California Faces Cost Crisis, Tough Fix Ahead

For decades, California had a golden glow in the public imagination: sun-lit surf, redwoods, Hollywood, the Golden Gate Bridge. Today, however, the state is often associated with shock-and-awe housing prices, and as a result, its reputation has lost some luster.

How has the cost of living here grown so high, and so much higher than any state in the nation? UC Berkeley political scientist Sam Trachtman offers some striking answers, often posing a challenge to conventional wisdom.

In a just-completed series of four white papers published by the Berkeley Economy & Society Initiative (BESI), Trachtman traces how anti-growth policies, well-meaning but poorly implemented regulation, and the inefficiency of some state programs have contributed to the state's affordability challenges.

Voters and policymakers became broadly wary of growth and development in the 1960s and '70s, he wrote. Popular policies aimed to preserve the state's environment and its local landscapes and cultures, but also opened many ways for opponents to challenge and obstruct development.

But a half-century later, the unintended consequences of those policy decisions are clear: High costs for housing, utilities and services, which hit hardest among low- and middle-income Californians. Solutions, he said, will challenge many Californians to examine core political and economic beliefs.

"If California wants to be an affordable place, a place of opportunity, we need to be a place that fosters growth," Trachtman said in an interview with UC Berkeley News. "That's just an essential element of affordability."

Trachtman received his Ph.D. from UC Berkeley in 2021, and today is a senior researcher at BESI. His analysis overlaps with the abundance movement, which holds that policy sometimes creates artificial scarcity, and that improved policy can make life's essentials more available and affordable.

UC Berkeley News: You've written that California has an affordability crisis. What are some of the indicators that you use to come to that conclusion?

Sam Trachtman: One is that, adjusted by cost of living, California has the highest poverty rate in the country. This is something that I think a lot of Californians don't know. And what is somewhat unique about poverty in California is that we actually have pretty high median incomes. So what's primarily causing high poverty rates is the cost of living.

Another compelling indicator is the level of outmigration. From 2020 to 2024, California had the second highest rate of domestic outmigration in the country, after New York. The population has basically been stagnant for the past decade. When researchers have asked people why they consider leaving, affordability is the most commonly cited reason.

For much of the 20th century, especially after World War II and into the 1980s, California was a powerful draw for people from other states and countries. That demand put pressure on housing and energy supplies, and to some extent drove a higher cost of living. Now the population is stagnant - so why is California still getting more expensive compared to other states?

Chart by Sam Trachtman

The core driver is that we just haven't built enough homes. California has long been a magnet for people from the Midwest and East Coast, and we built a lot of homes up through the 1970s, during this period of great growth. California continued to grow after that, but there's a chart in the paper showing that homebuilding in California slowed down both in absolute terms and compared to the rest of the country.

This really accelerated after the 2008 financial crisis and recession, when a lot of builders went out of business. It wasn't a good environment for building homes, and yet the tech economy was still doing relatively well. People still wanted to live in coastal California. That's when the unaffordability trend accelerated.

You write about the core policy failures that have contributed to the high cost of living in the state. Could you talk about some of those failures?

Some of this stuff is not necessarily distinctive to California, but it has been particularly problematic here. Massachusetts, New York and other places with dynamic metro areas and growth restrictions also suffer from housing shortages and high housing costs.

Taking a step back, we can think about three main policy patterns in California that are driving affordability.

The first is these growth restrictions that first showed up in the 1970s and have gotten worse over time. I should note that some of these are finally being addressed in the California Legislature and in some cities.

The second, which has gotten much less attention, is a pattern of regulations that are well-meaning, but are designed or implemented in such a way that they end up increasing the cost of living and burdening the poor the most. This is a phenomenon that I call "regressively funded progressivism."

And the third pattern is underperforming state programs. We should be getting more from California state services and state spending than we are given that we have a relatively large state budget driven by a progressive tax code and strong economy. If we got more efficient at using state dollars, we would be able to help people cope with high costs more effectively.

"Regressively funded progressivism" - that's a really important idea in your analysis. Can you elaborate?

California has been a leader on a lot of progressive values, like environment, safety, labor standards - and a lot of this is really good.

But too often we're a little bit self-congratulatory without really inspecting how these policies are designed, whether they're effective and to what extent they're increasing costs.

Of course, when you increase the cost of living through regulation and other policies, the people who bear the biggest brunt are low-income people who spend a greater portion of their income on essentials like housing, energy and food.

You're challenging - politely - a lot of long-standing progressive values. Environmental regulations, union labor and non-profit groups. Cities and how cities do things.

I want California progressives and liberals to seriously consider what it means to be progressive, because there can be a real gap between progressive rhetoric and progressive outcomes.

If you want policy to align with progressive values - using regulation to protect the environment, for example, or using regulation to support workers or the low-income population - you want the policy to be effective at achieving that core goal. And if it's not effective, you can't call that policy progressive.

And you also want that policy to be funded progressively, meaning to be funded by people at the upper half or the very top of the income and wealth distribution - not funded by those who are struggling the most.

Is it really progressive to fund progressive priorities through regressive means? Is it really progressive to enact policies consistent with progressive rhetoric but not implement them effectively to produce progressive outcomes?

Can you offer an example of a policy that's progressive in its orientation and goals, but imposes costs regressively?

One that we talk about in the series is the low-carbon fuel standard. This is a policy that is part of California's greenhouse gas and air-quality regulation portfolio. And what it basically does is sets a standard for the fuels that are burned in California, mainly for transportation. That's fine in concept. On the ground, when you look at what this policy is actually doing, it's increasing the cost of gasoline for California drivers, mostly to subsidize biofuels.

It's regressive because the people hurt the most by increases in the cost of gas are low-income people who spend more of their budget on gas.

It might be worth it if there were strong benefits. But if you look at where these subsidies are going, it's mainly going to support biofuels, which are grown out of state. And if you look at the latest academic research on the climate impacts of biofuel, what researchers are showing is that, once you account for land-use impacts, burning biofuels is not actually better for the climate than burning fossil fuels.

Does California's initiative process, where voters can make policy directly by approving ballot measures, have some impact on the state's efficiency?

Voters have made a lot of policy in California via the initiative process that can make it more difficult to govern and address problems like unaffordability. One example is Proposition 13, which has been a major contributor to our inability to build enough housing, in addition to contributing to other local government woes.

Prop. 13 is hard to undo because voters don't want to vote to raise their own property taxes. But if there were a system where there was more give and take between the voters and the Legislature on a proposition, it's likely that we wouldn't get something as far-reaching and destructive as Prop 13.

The other thing I'll say about governance in California is that California metro areas tend to be highly fragmented. If you look at a place like the Bay Area or Southern California, there's not just one big city government - there are many. When you have a number of different cities governing a region, it can be more difficult to effectively plan for growth.

What are some of the big ideas - and maybe the unconventional or controversial ideas - that policymakers and the public will have to consider to make California more affordable?

The most important takeaway is this: If California wants to be an affordable place, a place of opportunity, we need to be a place that fosters growth. Growth in the energy system with the transition from fossil fuels to renewables, growth in our transit systems and most of all, growth in our housing supply. That's just an essential element of affordability.

We don't have to grow the way Texas grows. We don't have to sprawl. We can grow in a way that supports public transit. We can focus our growth on infill development. We can protect the environment. These are not things that California needs to sacrifice, but if our policies are mainly serving to stall and block growth, that's a recipe for unaffordability.

Can't we solve at least some of our affordability challenges by increasing revenues, as the so-called Billionaire Tax that's on November's ballot proposes to do?

On the liberal side, there's a kind of reflexive response to all this, which is to say: "We live in this incredibly wealthy state, we just need to tax the rich more to fund more social services. That's the recipe for dealing with unaffordability."

That's pretty short-sighted for a few reasons. Within a federal system of government, where the wealthy can pack up and move to other states, there are inherent limits to the amount of revenue you can raise from them at the state level.

In addition, we've already seen revenues go up quite a lot per person over the past decade. And as we show in the papers, in many cases, the government is not using those revenues efficiently to address our unaffordability crisis.

It's not enough to just increase revenues. We need to pay attention to how those revenues are being used.

It's an explicit theme in your work that our politics and our politicians are implicated in policies that don't work.

I want to give a little bit of credit where credit is due. California politicians, particularly when it comes to the issue of growth and housing, have actually made significant progress over the past five to 10 years, in part in response to pressure from the burgeoning YIMBY movement.

The problem is the lag between policy change and outcomes. Say you pass a policy making it easier to build the housing that we need. It takes several years to put a new apartment complex up, start to finish, so it's going to take time for these reforms to start meaningfully affecting housing supply and housing costs.

In other areas, though, like the low-carbon fuel standard we discussed, policymakers have dropped the ball. In the papers, we try to understand why. One thing that's important to consider is that, increasingly, California is a one-party state without robust political competition.

That means there's less pressure on whatever party is in power to make sure their programs and policies are designed and implemented well. This can be a barrier to accountability and effective governance.

This interview has been edited for length and clarity.