California does not have a Housing Supply Shortage! by Gaetan Lion challenges the common view that California’s high home prices result from a severe lack of housing units.
Main Argument
The author rejects the idea that a large housing shortage drives California’s prices. Drawing on Moody’s Analytics research led by Mark Zandi, the piece argues California has little or no overall shortage. High prices instead stem from qualitative factors—especially rising land premiums tied to location, economic intensity (e.g., tech/innovation hubs like San Francisco and San Jose), and network effects—rather than simple supply-demand imbalance.
Key Evidence Cited
- Moody’s Analytics findings: The entire U.S. has a shortage of only about 800,000 units (based on vacancy trends), plus softer estimates of 1.2 million in pent-up demand. California (roughly 11.5% of U.S. population) would prorate to far less than the state’s claimed 2.5–3.5 million unit deficit. Vacancy-based analysis suggests California’s shortage is near zero (0–0.5% of its ~14.9 million units, or 0–74,500 units). California shows better supply equilibrium than states like Texas or Florida, yet far worse affordability.
- Studies on densification effects:
- Patrick Condon (Vancouver): Upzoning and densification raise land values so much that per-unit costs often stay similar or fail to drop meaningfully.
- Potter & Syverson: Rising land premiums (not construction costs) explain most price growth in high-cost California cities.
- Xiaodi Li (New York): A 10% local supply increase cuts nearby rents by only ~1%.
- Murray & Limb (Brisbane): Higher density and upzoning correlated with higher prices.
- California data (2018–2025): Population stayed nearly flat (~39.5 million). Occupied units rose ~5.6%, household size fell (from 2.91 to 2.76), and rental vacancy improved (from ~3.6% to 4.8%). Rents tracked inflation; home prices rose much faster (reflecting land premiums, accelerated by remote work). Declining births, an aging population, and shrinking young adult cohorts point to limited future demand and little pent-up need.
Critiques and Warnings
Sacramento’s mandate to add ~2.5 million units by 2031 risks overbuilding and a rental vacancy spike (potentially over 30%), akin to overbuilding crises elsewhere. The author notes workforce housing is the most constrained tier nationally (due to financing challenges), but argues forcing densification in U.S. sprawling, car-oriented cities faces infrastructure limits and differs from denser European models.
Conclusion: High California prices reflect land value driven by unique economic strengths, not a broad supply shortage. Aggressive state building mandates are unnecessary and potentially harmful.
