A tool kit to close California’s housing gap –�3.5 million homes by 2025
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California’s population is growing and incomes are rising, creating more demand for housing
SOURCE: US Census Bureau; McKinsey Global Institute analysis
Net change in population, 2009–14,
Thousand people
-2%
9%
Change in household area median income, 2009–14 �Percent
-12%
14%
NOTE: Shaded regions represent 98% of state population; unshaded regions represent 2% of state population and lacked sufficient data
1
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But California has not built enough housing to meet �rising demand
SOURCE: US Census Bureau; McKinsey Global Institute analysis
Population added
1,000 people
Housing units added
Number
State
Ratio of housing units added to population added
Units per 1,000 people
Texas
California
2,964
358
4,201
Arizona
New York
616
Washington
Nevada
Oregon
806
Massachusetts
890
352
406
140,578
179,542
311,648
338,508
912,340
1,400,749
142,190
364,530
308
400
410
333
549
387
+78%
397
442
2
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SOURCE: US Census Bureau; Moody’s Analytics; McKinsey Global Institute analysis
Housing units per capita, 2014 �Units per 1,000 people
Maine
Wis-�consin
Florida
Oregon
Nevada
Arizona
Massa-�chusetts
New�York
Texas
Utah
Wash-�ington
New�Jersey
Cali-�fornia
US average = 419
State ranking
50
49
47
43
41
37
36
35
33
30
8
7
1
49th
In fact, �California ranks
out of 50 states �in housing units per capita
3
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We estimate that California would have to add �3.5 million housing units by 2025 to meet �pent-up demand and accommodate �its growing population
SOURCE: US Census Bureau; Moody’s Analytics; McKinsey Global Institute analysis
3.5
16.0
2.0
Current�stock
Total housing�backlog by 2025
Current housing�backlog
Demand addition �by 2025
1.0
Current�demand
2.5
1.5
14.0
Gap to fill�by 2025
New units at �current construc-�tion rates
California’s housing supply gap, Million housing units
Number of housing units needed in California to supply market at the same per capita rate as New York or New Jersey (i.e., 406 units per thousand people—still significantly less than US average)
Additional units needed to supply California’s population growth through 2025 (at same per capita rate as New York or New Jersey)
4
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Rising housing demand, chronic �undersupply, and escalating prices �have led to a statewide housing �affordability crisis
SOURCE: US Census Bureau; Zillow; McKinsey Global Institute analysis
1 Number of households in MSA unable to afford the local cost of rent, �as a share of the total number of households in MSA.
NOTE: Shaded regions represent 98% of state population; unshaded �regions represent 2% of state population and lacked sufficient �data for analysis
Households in MSA unable to afford rent
Thousand
30%1
57%
2,368
5
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The poor are hit hardest — �but the middle class is squeezed, too
SOURCE: US Census Bureau; Zillow; McKinsey Global Institute analysis
1 >30% of income required to cover local cost of housing; 2 >50% of income required to cover local cost of housing.
Above moderate
Moderate
Low
Very low
Extremely low
Income level
49
13
14
13
11
>120
80
–
120
50
–
80
30
–
50
<30
Definition
% of AMI
6.1
1.7
1.8
1.6
1.4
Total California
households
Million
Share of California
households
%
5
53
96
100
100
Percentage unable to afford housing1
0
0
40
97
100
Percentage extremely
unable to afford housing2
6
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In dollar terms, California’s housing crisis costs the state more than $140 billion in lost economic output per year
SOURCE: US Census Bureau; Zillow; McKinsey Global Institute analysis
10.35
0.01
23.69
Distribution of affordability gap
$ billion per year
Lost economic �output per year
$140
billion
Annual housing �affordability gap
$50
billion
7
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To fix this problem, California could build more than five million housing units �in “housing hot spots” — which is more than enough to close the gap
SOURCE: McKinsey Global Institute analysis
993
793
2,989
225
103
High
Low
Total
2,856–5,614
1 Estimate for single-family potential capacity is highly conservative as it examines only three counties: Sacramento, San Bernardino, and Contra Costa.
Build on vacant urban land that cities have already zoned for multifamily development
Intensify housing around transit hubs
Add units to existing single- family homes
Add units to underutilized urban land zoned for multifamily development
Develop affordable and adjacent single-family housing1
Potential additional housing units
000
Tool
8
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To close the housing gap, California needs to change the rules of the game �for housing approvals, cut the cost and risk of producing housing, and ensure housing access
SOURCE: McKinsey Global Institute analysis
Unlock supply by cutting the cost and risk of producing housing
Unlock supply by cutting the cost and risk of producing housing
Change the rules of the game for approving housing on high-potential land
Remove barriers to housing development
Ensure housing access
Ensure housing access
Incentivize local governments to approve already planned for housing
Accelerate land-use approvals
Prioritize state and local funding for affordable housing
Attract new investors in affordable housing
Design regulations to boost affordable housing while maintaining investment attractiveness
Raise construction productivity
Deploy modular �construction
Accelerate construction permitting
Reduce housing �operating costs
Align development impact fees with housing objectives
9
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