California’s Housing Shortage and Employment

A graph showing slow job growth in LA
Lately I’ve been thinking about how LA has been bad with job creation, and I wonder if there’s a connection to housing. The above graph is from an UCLA Andersen Forecast that is a few years old.  More recent data put LA in the middle of the pack, but still not great.
What’s worse is that it is particularly the middle-class jobs that have been hardest hit:
a graph of declining middle-class jobs in Los Angeles
Employment loss in LA has been concentrated among middle-class jobs
In most cities, construction jobs are one of the biggest job categories and among the biggest drivers of fluctuations in total employment. Nationally, about 5% of all employment is in construction.  And these jobs are well-paying, middle-class jobs, with average earnings nationally of almost $60,000/year.   That got me to wondering: If coastal California cities have been refusing to build enough housing to meet demand for decades, then maybe there is a connection between our poor job performance and the lack of housing.
So I took estimates from the LAO report on housing and used data from BLS and the city to come up with a back-of-the envelope estimate of the cost to local employment of failing to construct enough residential construction to meet demand.

The Legislative Analyst’s Office report on housing says that there is an annual deficit in new home construction in LA County equal to 1.8 times the actual construction (meaning that new home construction should be nearly 3 times what it actually is:54,000 annually instead of 19,500 annually). Suppose that one-tenth of construction jobs are in residential construction.  That would imply that about 0.5% of the LA workforce is in residential construction.  That’s a very back-of-the-envelope estimate, but a reasonable one.  If so, there is about 0.9% of the workforce (0.5% x 1.8) that is not employed because of the failure to build sufficient housing to meet normal demand. Put differently, if LA were constructing enough housing to meet demand, our unemployment rate would be 6.2% instead of its current 7.1%.  That’s a pretty meaningful difference.

The National Association of Home Builders (admittedly not the most objective source) reports that building 100 units in a multi-family dwelling creates 161 jobs. Using the Legislative Analyst’s report on housing, there is an annual construction deficit of 34,500 units in LA. Assuming these are all multi-family units given that LA is mostly built-out already for single-family homes, and using the NAHB figures on employment per unit, that suggests there are 55,545 missing jobs in LA county because of the failure to build housing to meet demand. Given an estimated labor force in LA County of 5.044 million, that is 1.1% of employment, very similar to the other back-of-the-envelope analysis.


I haven’t seen this connection before between poor job creation and inadequate housing supply, but it’s an important one for public health, given the role of both housing and jobs for population health.
Rosalie Ray, Paul Ong, and Silvia Jimenez have shown that the costs of unaffordable housing–long a scourge for those with low incomes–have now become a genuine problem for the middle class as well.  Let’s hope that a silver lining of so many people being affected will be that policy-makers will reduce the regulatory burden on new housing construction (hello, CEQA?), and stand up to Nimbys everywhere. (Yes, including in my own backyard).

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