More McMansions: What California Needs To Make Housing More Affordable


A Bloomberg News story last week laments, not overtly but in an unmistakable tone, the “surge” in demand for luxury homes because it “highlights the growing U.S. wealth gap.” The “surge” should instead be a welcome development. Greater demand for opulent homes means more housing for everyone.

“Luxury” housing is defined by real estate brokerage firm Redfin as “the most expensive 5% of homes in a given market.” Bloomberg reports that sales of these homes “climbed 63% in California’s Inland Empire, east of Los Angeles, and 61% in Oakland, which is a more affordable option across the bay from San Francisco,” in the third quarter of 2020 over the third quarter of last year.

“High-end sales” have even exploded in Sacramento, where they have “jumped 86%, more than any other major metro area, as Silicon Valley tech workers moved farther out.”

The wealthy are apparently looking for “larger properties with more room to quarantine.” If the demand continues, the market, despite being handicapped by California policies that discourage home building, will respond by increasing the supply of larger homes. The politics of jealousy demand that people moving into nice homes be frowned upon, because somehow it hurts those who have less. The reality, though, is that it benefits the least-prosperous among us.

According to the nonpartisan Legislative Analyst’s Office, “building new housing indirectly adds to the supply of housing at the lower end of the market.”

Though “new market-rate housing typically is targeted at higher-income households,” and “seems to suggest that construction of new market-rate housing does not add to the supply of lower-end housing,” building higher-end homes increases the housing stock because:

  • “New housing generally becomes less desirable as it ages and, as a result, becomes less expensive over time. Market-rate housing constructed now will therefore add to a community’s stock of lower-cost housing in the future as these new homes age and become more affordable.”
  • “When new construction is abundant, middle-income households looking to upgrade the quality of their housing often move from older, more affordable housing to new housing. As these middle-income households move out of older housing it becomes available for lower-income households.”
  • “New housing construction eases competition between middle- and low-income households” since “too little housing construction” means that more affluent households are “faced with limited housing choices,” leaving many to “choose to live in neighborhoods and housing units that historically have been occupied by low-income households.” This, of course, “reduces the amount of housing available for low-income households.”
  • “More supply places downward pressure on prices and rents.”

It would be hard to find any other place on Earth that needs new housing more than California. Beacon Economics estimated in 2017 the state needed 2.3 million new units to overcome the backlog of demand. Five years ago, the LAO said the state needed to build 100,000 units a year in addition to the 100,000 to 140,000 that were expected to be built annually. Given that building starts have lagged – construction on multi-family projects, for instance, fell by 6% in 2019 from the previous year – that estimate of 100,000 new units needed yearly is likely low.

In a housing environment that’s fallen so far behind, complaints about wealth inequity are meaningless to families and individuals who desperately need homes and can’t afford them. What is meaningful to them is the availability of affordable housing. Why would they begrudge the upward mobility of others when it increases their own upward mobility? Pointing out “intensified wealth disparities” and hoping to stir up envy does nothing for them. Building homes, of any size and cost, does.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.


Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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