What’s Driving California’s Mass Exodus?

Investor · San Jose, CA · Member since 2012 · 61 posts · 40 votes

Recurring threats of nationwide rent control, cities that require owners to pay utilities for tenants, and overly broad eviction moratoriums are definitely turn-offs.

9 Reply

George Lui

Investor · Dallas, TX · Member since 2017 · 31 posts · 51 votes

5y

No surprises here at all. Even more a 🤔, is the fact that CA voters vote the same way each election cycle. SMH

42 Reply

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

5y

I live in California (San Diego) and love it. But I'm fortunate to just live here and not have a business here. Here are the pros/cons:

PROS:
Weather / natural beauty

CONS:
Everything else.

There is NO WAY I'd ever think about trying to build a business here (rental or otherwise). Or if I was a high earning 9-5 person I'd do everything I could to get out. how California has any billionaires (or 8 figure millionaires) that allow themselves to get brutalized by taxes is beyond me. And who, when thinking about where to open a new business, would possibly think "California! It's so business friendly!"

When people ask me about buying apartments in California I say "They may not offer much of a return, but at least the laws are tenant friendly"

People reply "Oh I see... wait, what?"

32 Reply

Mary Gafner

Member since 2020 · 3 posts · 10 votes

5y

If everyone is leaving California then why do the SD and LA markets continue to be so tight? I live in SD and the market is crazy, I just don't understand. Seems to be alot of people are still here buying homes.

10 Reply

David Lu

Investor · Santa Ana, CA · Member since 2015 · 19 posts · 8 votes

5y

The "Exodus" has been going on for at least 20 years now. In Southern California, where I am, we've seen aerospace and defense moving out since the Clinton years. And Nissan and Toyota moved out in the last two decades. Yet we're still here and seeing year after year of housing gains.

That said, I feel Northern California is tech-centric and tied to the health of that one particular industry. Southern California has a more diverse economy and is likely to be more resilient to issues with any one particular segment. For example, the dot-com bust hit NorCal hard but not so much in SoCal. And the current TV/Movie production drop due to Covid has affected SoCal more, but that's still a very small percentage of LA jobs.

2 Reply

Maxwell Ventura

Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes

5y

@Mary Gafner

San Diego is an exception to the massive state of CA. Population is still growing here. And w/ the growing tech boom, low rates, and shrinking inventory, the demand is continuing to get even stronger. Other factors that set us apart are the heavy military presence here and our great tourism.

3 Reply

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

5y

Originally posted by @Account Closed:

Originally posted by @Cody L.:

I live in California (San Diego) and love it. But I'm fortunate to just live here and not have a business here. Here are the pros/cons:

PROS:
Weather / natural beauty

CONS:
Everything else.

There is NO WAY I'd ever think about trying to build a business here (rental or otherwise). Or if I was a high earning 9-5 person I'd do everything I could to get out. how California has any billionaires (or 8 figure millionaires) that allow themselves to get brutalized by taxes is beyond me. And who, when thinking about where to open a new business, would possibly think "California! It's so business friendly!"

When people ask me about buying apartments in California I say "They may not offer much of a return, but at least the laws are tenant friendly"

People reply "Oh I see... wait, what?"

As a tenant of 18 year in Los Angeles, I'd even have to disagree about the tenant friendly part. From a tenants experience, HCIDLA will drag their heels and take the path of least resistance when you bring them a complaint. Landlord files a bogus owner-occupy eviction? "Oh, we'd really like to help, but-". There's always a but if it means they have to lift a pencil. Total bureaucracy.

Not to mention staff who have workers who will openly verbalize their blatant pro-landlord opinions while ironically being empoyed in a rent stabilization organization. HCIDLA is headed by a woman named Marsella DeShurley, who if you can manage to reach her, will take about 5 min to expose her sympathy for "poor landlords who bought buildings and didn't know the laws". Not to mention the full blown corruption that is CalTrans- they are the only landlords I know of who are allowed to hike rents 10% every 6 months (their rental houses being taken by eminent domain in Pasadena, no less).

I'd say California is both anti-landlord and anti-tenant.

Hey, I'll take your word for it. I don't rent to people and am not a renter myself. I only go based on what I hear. Whenever I hear of some new rent control law or some can't-evict law, it's almost always in CA or another blue state.

3 Reply

Kenton LeVay

Investor · Austin, TX · Member since 2018 · 119 posts · 114 votes

5y

I think claiming political ideology as the reason people are leaving California is intellectually lazy because the situation is much more complex than that. I don't think people are moving from SF to Austin so they can carry guns in public places. As a former CA resident myself, I can speak to some of this.

When you look at CA, there are multiple areas/cultures you can look at (Northern, Southern, Central Valley, etc.)...it's almost like states within a state.

It's no secret that CA is expense to live just about anywhere. Because SO MANY people have moved to CA over the last several decades housing prices have always been high due to high demand. Couple that with high paying tech and venture capital in SF it's nearly impossible to save up for a house in a nice area unless your company IPOs. The cost of living is just higher, it has been like that for a long time but people are questioning whether the quality of life is worth the high cost of living.

Enter COVID-19. More and more jobs have the ability to work remote. A big reason people move to CA is for job opportunities and now when you're working from home indefinitely, it makes sharing a 4-bedroom apartment in the city much less desirable than moving to somewhere with land and a lower cost of living.

Yes, income taxes are higher in CA but there are also WAY MORE people in CA than any other state, so the state needs a lot of revenue. That said, property taxes are relatively low/capped if I'm not mistaken. In order for companies to retain labor they have needed to pay more so their employees can afford to live there. This is why you are seeing companies diversify their workforce to lower-cost areas, like Texas.

When I moved out of CA 3 years ago (for a job opportunity in NC), I remember reading articles about the "mass California Exodus". California is the most populous state so when people move out, it's considered an exodus by the other 49 states' standard. Do I think California will be a ghost town in a few years? Absolutely not, there are still great job opportunities, phenomenal weather, geography, etc. California's not going anywhere, that is until there's an earthquake that breaks it off so it can chill with Hawaii.

Just my two cents.

17 Reply

Tom Wagner

Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes

5y

Once the world returns to normal post-COVID, things will return to normal in CA. Sure, some companies will continue to offer WFH and some employees will never return to CA, but most employees will realize they need to be in the office in order to have a meaningful impact (read: get promoted --> read: make more money), and hence they will return.

This exodus is 100% temporary.

1 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5y

Originally posted by @Kyle J.:

Just watched this fascinating and well-done story by CNBC on "What’s Driving California’s Mass Exodus?"

Now, I live and invest in California, so I'm definitely not a California hater. However, I'm also no California fanboy. I'm actually pretty open-minded and enjoy listening to something like this to perhaps get a different perspective.

There are certainly benefits to investing in California. Like I said, I do it and I do quite well by doing so. However, there's also no arguing there are downsides to doing business here.

We have the #1 highest state income tax in the entire country! It's also very business unfriendly here. According to a CNBC study (mentioned in the story), we are ranked DEAD LAST in the country when it comes to the cost of doing business.

This is probably the reason we've actually been seeing a net migration LOSS of residents in this state to other states. Not to mention the thousands of companies that have left (or are leaving) the state, including big name companies like Hewlett Packard (moving to Houston), Oracle (moving to Austin), and Tesla (Elon and the next Gigafactory will be in Austin).

(Anyone see a theme there with Texas?)

Anyway, not trying to convince anyone of anything. Except perhaps our state legislators better wake up if they want to stop this mass exodus. Unfortunately, I'm not sure they get it yet. At least the laws that continue to be proposed and passed in this state don't seem to signal (to me) that they do.

Thoughts?

Thoughts:

Highest top income tax rate does not imply highest actual median income tax paid. The rich pay a lot of income tax. There are many that pay just a few percent.
For the last decade only one state (Texas) had a larger population increase than CA.
IMO the crowds of CA are the #1 issue. I happily wave good bye to everyone that leaves. Housing shortages in coastal cities. Crowds everywhere. Try going to the local snow in San Diego. Ditto for a good season of desert flowers. Top permits for trails, campsites, etc. are difficult to obtain. I hope the state legislature does little to prevent a exodus. Coast CA is over crowded. Why would we not want less people? Housing crisis diminishes. I could get permits for my favorite trails or campsites. I can go to the snow without being in hours long traffic jam.
There was a recent article that 5 cities accounted for 90% of all US high tech job growth between 2005 to 2017. 3 of the 5 cities were CA cities.
It should not be cheap to live in the best climate areas.

I am not intending to imply that CA is perfect. I believe in free market and that regulations should not be to control price but should be for protection and safety. I do not believe we should let anyone who wants to come into the country. If we do let them in, there should be something that discourages them from going to areas that are too crowded. Especially if they are then going to whine about the costs. If you choose to live in coastal CA, do not whine about the costs. You are choosing to live where too many people (even more than already do live here) would choose to live if the costs were not so high. The high costs are one of the few items that is preventing even higher populations.

By letting everyone in to paradise, there is no paradise.

13 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 61 posts · 40 votes

5y

Something like 47% of people pay zero income taxes.

and i seem to recall a couple with 2 kids pay zero income taxes if their household income is less than about $60k

2 Reply

Maxwell Ventura

Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes

5y

@Dan H.

Amen. Well said.

2 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

5y

It is being caused by peoples imagination. Funny how this has been a story for 25 years yet California's population has grown by 10 million since this became a popular narrative.

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14 Reply

Tushar P.

Member since 2019 · 332 posts · 171 votes

5y

California’s tech industry is very innovative and attracts smartest people from all over the world, and this crowd keeps the tech economy booming and prices inflated. Most locals/companies can’t compete and find California unaffordable, needing to move to another state. The cycle will keep on going - fresh batch of smarter people coming to California and forcing many poorer locals (by California standard) out to another state, while the net population keeps increasing.

The pandemic may have changed the equation with the advent of reliable remote working, but I doubt that the most innovative companies in the world (which are based in California) will move their core mission-critical work out of California anytime soon. These big companies have offices all around the world - who is not willing to hire smarter people at cheaper cost (if they can find smarter people in a country that has the infrastructure to harness their smartness)? Moving out of US has been happening for a long time than the recent trend of moving to another states. If replicating an innovative environment was easy, we may see companies moving their entire business out of California.

Ever wonder why people are trying to get rid of their US citizenship to spend their retirement life in countries south of the border?

2 Reply

Kellie Davis

Aubrey, TX · Member since 2021 · 13 posts · 11 votes

5y

I moved here in 2013 and am leaving this summer. After my divorce 5 years ago, I sold my house and I've been stuck renting. As a single mom, there isn't affordable housing in my area within the boundaries of my kids' school-- and I make 6-figures, have a senior-level position and master's degree. I found the only way I can become a homeowner again is to relocate. I work remotely, so I can still make my California salary, pay fewer taxes, and find a decent home. Which will also allow me to invest.

Reasons for leaving: high taxes, no affordable housing, my son is a D-1 scholar potential and he hasn't had a single sports season since last spring. Fire season isn't great to deal with either.

8 Reply

Justin Thorpe

Member since 2020 · 437 posts · 675 votes

5y

@Tushar P.

I bought my home in a very expensive zip code in SF Bay Area in 2009 from a gent who was leaving the country because he thought the US and CA were finished and the future was abroad specifically in Asia. This was in the depth of the financial crisis and He was predicting a “mass exodus” from CA to other states and from US to other countries.

He was so confident that it was a disaster that over the next few years it looked like he was right until he was not.

Today the home is worth 3X the value he sold it to me at. The gent finally came back to the Bay Area in 2015 only to realize he had fallen behind. Prices had shot you up and the economy was booming and he was unable to buy what he used to own.

That’s how this area rolls. It comes back like a coiled spring only to disappoint those who left and reward those who stayed.

8 Reply

Tushar P.

Member since 2019 · 332 posts · 171 votes

5y

@Kellie Davis I don’t think anyone can make California salary while living elsewhere, but that’s great if it is possible for you. Unless you are talking about cost adjusted salary e.g. someone living in Houston earning $225k/yr claiming they are earning California salary because it is equivalent to earning $450k/yr in SanFran. Also, for many people, making cost adjusted California salary elsewhere may make sense only if the environment/climate is better than that of California.

@Justin Thorpe the whole world went through the downturn in 2009, so I don’t understand how anyone could have picked SanFran to bet against, even when the downturn was not due to any tech bubble. I think the continuous ‘tech gentrification’ will continue to keep California wealthy and growing, until the innovation mindset/environment can be replicated elsewhere (many think that remote working efficiencies triggered by the pandemic can lead to that).

1 Reply

Jacob Pereira

Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes

5y

As an investor and Realtor in Austin, the trend has been great for me personally. I'll say that my anecdotal (read: almost meaningless) evidence says something slightly different. About 37% of my clientele who actually purchased last year was from California, and almost all of them were buying in Austin, but staying put in California. In contrast, about 16% or my buyers were from New York, and half of them moved here.

Small sample size, of course, and I'm absolutely bullish on the local market. We have a very diversified economy with tech, government, education, medical, and service/tourism (yes, service/tourism is hurting right now, but post-vaccine I expect it to spring back), so we're a fairly safe bet despite the current hot market. All that said, most of my California clients are staying put, just putting their money into safer states.

0 Reply

Hayden W Gibson

Investor · Denver, CO · Member since 2019 · 33 posts · 17 votes

5y

Everybody has made some great points. Here are a couple of things that haven't been said.

1) According to the Hoover Institute, more than 13,000 businesses have left California in the last 10 years. I have a close relative who works in the legislature here in CA, and they have told me that the legislative committees do not consult accountants or a diverse set of economists to figure out downsides to their policies. Also, even though the capital is in Sacramento (Nor Cal), the state is primarily run in LA. That leads into point #2.

2) I help run my family's ranch just outside of Stockton. The agriculture industry has basically been abandoned by the state. All of the water collected in Nor Cal gets sent in open canals to So Cal, and then we have to buy it back (unless you have a well on your property). Also, if you are a farmer, you labor costs are increasing about 8-10% every year, so a lot of small farmers are either selling or moving their operations. What I'm trying to get at is that CA has one of the largest agriculture economies in the world, and it employs tons of people. As more farmers move, it could impact the middle of the state.

3 Reply

Kyle J.

OP

Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes

5y

Originally posted by @Russell Brazil:

It is being caused by peoples imagination. Funny how this has been a story for 25 years yet California's population has grown by 10 million since this became a popular narrative.

I used to wonder about this too. So I started looking into it more (just because I was curious), and listening to people who actually study charts and talk to smart people for a living (like Bruce Norris for those of you familiar with him), and here’s what I found.

Much of California’s population growth is actually due to births, but NOT people migrating into this state from other states. Now kids are great (I have some), but these babies are not bringing job skills or paying taxes when they arrive.

And this isn’t a new/COVID thing either. This article (California population growth slowest since 1900 as residents leave, immigration decelerates) from 2019 talks about it, and I’ve listened to a bunch of Bruce Norris’ talks/presentations where he’s went over the charts (starting well before COVID).

Bruce actually goes even deeper into the charts to show that when people do migrate OUT of California, they tend to bring a lot of wealth with them, and other states (like Florida) tend to benefit from a lot of wealth coming INTO their state. That’s definitely not a good trend for California.

Anyway, like I originally said, I’m not really trying to convince anyone of anything. I just appreciate the discussion and all the thoughtful comments so far.

3 Reply

Brian Ploszay

Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes

5y

Since this is a real estate forum, I would like to add that expensive real estate prices is a main factor for the California exodus. My connections to California are deep, and I was from Southern California.

The prices of housing are too expensive. How did we get there? 30 years of population growth not met by expansion of the housing stock. In other words, it is difficult to build new construction in California. It was ranked as the hardest state.

The human costs of this are huge. It is the reason for the large homeless population. It is the reason for the large poverty rate. And it is a major factor in the exodus.

State leaders, to some extent, understand this. And are promoting more density housing. But NIMBY (Not in my back yard) movements stall this. Plus the enormous regulations and zoning issues.

A great article in the magazine the Economist, stated that California's housing issues have caused its economy to lose money. That is more true than ever as companies, along with people, are fleeing the State.

2 Reply

Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

5y

Why I left California: stupid high taxes, pollution and traffic... and my house was worth way more than it should be and so I fixed it up and sold it (in September).

Granted all these things were present when I moved there but once I stopped working in film and started RE investing I realized I had no good reason to stay in California (OK... minus the warm weather and high volume of attractive women).

2 Reply

Justin Thorpe

Member since 2020 · 437 posts · 675 votes

5y

@Brian Ploszay

Having traveled to many parts of the US, I am mystified by the levels of obvious poverty prevalent in those places despite what is termed as “cheaper housing”. I don’t want to name the states or cities but you could pick anyone. There are huge swaths of ghettos, run down downtowns, neighborhoods etc. It’s just mind boggling. If cheap housing was the answer, I bet we would not see this.

To me the housing prices in CA are what they are. They have moved in line with how the economy, mostly tech sector driven has moved. The prices reflect wealth creation, job creation etc. if that was not the case a big chunk of the population would be actually moving for better jobs and a life elsewhere.

Hard fact is every other state wants that type of economy. The wet dream of every realtor and asset owner outside of CA, is for their asset prices to go as high as CA. Mayors all around the country want their cities to become high tech hubs like SF and SJ. Its quite ironic indeed.

6 Reply

Kellie Davis

Aubrey, TX · Member since 2021 · 13 posts · 11 votes

5y

@Tushar P. thank you! I get to keep my California job and move elsewhere. I’m not relocating for a new position with a local brand. It’s the beauty of remote work.

0 Reply

Dan DiFilippoBusiness Member

Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes

5y

@Kyle J. Laws and levies lead to losses.

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What’s Driving California’s Mass Exodus?

What’s Driving California’s Mass Exodus?

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