California is facing a demographic challenge that marks a transitional phase. According to recent data from the U.S. Census Bureau, in 2024, the state experienced a significant population increase, with about 233,000 new residents, bringing the total to 39.43 million people. This represents a recovery after the decline observed in the first years following the COVID-19 pandemic, when the Californian population had reached its historic high of over 39.5 million in 2020, only to later decrease. However, the demographic challenge has not been fully overcome.
Despite this recovery, California’s population growth occurred at a slower pace than other expanding states, such as Texas and Florida. The growth in California in 2024 was 0.6%, lower than the national average of 0.9%, and much slower than states like Texas (1.8%) and Florida (2%). This difference highlights the demographic challenge that the Golden State continues to face.
The Reasons for Growth and Population Contraction
The increase in California’s population has been primarily driven by international migration and a positive balance between births and deaths. California attracted about 361,000 immigrants, a figure that ranks second in the U.S., behind only Florida, but higher than Texas. However, internal migration has shown signs of weakness: over 239,000 people left the state to move to other parts of the United States, representing the largest internal migrant loss among states. This exodus highlights a demographic challenge that also concerns internal migration.
Demographic dynamics in different California counties have been heterogeneous. While some areas, such as San Benito County and Yuba County, saw significant population increases, others, especially along the coast, experienced a sharp decline. Cities like San Francisco and Los Angeles, which have historically been the most populous urban centers in the state, lost millions of residents. The main factor behind this phenomenon is the high cost of living, particularly the cost of housing, congestion, and difficulties in accessing services, which have prompted many Californians to move to more affordable areas, like the Central Valley. This internal migration is another aspect of the demographic challenge.
The Housing Shortage: A Growing Challenge
One of the main obstacles California faces is the housing shortage. The state does not have enough housing to meet demand, a gap that has been growing for decades. Despite a modest construction boom in recent years, the difference between the number of homes needed and those actually built is still far from being closed. As of 2024, the state has a higher number of housing units per person (3,789 units per 10,000 Californians) than has been seen since 1991, but the outlook remains uncertain. The demographic challenge related to the housing shortage is one of the most urgent, as the population continues to decrease in terms of people per household, a phenomenon accelerated by the COVID-19 pandemic, which changed the housing landscape. Demand is constantly evolving, making the housing shortage an ongoing demographic challenge that remains difficult to overcome.
Governor Gavin Newsom’s administration has set a goal of building about 2.5 million new units by the end of the decade, or approximately 315,000 units per year. However, the state has never been able to build such a volume of housing in such a short time. The rising cost of construction is one of the main obstacles: between 2010 and 2020, the cost of building multifamily housing increased by about 25%, with significant increases in major metropolitan areas, like the Bay Area, where costs rose by $81 per square foot. Affordable housing is particularly expensive to build, partly due to a shortage of labor and rising material costs, which spiked during and after the pandemic. This is another aspect of the demographic challenge California must face.
Construction Costs and Land-Related Challenges
Another significant factor contributing to the housing shortage is the high cost of land. In many urban areas of California, a significant portion of the price of a home is related to the cost of the land on which it sits. This makes building new homes more expensive and also affects the type of housing that is built, favoring high-end projects rather than more affordable homes. The scarcity of developable land is another aspect of the demographic challenge that directly impacts the ability to build enough homes. Added to this are the complex permitting processes and local regulations that slow down the construction of new housing.
Local regulations and restrictions significantly impact the speed at which new housing is built. Bureaucratic processes like plan reviews, zoning restrictions, the California Environmental Quality Act, and parking requirements increase construction time and costs. Concerns about the environment, congestion, and gentrification have led many communities to oppose the construction of new housing, further increasing the difficulty in meeting the growing housing demand. These regulatory challenges are another aspect of the demographic challenge in California.
Emigration and Socioeconomic Changes
Internal migration and declining birth rates are exerting increasing pressure on California’s demographics. A third of California’s population has stated that they are considering leaving the state, mainly due to the unsustainable housing costs. This exodus involves individuals from all social classes but is particularly pronounced among higher-income families, many of whom have moved to states like Texas or Florida, where costs are considerably lower. Remote work, a reality amplified by the pandemic, has facilitated the relocation of many professionals, who continue working from other states without the need to return to California. This phenomenon is further evidence of the demographic challenge California faces.
At the same time, the decline in birth rates is contributing to the aging of the population. According to the California Department of Aging, it is estimated that by 2031, one in four Californians will be over 60, nearly double the proportion in 2010. This trend raises concerns regarding social policies, especially in healthcare, transportation, and public services, which will need to adapt to an increasingly elderly population. The aging population is another aspect of the demographic challenge that the California government must address.
The Consequences for the Political and Economic Future
Stagnant population growth could have political implications for California. In 2020, the state lost a seat in the U.S. House of Representatives for the first time, a trend that could repeat itself in the coming years. Predictions suggest that, if the current situation continues, California could lose up to four seats by 2030, further diminishing its political weight at the federal level. This is another demographic challenge that could affect the state’s political power.
From an economic perspective, the increasing difficulty in attracting new families and talent could weaken California’s position as a hub for innovation and research. High barriers to entry, such as the prohibitive real estate market and congestion in transportation, could hinder the state’s economic competitiveness, while competition from other states like Texas and Florida could intensify. The demographic challenge is also jeopardizing California’s economic future.
Conclusions: An Uncertain Future but Not Without Hope
Despite the signs of decline, California still holds many resources to tackle future demographic challenges. Its diversified economy, technological innovation, and geopolitical position remain key elements for attracting new talent and investment. However, in order to continue thriving, the state will need to address and resolve the issues related to housing costs, internal migration, and population aging. California’s ability to adapt to these demographic challenges will be crucial for its future and for maintaining its position as a national leader.
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FAQ
- Why is population growth in California slower compared to other states?
Population growth in California in 2024 has been slower than in states like Texas and Florida, mainly due to a significant internal migration. Many residents have left the state, attracted by lower costs and better opportunities elsewhere, partly due to prohibitive housing costs and congestion in major urban areas. This is part of the demographic challenge California is facing. - What are the causes of the housing shortage in California?
The housing shortage in California is caused by a combination of factors, including rising construction costs, a scarcity of buildable land, and complex local regulations that slow down the construction of new homes. Despite some progress, the demand for housing continues to outpace the supply, creating a demographic challenge that the California government struggles to address. - What is the California administration doing to address the housing shortage?
Governor Gavin Newsom has set an ambitious goal of building 2.5 million new housing units by 2030, but the demographic challenge remains complex. Obstacles include high construction costs, a shortage of labor and materials, and lengthy permitting and approval processes. - What impact does internal migration have on California?
The exodus of about 239,000 people from California in 2024 has had a significant impact on the state’s demographics. This phenomenon is primarily due to housing costs but also to increasing difficulty in accessing services and economic opportunities in California’s major cities, a tangible manifestation of the demographic challenge. - Why is investing with Phoenix RE Capital an interesting solution?
Phoenix RE Capital offers investors access to strategic real estate opportunities throughout the U.S. market. We handle every aspect of the investment process, from acquisition to land management and development, allowing investors to achieve attractive returns without the need for direct management. Our experience and strategic approach ensure safe investment solutions with a focus on maximizing appreciation and development potential.
