If people are fleeing the Bay Area for cheaper housing, why is it still so costly?

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So which is it: Are people fleeing California and the Bay Area for cheaper housing, or swarming here for high-paying jobs?

The answer is: both. A flurry of recent population reports have painted a confusing picture.



If you look just at domestic migration — people moving around the country — the Bay Area lost about 46,000 people more than it gained during the year that ended July 1, according to U.S. Census Bureau estimates released March 22. That net loss was nearly twice as big as the previous year and marked a turnaround from earlier years, when more people were coming to the Bay Area than leaving.


The national media pounced on this data — throw in some one-way U-Haul prices and dubious survey results — and declared that the Bay Area is losing its appeal, and fast. “They made it sound like the highways are jammed with people trying to get out of the Bay Area right now,” said Patrick Carlisle, chief market analyst with Paragon Real Estate Group. He summarized the coverage in a report, “Will the Last One Leaving Please Turn Out the Lights?”

So if people are leaving the Bay Area in droves, why are home prices still soaring and why aren’t there more houses for sale?

One thing these stories mostly failed to mention is that net immigration — people coming from and leaving for other countries — is still positive in the Bay Area. About 58,000 more people came here from abroad than left last year, surpassing the nearly 46,000 who decamped for other states. (The census estimates included the nine-county Bay Area and three neighboring counties.)

Another reason is that people moving here tend to have higher incomes than people moving out, and so are better able to absorb the ridiculous cost of housing.

Linda Crowe moved from the Bay Area to Boston for a job three years ago, but moved back in December because she missed her friends and community. “I worked my entire career in technology, and a lot of my professional network was here,” she said. And the weather “is so much nicer here.”

She landed a job with IBM, and bought a home in San Francisco’s Cole Valley. It helped that she sold her home in San Carlos a year and a half ago, after renting it out the first year and a half she was gone.

Crowe said housing is somewhat cheaper in Boston, but “I make more money here. Salaries are significantly higher in the Bay Area, particularly in the technology sector. They have to be.”

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California has had net domestic out-migration for a much longer period. Since at least 1991, it has lost more people to other states than it has attracted almost every year, according to the California Department of Finance.

Net immigration over that period has been consistently positive — in the hundreds of thousands per year — but it wasn’t always big enough to outweigh domestic out-migration. In 2005 through 2010, the state lost more people to other states and countries combined than it gained each year. But its total population has still grown each year since at least 1991, thanks to “natural” increase — births minus deaths.

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It’s impossible to say definitively why people move out of the area, since there’s no exit poll. A report released last week tried to explain why California, by its calculation, lost nearly 1.1 million more people to other states than it gained from 2006 to 2016.

The report, prepared by Beacon Economics for San Francisco think tank Next 10, looked at housing, migration and employment trends.

It concluded that “the main driver for net out-migration appears to be high housing costs,” not high state income taxes. That’s because the “vast majority of people who moved out of California were concentrated in lower-skilled, lower-paying fields, namely sales, transportation and food preparation.” People moving out probably paid little or no state income tax because California’s tax structure is highly progressive.

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People moving into the state are higher-income and better educated. They’re much more likely to pay state income tax and better able to afford a home in California, which had the nation’s highest median price in 2016.

“California has seen a net inflow of residents who earn more than $50,000 annually, have bachelor’s or advanced degrees, and work in high-skilled occupations. This is especially true for the Bay Area, where high salaries and abundant job opportunities outweigh the high cost of living,” the report said.

Most places want their working-age population to expand, because economic growth is the sum of growth in the labor force plus productivity growth, said economist Mike Englund of Action Economics.

California benefits from an inflow of younger people (thanks largely to immigration) because they have a future in the labor force. But if a region’s infrastructure does not match the population, problems ensue.

In the Bay Area, housing creation has lagged far behind population growth, which is why home prices and rents are skyrocketing and people are commuting longer distances to work.

But it can also go the other way. “If you build an infrastructure for 1 million and the population drops by half, you still have all the infrastructure to maintain but fewer people to pay for it,” Englund said.

Detroit, he said, “was a classic example of a city designed for one population and ending up with another.” During the recession you could pick up homes in Detroit for $1.

It’s enjoying something of a resurgence now. LinkedIn, based in Mountain View, said last week that it has leased a historic 74,500-square-foot building in Detroit and will expand its workforce there from about 40 to 120 over the next two years.

Although California and the Bay Area still have growing populations, the recent spike in domestic out-migration is raising concerns. The federal tax law passed in December could encourage people to move from California and other higher-tax states to lower-tax states, because the new law severely limits the federal deduction for state and local income and property tax.

In addition, “changes to (federal) immigration policy would likely reduce the growth we get from international migration,” said Jed Kolko, chief economist with job site Indeed. A big drop in immigration, however, “might be offset by less domestic out-migration” because fewer people would be competing for housing, and home prices and rents might drop.

The top five states for outbound Californians in 2016 were Texas, Arizona, Nevada, Oregon and Washington, according to Next 10. These states created an average of 231 new housing units for every 1,000 new residents from 2011 to 2016. California added just 209.

“California is permitting roughly the same number of housing units as Florida, despite having approximately 18 million more residents,” the report said. It added that “the housing shortage would be even worse” if there were no domestic out-migration.

After retiring from a career in technology, Jim DeStefano, 71, sold his San Jose home in December and moved to Fort Myers, Fla. He said he wanted a “better quality of life” and a “less liberal environment.”

Property taxes are higher in Florida, he said, but housing costs about one-third what it does in the Bay Area.

Moving was stressful, and expensive, but worth it, he said. “I haven’t seen one iota of graffiti, no litter on the streets. I haven’t seen a homeless person.”

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender

Article source: https://www.sfchronicle.com/business/networth/article/If-people-are-fleeing-the-Bay-Area-for-cheaper-12889909.php

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