilling to extricate itself. It’s an incredibly destructive drag on the state’s entire economy that prevents new business formation and labor mobility.
Housing non-eviction laws and policies also are rough.
I tried to look for a home there once. I watched a homeowner break in with a ladder after being evicted then the realtor showed for the viewing then stole his ladder and left.
Another said their house was for sale but the garage was occupied by people who broke in and they could not be evicted until summer was over and before it became winter. The home owner was unavailable to speak to due to health issues related to the struggles.
Found a decent place then looked up the history of the property to find it had many owners and were re-sold due to a sober living halfway house next door.
I have several other examples and many news stories similar including long commutes, higher prices/taxes, etc made moving there or owning a home to rent out a non-starter.
laws affecting this and other situations vary from county to county by a lot. It is a factually mistaken to say this is occurring in every place in California.
You may find this web site enlightening, I certainly did (https://taxfoundation.org/data/all/state/tax-burden-by-state...) This paragraph in particular for me
Since we present tax burdens as a share of income as a relative ranking of the 50 states, slight changes in taxes or income can translate into seemingly dramatic shifts in rank. For example, Oklahoma (10th) and Ohio (24th) only differ in burden by just over one percentage point. Tax revenue growth during the pandemic, however, has not only increased overall tax burdens but also expanded variance among states. In our last pre-pandemic analysis, the 20 middle-ranked states differed by less than a percentage point on effective rate, but in 2022, the difference between New Hampshire (16th) and Maryland (35th) is 1.8 percentage points. While burdens are clustered in the center of the distribution, states at the top and bottom can have substantially different burden percentages: the state with the highest burden, New York, has a burden percentage of 15.9 percent, while the state with the lowest burden, Alaska, has a burden percentage of 4.6 percent.
What a great data resource. Thank you for sharing it. That spread between CA/NY and TX/FL really puts things into perspective.
And before someone else rushes in with "Oh yeah, California subsidizes all the hillbillies in the red states!": No, that is not true. Only CT, NJ, and MA's citizens on average paid more federal taxes during 2015-2021 than they received back from Washington. <https://news.ycombinator.com/item?id=38839499>
Typical; someone with only half of a story pushing an agenda. You can look at the data yourself(*) No state pays more outright than California. Followed closely by NY, Mass, Ct, NJ. Look at per-capita income, and California is receives less than 44 other states. Lets see how does that compare some of those "red" states?MS(#8), Al(#7), La(#11), Ar(#15), Ky(#2), SC(#13), Tn(#16), Wv (#5), Oh(#21), Tx(#36), Mt(#19), NC(#20)?
Don't know about you, but the data sure tells another story doesn't it? I damn well don't live in CA (midwest), but don't believe anything on the 'net until you verify it yourself. Too many people pushing an agenda.
(*) https://rockinst.org/issue-areas/fiscal-analysis/balance-of-...
I love how you cited the Rockefeller Institute's URL, as if you're the first one to do so; the whole point of my pointing people to the Rockefeller data was so they could see for themselves. I also can't believe that you actually said "No state pays more outright than California"; anything else would be a surprise given how large the state's population is.
In any case, as I said in my previously cited comment, what matters is the net per capita amount, the difference between how much a state's citizens[1] pay to Washington versus how much they and their state get back from Washington. Californians overall benefited more from federal spending than they paid in federal taxes over the years I cited, just like every other state except three. That's not exactly the "California subsidizes all the hillbillies in the red states" mantra that is so often repeated online.
[1] Not the state itself, which does not pay a cent to Washington.
This doesn’t quite ring true for me in Florida at least. Most recently, floridas cost of housing is raising ridiculously due to home insurance, with several homes refusing to be insured by anyone for any price. On top of that, assessments on condos and other buildings are raising the costs of high rises as well due to government regulations them to get inspected and implement necessary repairs (after HOAs and condos associations have been skimping on necessary maintenance for decades…)
The problem of the parasitic drag of real estate speculation is spreading to every major market in the U.S. We’re quickly on track to things getting as bad as they are in Canada. But California has been leading the pack for some time because of some especially stupid laws it passed decades ago.
This should be all accounted for in rent. California rent seems to be 50% higher than Florida.
Isn't Florida often hammered by hurricanes? On top of rising sea levels. Compare it to more desert-like California (which has earthquakes but maybe once a century, which then gets some vague misrepresentation in insurance risk calculations).
Insurances generally want your money unless stuff is just too risky. But some folks are eager to build real estate literally on top of dynamite factory if that land would be cheap enough.
So, why are those houses un-insurable is a good question for a start.
Also, OP writes their observation specifically about California.
California has a substantial wildfire and flooding risk, in addition to its large seismic risk.
Most of the wildfire risk is outside of the cities, so it’s not like it is going to influence most homeowner policies. Likewise with flooding.
Wildfire risk is absolutely in the cities, at least in SoCal. Firestorms move through the canyons in residential areas. Quite a few neighborhoods in San Diego, for example, have been razed to the ground since I lived there, including one I used to live in. These weren’t on the edge of town.
There are homes in LA that are at risk to wildfires, in canyons as you say. But that still doesn’t account for most homeowners in the area.
it absolutely does: https://www.bankrate.com/insurance/homeowners-insurance/carr...
Ya, Florida is undergoing an insurance crisis right now. It’s not a safe move either.
Sort of? California's economy is shaped like a pyramid scheme in many regards, and land speculation is one of them. It also filters down into local tax revenue (housing prices must continually increase for municipalities to balance their budget, because of Prop 13), the type of industries that can be located there (only the most high-margin can survive the cost of living), the sort of folks who live there (who generally want to get rich quick or admit defeat and move home), and the public discourse (which is always hyping up the next big thing).
But in general the bottom of the pyramid lies outside California. All that money that eventually ends up in the pocket of California real estate speculators? Most of it comes from the pension funds and 401(k)s of ordinary workers in the rest of America, which invest in the darling companies of the day not realizing that everything is temporary. Those $2M ranch houses in Silicon Valley are bought by folks bringing in $500K in stock options per year, which is all fueled by their employers being worth $2T.
California's problem today is that we're between pyramid schemes. Most of the old-line web/mobile/marketplace schemes have reached maturity and are nearing collapse, but new pyramid schemes like crypto and AI are just getting started. Until the dollars start flowing in earnest California will likely teeter and stagnate at the top.
There’s also the cost of utilities (which are entirely out of control in the investor-owned utilities regions in CA, and the CPUC seems to be asleep at the wheel). This obviously drives up the cost of everything else.
And, for small businesses, there are the frankly rather silly taxes on small businesses. Want to be a small business doing business in the Great State of California? You will pay $800/year (minimum) for the privilege. Does the state get any value whatsoever from this?
Want to employ anyone? Prepare for a whole pile of taxes, each of which is small, but you need to do an utterly absurd amount of paperwork.
Would it kill the state of California to let a business employ someone and fill out one form and pay one tax?
100%. That prop is killing the state. There's plenty of land and no will to develop it.
California is dying because businesses can't pay their employees $75k and expect them to be able to afford a place to live.
As much as I love California doomerism, the "suicide pact" is fraying and we should appreciate that. Split roll for commercial property tax assessments only lost by 2% on the ballot in 2020 which is a winnable margin. There are many statewide bills passed and proposed for loosening regulation. The legislature is working on reforming outdated insurance regulations that have precipitated the current crisis, etc.
The state has problems but they are not as structural and intractable as most people want to be believe.
I've had several offers to work in startups in California that don't do remote. Instead of just saying no outright I ask the HR person where the office is or look it up. It's usually near Silicon Valley and I have to explain that they'd have to pay me CEO pay to make up for the increase in living/home expenses. I mean...$1.5M to get a home similar to what I paid $150k for not that long ago is hard to justify.
I was born in California and moved away because I wanted to experience other things after college. It's now 15 years later and plenty of offers have been given for me to move back, but not a single one would make up for my quality of life/cost of living hit I'd make moving back.
I'd have to make like 3x more than I do now to keep the same quality of life and nowhere comes close to that at the moment.
My whole family still lives there but I'd rather them move closer to me than me move there.
If high payed tech workers are being priced out, imagine how it is for people in other roles.
Yep.
I had for years a fantastic job in one of the inner engineering groups at Apple, loved it, loved the coworkers, the culture, and earned and saved very well, which is the point in mentioning this. but I quit to move far away eventually because I obstinately refused to pay exorbitant real estate prices to get a non shitty home.
Sadly I could understand how folks from outside the US have less perspective on what a shitty ripoff it is, but if you're from a well off suburbia in different parts of the US, it was clearly nonsense to buy there.
Exactly, and it’s not just the prices it’s the taxes. Sure you make more but you lose a huge % of that and what’s left over goes to insane prices, cost of labor, etc.
Exactly. Most of California is a huge QoL downgrade so the pay needs to be bonkers to compensate.
Tbf, startup ceo pay is not that great. Except for maybe very late stage engineers often get paid more in base comp. And at late stage your startup should pay you enough to live in Bay Area.
True, but I was just trying to point out that they'd have to pay me a lot higher than they would ever do, to make it not a loss to me. Either you make it remote, or you maybe relocate to some place cheaper.
Living in SoCal still offers distinct advantages in terms of civil rights, a social safety net, and access to a vast number of small and large businesses (for both work and services). The entry-level job thing is compounded by requirements for degrees and experience that fully expect folks to down-skill to lower-wage roles.
One factor that looms large is the gig economy: Uber/Lyft/DoorDash/etc. They've become a lynchpin in providing delivery services that restaurants have come to rely on, while hitting both them and consumers with large fees. Pizza delivery is being shifted from actual drivers to gig workers, to avoid a recent law change requiring more pay; this has become an act of cost-externalization, and further increases the dependency on the gig workers. And overall the gig workers aren't necessarily seeing gains from this change, since their employers fight tooth and nail on efforts to increase their pay.
This doesn't even begin to cover what's happening in the agricultural and creative industries; the latter of which I believe has been covered writ-large in this space.
Not being beaten up by police is part of your rights, but freely deciding how you want to work with someone else, and not being forced into the gig economy, is a right too. Every state seems to have certain coalitions with way too much power, and in California it's exercised whenever well-established interests can rephrase something that benefits them in economically leftist language: "Let's all raise the wages of pizza delivery drivers (who work directly for managers who aren't using us as a minimum-wage-circumventing middle-man.)"
See also: "Supply and demand is a capitalist hoax, let's ban the construction of houses other than the ones I'm renting out."
> having laws passed that force a pizza parlor manager to turn their drivers into unemployed app users
this sounds like an exaggeration, but I'm not familiar with the law you're referencing. what exactly are you talking about?
I think they mean minimum wage laws in general. Another comment mentioned that restaurants were reclassifying their workers as contractors to pay them less.
Describing this as restaurants being "forced" to reclassify their drivers is mildly disingenuous. There's some coercion in minimum wage laws, yes, but it does not specifically prescribe a particular solution to balancing your books. The restaurants could alternatively not offer delivery, or charge more for delivery orders. Lord knows companies are very good at passing along costs to consumers these days...
Low margin businesses like restaurants aren't at liberty to provide services in a more expensive way than their competitors. There's almost no "extra" money in the food service industry.
I'm not actually criticising minimum wage laws with this argument. If it applies to every possible way to hire someone, all of your competitors will have to do it too and the costs will be passed on to the consumer. I am however sharply criticizing minimum wage laws that have a tech company shaped loophole. Market forces will require every competing business to use the loophole if any of them do.
you are not wrong but there is more to it.. companies that incorporate have some tax advantages that other small business do not have; corporations with access to public markets also have many more advantages financially than closely held corporations; real estate ownership and financial leverage also make advantages that non-owners do not have.. there are doubtless other examples that I do not know about.. go the other way for a minute .. those that pay legal wages to employees have higher costs than those that hire "illegal" workers.. those that steal wages from "illegal" workers have lower costs than that.. undocumented or non-English speaking staff have been the rule not the exception for twenty+ years in California.. more examples that I do not know..
I think it’s funny how you’re basically criticizing the richest state for having the best policies and outcomes. Like what about Alabama? They are objectively worse at everything and they do exactly what you prescribe.
They're not actually worse at housing costs. But they have their own way-too-powerful coalitions that cause other troubles.
Prop 13 is just a huge handout to real estate investors. There’s also the fact that mortgages are no recourse, so people have even more reason to engage in RE speculation. I’m not exaggerating when I say many of my close friends own a handful of properties as their main investment choice. How can you have anything close to a free market when speculation is rewarded so much?
I’m not saying prop 13 shouldn’t apply to primary residence, but it’s insane investors can just sit on land and use that as leverage.
a retired attorney in California said this recently.. (he is close to 80 so he recalls a lot of the context of Prop 13)
"Prop 13 is the worst thing to happen to California in a long time. It has lasting effects today. At the time, the press was full of 'tax fighter' stories about saving the poor old retirees from having their homes taken away sourced from Howard Jarvis Taxpayers Association among others. This is not the real story. The real story is that big corporations in California own land and do not sell it in practice. Prop 13 froze the property tax that Corporations pay at the same time as the homeowners."
Until California breaks the back of its landed gentry class (real estate investors and NIMBYs), job growth will remain nill. You can't pay 75k and expect people to live hand to mouth.
California is full, plain and simple. The people who live there and control the land have decided so, both implicitly and explicitly.
I realized after a while of living there that California is run as a real estate cartel. Land owners who bought when the state was cheap own it, and everyone who bought later is beholden and locked in with golden handcuffs to the high price environment they created.
I call it a cartel because the scarcity is 100% a policy choice. Density is not high, public transit is awful, and there is a ton of land left to develop on. Real estate in California is like diamonds from DeBeers.
If you aren't rich, don't stay there. All your surplus will go to landlords. If you buy at these high prices >50% of your income will go to servicing the mortgage and if the property market there ever does crash you'll be ruined. You’ve basically bought into a cartel.
I'd say for the Bay Area it's worthwhile to go to build out your career but if you aren't making at least $350k/year by age 35 leave.
Personally I’m glad I left because I loathe this property cartel and what it does to people and wouldn’t want to put my money into it.
IMHO the state has this totally fake reputation as a liberal “woke” place when in reality it’s a landlords kingdom. Texas is more progressive than California because a working class person can afford a home.
It's interesting to trace the impact that Prop 13 has had on further policy choices and subsequent culture.
Prop 13 caps property taxes at 1% and also limits the increase in assessed value to 2%/year. In a region where housing prices appreciate by ~7%/year and that filters down into the basic cost of living for most municipal workers, this makes it impossible for local municipalities to balance their budgets without a steady influx of new buyers. The only way they can bring their tax basis up is to ensure that new homeowners buy in at ever-increasing prices, so that the tax basis can be reassessed upwards on purchase and the new homeowners can subsidize old homeowners who are paying well below market rates on taxes. Local municipalities in turn control planning and zoning, and so they pass zoning codes and approve projects on the basis of what will increase assessed values and hence tax revenue the most. This further exacerbates the housing shortage, raising inflation and increasing the need for ever-increasing home values even more.
Basically CA voters enshrined a pyramid scheme into the state constitution in 1978, and it's filtered down into every aspect of the state's economy by now.
If you consider Texas more liberal than California purely on the basis of home affordability it is clear you're not interested in making a serious point.
My point is that I see deep hypocrisy in a society that prices housing out of reach of anyone below upper middle class while pretending to be liberal and progressive.
I don’t consider Texas liberal but at least you can have a home without earning $200k or above or having a liquidity event.
My personal opinion is that any good done by liberal policies in California is negated by housing.
Chicago and the western suburbs in Northern Illinois would’ve been a better example than Texas imho.
Sounds like you haven’t met the Texas cartel yet! They’re nice, they are sorry about the fact that you’re going to have share a police force with 3 other districts, but they promise you can get electricity all year round this year.
>California is run as a real estate cartel
Literally the political power that got Tesla off the ground (with fed funding) to save real estate prices in the San Bernadino Valley, LA, etc.
Tesla's primary R&D and manufacturing operations are in the San Francisco Bay Area. How does that impact land values in Southern California?
Read up on the history of California's Zero-Emission Vehicle credits, Tesla regularly makes revenue in the hundreds of millions by selling these credits to other auto manufacturers. https://stockdividendscreener.com/auto-manufacturers/teslas-...
These credits were originally thought up to incentivize EVs because the smog in LA was near apocalyptic level.
Smog in LA peaked decades before EV credits were thought up.
That's irrelevant. EVs are necessary to preserve land values in Socal, which is why Cali real estate funded Cali politicians to use all of their weight to win fed funding for the Tesla project in the first place.
Everybody knows (whether they admit it or not) that EVs don't help with global warming. They merely displace polution from places like the San Bernadino Valley and Los Angeles, which is all they were meant to do, for the purpose of preserving real estate values. And it's working.
So your theory is that China is investing unprecedented amounts into EV production to improve air quality in coastal California thereby propping up land values? Wouldn't it be cheaper to pass permit reform so that LA and SF metro areas could just build mass transit?
>So your theory is that China is investing unprecedented amounts into EV production to improve air quality in coastal California thereby propping up land values?
China has the necessary political organization and willpower to meaningfully invest in nuclear energy, making EVs an environmental benefit. That does not apply to the US.
>Wouldn't it be cheaper to pass permit reform so that LA and SF metro areas could just build mass transit?
No. Better public transit could work in SF but SF isn't the problem. LA is the problem because it's surrounded by mountains on most sides that trap the pollution, and LA city planning makes public transit a nightmare no matter how you build it. You can't plan a city around interstates then bolt on public transit later.
> You can't plan a city [LA] around interstates then bolt on public transit later.
LA used to have a perfectly functioning public transport network, then in the 1900s-1950s it was systematically dismantled by holding companies fronting for car companies buying up rights-of-way and depots.
> China has the necessary political organization and willpower to meaningfully invest in nuclear energy, making EVs an environmental benefit. That does not apply to the US.
Better to restate your criticism of EVs not being environmental as "[claim:] EVs are only a net plus for the environment if they don't just relocate poullution to electricity generating plants, but use lower-carbon-emission generation like nuclear". There are still environmental benefits to moving smog out of/downwind of Los Angeles County (pop 9.7m) to its neighbors [0].
Building new nuclear plants (or even extending the life of the last existing one) in California is for decades already a political hot potato, it will only get approval when the grid is repeatedly straining at its limits in peak summer or winter. So that's a political question, not an engineering one.
[0]: https://en.wikipedia.org/wiki/List_of_power_stations_in_Cali...
> Everybody knows (whether they admit it or not) that EVs don't help with global warming.
That isn’t true: this is very a popular crank theory right now, but it’s not a popular opinion in mainstream science or among the public at large.
It's absolutely true. The detriment of manifesting the necessary new and very nasty manufacturing processes make it a done deal, especially compared to simply building trains, which is admittedly not simple in the US due to the cruel and unusual political economic situations. Nevertheless, all of this is true.
I get it, it’s the most important theory of crank science today. But it makes assumptions like people buying EVs and incinerating their existing ICE cars, everyone getting electricity from small island diesel generators or the dirtiest coal plants, etc…
China is doing all of the above, BTW and it’s working well for them. You build out HSR, local transit, and EV capabilities out all at the same time. It will work out well for them.
>You build out HSR, local transit, and EV capabilities out all at the same time
And the critique is that the US is not and cannot do so. These are political problems and our politics are dominated by the interests of capital, not the interests of our society.
The statement “EVs won’t seriously do anything about global warming” is explicitly a global one, not limited to the USA (or you could have said US warming).
Total nonsense. An EV running on coal emits less CO2 per mile than an average efficiency gas car, and that’s the worst case. Almost nobody gets all their power from coal. California can be >50% solar during the day.
Transit is better but there is zero chance of replacing all cars with transit. Car centric development is deeply entrenched nationwide not just in SoCal.
California as a whole is a great place to live but I have no idea how people manage.
My biggest hangup isn't jobs but housing. You have to be a millionaire to afford a small house far away from any city. And if you decide to rent instead, then even making 200k+ you are unlikely to afford a house at all. By the time you save up a million, housing prices increasing and inflation will push you back to square one. If you go through the debt route, interest and monthly payments will drain you dry for the rest of your life (unless your plan is to start your real life at 55+). I feel like high speed railways to desirable places like cali to affordable states will sove a lot of issues.
This is a little exaggerated. You can own a $1m home on 180k/yr at old interest rates. I am not a millionaire and bought a $1.2m property in the heart of LA.
When was this and how is it not renting but with more steps? Can you pay it off in 10-20yrs?
Correction, over 90% of job growth is going to foreign born workers
Gotta keep the wages down somehow! Now if we could only find a way to keep people from losing their homes due to laziness!
Source?