What we can learn from the Great California Exodus (Sept. 2012)


By turtledove   Follow   Sun, 23 Dec 2012, 3:52pm   9,182 views   148 comments
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I hope this hasn't already been posted. Didn't see this on the site. Thought it was interesting.

http://www.manhattan-institute.org/html/cr_71.htm

Executive Summary

For decades after World War II, California was a destination for Americans in search of a better life. In many people’s minds, it was the state with more jobs, more space, more sunlight, and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through this migration.

This study describes the great ongoing California exodus, using data from the Census, the Internal Revenue Service, the state’s Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other sources. We map in detail where in California the migrants come from, and where they go when they leave the state. We then analyze the data to determine the likely causes of California’s decline and the lessons that its decline holds for other states.

The data show a pattern of movement over the past decade from California mainly to states in the western and southern U.S.: Texas, Nevada, and Arizona, in that order, are the top magnet states. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states: Georgia and South Carolina.

A finer-grained regional analysis reveals that the main current of migration out of California in the past decade has flowed eastward across the Colorado River, reversing the storied passages of the Dust Bowl era. Southern California had about 55 percent of the state’s population in 2000 but accounted for about 65 percent of the net out-migration in the decade that followed. More than 70 percent of the state’s net migration to Texas came from California’s south.

What has caused California’s transformation from a “pull in” to a “push out” state? The data have revealed several crucial drivers. One is chronic economic adversity (in most years, California unemployment is above the national average). Another is density: the Los Angeles and Orange County region now has a population density of 6,999.3 per square mile—well ahead of New York or Chicago. Dense coastal areas are a source of internal migration, as people seek more space in California’s interior, as well as migration to other states. A third factor is state and local governments’ constant fiscal instability, which sends at least two discouraging messages to businesses and individuals. One is that they cannot count on state and local governments to provide essential services—much less, tax breaks or other incentives. Second, chronically out-of-balance budgets can be seen as tax hikes waiting to happen.

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. States with low unemployment rates, such as Texas, are drawing people from California, whose rate is above the national average. Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

Population change, along with the migration patterns that shape it, are important indicators of fiscal and political health. Migration choices reveal an important truth: some states understand how to get richer, while others seem to have lost the touch. California is a state in the latter group, but it can be put back on track. All it takes is the political will.

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  1. bmwman91


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    1   9:17pm Sun 23 Dec 2012   Share   Quote   Permalink   Like (4)   Dislike  

    Cost of living, it has to be #1. OK sure, you can EASILY pull $100k a year in the Silicon Valley. Couples pulling $250k are very common. At present, it will not get you anything more than a condo unless you have $200k+ in cash to support a $1M jumbo loan. $200k cash can get you a nice 2 story 3/2 or 4/2 in most of the rest of the nation. Yes yes, the weather sucks, but other than that, you buy the house and you can easily take a 50% pay cut because your living cost is property tax, insurance and some maintenance. Chances are that your living standards will be at least the same, despite half of the total income (the progressive income tax setup helps a lot). A certain member here keeps talking about how it is impossible to give up a super high salary, but if you can just go and pay cash for a house elsewhere, you require a lot LESS gross income to maintain the same lifestyle. You just have to sack-up and accept the less pleasant weather or lack of interesting geography. Some people can't handle politically centrist or right-leaning areas either, which basically confines them to the super expensive liberal enclaves along the coasts. I have found people in much of the rest of the country to be much more politically "balanced" than people in CA give them credit for, and in many ways they are much more "balanced" than the progressive-or-die types around here.

  2. Rin


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    2   3:42am Wed 2 Jan 2013   Share   Quote   Permalink   Like (4)   Dislike  

    Kevin, the avg internal medicine doctor earns $180-$200K, not just the top 5%. And this is nationwide.

    I was offered a *Senior Engineering* position at IBM Global Services, northeast corridor, and that was at $120K. The only person in that team earning $200K was the regional manager. Thus, your salary stories are only about Silicon Valley, a Bay Area phenomena. And that was the last time I'd bothered with IT, before leaving the field altogether for HF.

    Now, for a person capped at $120K in IT, I'm only into my 3rd year of hedge fund work and I'll be finishing this week at near $700K for 2012. Yet, I'm not telling everyone that I'm some great thing because I know how difficult it is, to get into this field and to stick with it.

  3. turtledove


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    3   7:55pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike  

    Many of you have said higher taxes are the problem. So why does California have higher taxes? What is it about what we do that requires a premium over what other states do? Yes, we have more people... but that should also mean a larger tax base. It's not like we're providing better services (if education spending and the like are indicators). We are paying more for things that other states offer at a lower price (taxes). There is something very wrong with that.

    The thing that really gets me is the political effect of the migration. We have no balance. With every California conservative moving to more conservative states, we just perpetuate the liberal agenda here in California. Who are those people replaced with? Others who also want to perpetuate the liberal agenda.

    Margaret Thatcher once said something to the effect that socialism works until to you run out of other people's money to spend. The California migration pattern isn't promising.

  4. Ceffer


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    4   5:03pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike  

    How many people working for those tech companies really believe they will be working for them in 20 years?

    Most tech is project oriented. Projects have a beginning, a middle and an end, and if there is no new project, hasta luego job.

    When the red light flashes, we need men, but when it stops flashing?

    If I were making a fabulous salary in tech, I would be saving like a bandit and would not invest in any kind of house or real estate. Rent and save while the climate is good, in five years your job may be in Singapore or India, or if you are lucky, Austin.

    Who really thinks that the state is going to reduce other taxes if Prop 13 is defeated? They will just abuse that take and come back for more later, once stuffed, never satisfied. Again, what is the FUTURE of taxation in CA. I remember when they thought that increasing the sales tax to 6 percent was outrageous, and most of the state infrastructure was built with relatively reasonable taxes. The loss of efficiency is staggering.

  5. Kevin


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    5   10:48pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike  

    bmwman91 says

    General engineering positions.

    There is no such thing.

    Civil Engineers ("real engineers" if you ask them) don't make anywhere close to that kind of money. Nor do most classes of engineer.

    Google, Microsoft, and Apple don't employ "General engineers". They employ, primarily, software engineers, with a smattering of EEs thrown in the mix. Those are definitely high paying jobs, but there are plenty of other engineering positions that pay relative crap.

    I have a friend who is an aerospace engineer at Boeing. 10 years experience, makes about $100k. I make about 3 times that as a software engineer with only five years more experience.

  6. New Renter


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    6   12:06pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    Strategic Renter says

    I work from home and after 2 years in Huntington beach I have had enough it is an awful place to live. I paid 20k in State taxes this year and am no longer prepared to live in a shack that is valued at 600k which I am renting for $2500 a month. I have a incredible house in Vegas with a swimming pool and tennis court that I am buying cash and cannot wait to get out of this dump.

    That $20k is better spent on blow and hookers - I'm surprised you stuck it out this long.

  7. Kevin


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    7   12:07pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    The thing that makes it possible to live in CA isn't the high incomes, it's the low family sizes.

    You don't feel any pressure about where you live when you don't have any kids. A couple earning $60-70k a year can live comfortably in a 1 bedroom in SF or LA and will probably be happier than people living in suburbia elsewhere.

    Once you have kids, though? $200k+ or GTFO.

    If things keep going like this, in another generation or two there won't be any California natives. It'll be all immigrants from other countries and tech workers, film makers, and porn stars from other states.

  8. dunnross


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    8   2:44pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    E-man says

    Things will only get more expensive in the Bay Area after each boom/bust cycle.

    Remember trees don't grow to the sky. The higher they go, the more they fall. Another reason this bust isn't over yet - Bay Area hasn't really crashed, yet. What we've seen around here is just the beginning.

  9. bob2356


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    9   8:14am Tue 25 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    lostand confused says

    TX may not have state taxes, but real estate taxes are high-sometimes triple that of here

    Yes it's really terrible in Cameron County TX where I have to pay $2700 a year on a property assessed at 137k (3k sq ft house, 1/2 acre lot, great older area) and zero state income tax. Wow, that's a whopping 1.9% tax rate almost DOUBLE the Ca tax rate. I would much prefer to pay 1% on a 750k house in CA plus 9.3% income tax. That would be about 25k or 9 times as much. Such a bargain. Thanks for pointing that out.

    lostand confused says

    Plus if your average daily high in the winter is the low 30s -the high , not low- and the wind chill makes it even lower and your eyes water when you leave and the only thing you look forward to when you step outside, is to get back inside a heated building-money can have a little less meaning!

    It's obviously not something that has occurred to you, but what people in the rest of the country do is buy a coat and hat. Then it's perfectly comfortable to be outside all day. I like winter and being outdoors in the winter even when I lived upstate NY.

    Living in the brown state wouldn't do it for me. If it makes you happy then great, but that doesn't make it better, just better for you.

  10. bmwman91


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    10   4:16pm Tue 25 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    drew_eckhardt says

    Only if you insist on living near the downtown of a nice walkable city (or perhaps the "right" public school; our kids have undergraduate degrees so that's not relevant).

    $400K ($80K down for a conventional mortgage) will get a 1950s 3/2 ranch in Sunnyvale (Fremont High).

    I think that you need to browse Zillow and Redfin a little. $400k will not get you a single SFH in Sunnyvale. Nada. As of now, houses with a 1+ hour commute to the Tech Centers are pulling $500k, easily. The market is completely dysfunctional right now. I, personally, do not give a shit about school districts since Parochial school is a high quality education that does not require us to live anywhere specific. Kids are a few years away still anyway. I just want a decent sized lot (7000SF+) and a detached garage for a workshop. I can either leverage myself to the absolute limit now, or take my chances by waiting.

    The mania has grown enough that a significant percentage of people are bought-into the "buy now or be priced out forever" mantra. I think that it is sensible to either buy now, or be ready for a 5+ year wait until the next bust in RE, although this boom will be driven by never-before seen market conditions and it may well be a permanent paradigm shift for America where Wall Street ushers in a new era of indentured servitude from the massive renter class.

    If things blow up enough, it should give my wife the kick that she needs to consider living elsewhere. We are not the first in our group of friends to consider living in other states, and a couple of our friends have actually done it over the last few years (TX and CO). Yeah yeah we could buy to the max here now, sell in 40 years for a giant pile of cash and THEN move somewhere else and retire. That seems disagreeable though since, if I lived my whole adult life here I would not want to leave when I retire. It seems better to pay cash for a house in "flyover" country and spend a couple of decades making it our home so that we can easily retire on our savings in that same place. When the cost of living is 50% less elsewhere, you can maintain the same quality of life on 50% of the salary. Not having a house payment enables a lot of saving for the future. My wife and I could pay cash for a median-priced house in the US, but we'll continue to save as we see how the fiscal cliff and debt ceiling work out. Generally, I am not optimistic that CA will see middle-class-friendly house prices (dear god don't anyone bring the affordability BS in here, if houses were affordable we wouldn't need $730k loans on 3.5% down...houses are not middle-class affordable, MONTHLY PAYMENTS are middle-class affordable, and that smells a lot like renting to me).

  11. lostand confused


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    11   12:08pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    Quigley says

    This will be wildly unpopular with most homeowners, but if prop 13 goes away we would see a big improvement in the state.

    Well, if Prop 13 goes away, they need to halve the state income tax rate or even better than that. Nuts will probably raise both.

  12. New Renter


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    12   9:08pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    drew_eckhardt says

    Although asking prices probably bottomed in Spring 2012, 3 bedroom 1000-1500 square foot 1950s ranches in the Lakewood Village neighborhood have been selling in the $400s since late 2011.

    There's way less inventory now than earlier in the year.

    For sale now for $399 (listed as a contractors special at 1468 square feet although records show 1100 suggesting the two car garage got used as a bedroom):

    I am familiar with that area myself. I went through it when I was looking to buy my own place. Many of the houses appeared to be overstuffed with occupants as evidenced by the appalling lack of driveway and street parking. In some areas the number of street parked full sized pickups made two way traffic difficult. Lots of cheesy "upscale" entry doors and pillar entryways and cheap add-ons put above the garage with no thought to aesthetics or style - it looks like the owner put a large box on the garage. Most yards were not maintained well. It'd be a paradise if you don't like HOAs. Not my cup of tea though.

    drew_eckhardt says

    Starting compensation packages for new graduates at the big tech companies have broken $100K, 15 years of decent experience yields something in the $200s at large companies not including stock movement, and there are startups out there desperate enough to match that in cash for the right person. Add 50-100% for DINK couples.

    Nice work if you can get it. Please also be more specific than "tech". Those salaries you quote may be applicable to a few specific fields and even then only for top tier graduates.

  13. thomaswong.1986


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    13   7:21pm Tue 1 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    drew_eckhardt says

    Big companies recruit fresh graduates from higher ranked schools in an attempt to secure better talent before it gets recruited elsewhere and becomes unavailable

    A myth created more recently by the media. Fact is many tech and especially SV tech companies seek at least 3-5 years experience to be considered. And thats been true for decades prior.

  14. bmwman91


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    14   7:34pm Tue 1 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    Sweet! I can input lots of data stating that MechE's at my employer pull $500k and then go to my boss demanding a raise. I LOVE the internet!

    If it is on the internet, it MUST be true.

  15. Rin


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    15   1:28pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    bob2356 says

    It's amazing how many people that are so near the top of the food chain manage to spend so much time posting on PatNet.

    Actually, since I'd started work on this hedge fund work, I've had more and more free time. In other words, I don't feel like these big dollars are real work, it's just managing and moving money around.

  16. lostand confused


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    16   5:12am Mon 24 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    bmwman91 says

    Cost of living, it has to be #1. OK sure, you can EASILY pull $100k a year in the Silicon Valley.

    Yeah. I was going to move back to CA, a few months ago and that job fell through. At this point, only looking for full time gigs, as ready to settle down and have kids. Lucky for me the fiancee does not care where and is in IT too, so both very flexible.

    Now where I live in the mid-west, I rent a two bedroom for 720 dollars a month. After splitting everything with my room mate, it comes to about 440-480 dollars a month-including all utilities. Gas is about a buck a gallon cheaper than CA. Jobs are plentiful -at least in my area of IT-and contracts last much longer. The rates are lower, but significant overtime negates that.

    I am again negotiationg another full time time job right now-two actually. In in L.A. and one in Michigan. The one in L.A only pays 5k extra a year. The difference in living expenses is simply astounding. My fiance is very savings oriented and has a few cousins in CA and loves visiting there. I am really grasping for straws on why we want to move back.

    Here, it is 15-20 min commute, tons of savings and no debt. Now the winters are brutal, cold, windy and humid too. Just recently we had a day with temps in the low teens, with howling wind and snow(so with wind chill close to zero F) and close to 100% humdity. That is why!!! Plus I really miss the mountains and ocean. Now after spending time in the south for a small project-I really didn't like it much . But that is just me. But Houston is the same-a nice gated community with swimming pool is 710 for a 2 bedroom . My colleague who was from CA, moved there when he lost a job and couldn't find one. He travels the country on IT projects and the best thing he doesn't have to pay state taxes. His wife has a small time job and they are very, very happy. it does get humid and apparantly, unlike CA, it doesn't cool down that much in the evening either.

    But that is one of the drawbacks of CA-wether you are renting or bought, you don't get much savings and if something were to happen-and in today's world, something will happen-just paying the rent or mortgage will make you broke. Both me and finacee are on the same boat-well settled, no debts and ready to settle down. She has visisted CA, while visiting her cousins, so is ready to try it for a few years. I want to get back, but the thought of getting into massive debt these days frightens me.

    If houses were 300-400 k fine-that was the price in late 1990s when the market/jobs were booming and any one with a pulse could get a job . Rents too are way too high. Apparantely in the bay area, rents are back at boom highs-even exceeding the boom and it looks like housing is in another bubble.

  17. Strategic Renter


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    17   10:17am Mon 24 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    I work from home and after 2 years in Huntington beach I have had enough it is an awful place to live. I paid 20k in State taxes this year and am no longer prepared to live in a shack that is valued at 600k which I am renting for $2500 a month. I have a incredible house in Vegas with a swimming pool and tennis court that I am buying cash and cannot wait to get out of this dump.

  18. New Renter


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    18   1:21pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Kevin says

    The thing that makes it possible to live in CA isn't the high incomes, it's the low family sizes.

    You don't feel any pressure about where you live when you don't have any kids. A couple earning $60-70k a year can live comfortably in a 1 bedroom in SF or LA and will probably be happier than people living in suburbia elsewhere.

    Once you have kids, though? $200k+ or GTFO.

    If things keep going like this, in another generation or two there won't be any California natives. It'll be all immigrants from other countries and tech workers, film makers, and porn stars from other states.

    Sounds like a paradise for the sub-30 crowd. Come to CA when you're a 22-24 yr old fresh college graduate, make a bunch of money in tech or porn, find a mate and leave for greener (cheaper) pastures by 30.

  19. Meccos


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    19   2:37pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Billybigrig says

    What has caused California’s transformation from a “pull in” to a “push out” state? 

    I'll start with ...

    1) unsecured borders

    2)

    3)

    2) high tax rates

  20. dunnross


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    20   3:50pm Mon 24 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike (1)  

    New Renter says

    I have been hearing about how overpriced the SFBA is and about the impending plunge since my family moved here in the late 70's.

    Bay Area wasn't too expensive in the 70's. Prices in the midwest cities like Chicago and Detroit were actually higher than in the Bay Area. I know this is very tough for you to swallow, having been brainwashed by the local hype, for so long.

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