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Over the past few years, it would have been difficult to miss news coverage reporting that people are leaving California for states like Texas and Florida. While this outmigration is important, Beacon Economics has identified a larger, and growing, dynamic that affects far more Californians and their decisions about where to live.
Our analysis finds that residents of the Golden State are not moving to different housing within California as frequently or fluidly as they used to. Instead, they are remaining in their current housing longer. This is a more worrisome trend than residents leaving the state because it indicates a deep and pervasive problem connected to long-term economic inefficiency – and something that has very real consequences for people’s lives. One of the most notable examples are renters in the state, who have seen an almost 20% decrease in their residential mobility over the past ten years.
Beacon Economics identifies multiple reasons for the decrease in in-state mobility among Californians. The primary one being California’s famously high housing costs. If housing costs prohibit workers from moving to where their labor is most valuable – i.e., where they will be paid the most – then we have structural barriers that will prevent California from having a truly dynamic, productive economy, and will deny Californians the chance to seek a better life.
The state’s declining residential mobility can have tectonic impacts on the social and economic dynamics of California by lowering the efficiency of labor markets, impacting wages, and diminishing the ability of residents to take advantage of employment opportunities. Recent economic literature has shown the benefits of residential mobility. Indeed, when individuals or families move from low to high performing labor markets, they are more likely to be employed compared to those who don’t (or can’t) move. Those who move are also more likely to enjoy higher incomes, and better health outcomes.
Californians Are Moving Less
U.S. Census data shows that between 2011 and 2021 the number of Californians living in the same house they did the previous year increased by 3.5 percentage points. In 2011, 84.5% of Californians didn’t move; by 2021, 88.0% of Californians did not move. Figure 1 illustrates the strong linear trend of people staying put in their houses.
California homeowners are not moving as frequently as they used to. From 2011 to 2021, the number of homeowners who recently moved into a new house is down 3.3 percentage points. Conversely, the number of long-term homeowners (people who have lived in their homes for 10+ years) increased by 3.3 percentage points. This is not to say that new homeowners suddenly became long haulers overnight. Rather, this trend has been going on for decades.
Renter mobility, with its shorter timeframes and lower upfront cost, has been impacted even more. As Figure 3 depicts, renters who have moved households in the past two years dropped 19.5% from 2011 to 2021. This means that the share of California renters who recently moved has decreased by 9.6 percentage points. On the other hand, renters who stay in their rental homes for 10+ years grew by a whopping 41.5% over the same period. Unlike homeowners, the growth was not dominated by very long-term renters. Renters who have lived in their home for 5 to 9 years grew by 4.3 percentage points and renters who have lived in their home for 10+ years grew by 5.6 percentage points. However, the data clearly indicates that residential mobility among renters has been declining for decades. What is truly alarming is that renters are seeing the most rapid decline in mobility in just the past ten years.
Why Are Californian’s Moving Less?
Empirical analysis indicates that California’s housing affordability crisis is playing a key role in explaining why state residents are not moving. Indeed, higher income households continue to move fluidly, whereas lower income households do not. Based on U.S. Census data, Figure 4 depicts the income breakdown among renters versus their mobility in 2021.
Although households earning less than $28,000/year have a fairly even distribution in terms of duration, durations of 10+ years are highest among low-income households. On the other hand, households earning $110,000/year or more are the most likely to have moved in the past two years. This data indicates that lower income households are less likely to move than higher income households. Other research has also shown that higher housing costs deter migration. High housing costs block households moving from a less prosperous metropolitan area to a more prosperous one. At the same time, the lower housing costs in weaker metropolitan areas often discourage high income households from moving to those areas. This detrimental dynamic corresponds with what Beacon Economics has found in California.
While primary, affordability is probably not be the only factor behind the decline in residential mobility. Another possible explanation is that the phenomenon is a byproduct of a less dynamic U.S. labor market. Molly et al (2017) argues that data from the U.S. Census Current Population Survey shows a somewhat recent decline in work-related mobility in the nation. In the past, pre-1990s, U.S. labor markets fluctuated in response to economic shocks. Since the 1990s, however, when state-level economic shocks occur, instead of seeing more migration, it is labor force participation and unemployment rates that are affected. Exactly why workers in more recent times decide to leave the labor force instead of moving to different labor markets is complex, and causality is difficult to prove. One explanation could be higher housing costs, as argued earlier in this commentary. Research literature is split on the topic and more investigation would be needed to fully understand the decline in U.S. labor dynamism.
Why Does Moving Less Matter?
From the perspective of economists, the decline in residential mobility is alarming. One of the pillars of both capitalism and economics generally is the free movement of goods and labor. Restrictions on either will cause inefficiencies in all markets. These inefficiencies will harm current and future standards of living. Labor needs to be able to freely move to the place where it is in the most demand.
A study of Kentucky’s Relocation Assistance Program (RAP) by Briggs and Kuhn (2008) examines effects on welfare recipients who move at least 10 miles for a new job. The study found that RAP participants experienced a substantial increase in employment rates. Another study by Chetty and Hendren (2016) analyzed the impact that a neighborhood has on children and their future. The analysis found that the sooner a child moved to a high performing neighborhood (neighborhoods that have high rates of children employed in the future), the better the outcomes for that child. In fact, the younger the child is when they move, the less difference there is in future income between the moved child and children already living in the high performing neighborhood. Lastly, a study on Hurricane Katrina and Hurricane Rita victims finds that income among those who were forced out of New Orleans and did not return, was the highest of all the groups studied.
Similar to the Chetty and Hendren study, Deryugina and Molitor found that health outcomes are also affected by where a person lives. That study examined older cohorts of the population that was forced to move out of New Orleans following Hurricane Katrina. While it was important where, specifically, the older cohorts moved, the analysis found that mortality generally decreased. When the cohorts moved to cities with lower mortality rates, the health benefits transferred to the migrants. California has some of the best hospitals and doctors in the world. Sadly, the state’s declining residential mobility means Californians cannot move as fluidly as they used to into areas with higher standards of living.
Warnings about California’s population decline have become common. While this trend is newsworthy and an issue that needs to be addressed, the state’s population decline is only a small byproduct of a much more worrying and long-term trend. California cannot be the free and prosperous state it claims to be if the fundamentally important economic condition of labor mobility is being throttled by unaffordable housing costs (and possible other factors). Population decline is indicative of the state’s high housing costs, but far more telling is the fact that all mobility is declining. As economic researchers, Beacon Economics will continue to produce analyses that help inform future solutions to the crisis of mobility.
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