California’s severe housing shortage—one of the most problematic in the country—topped the agenda at the USC Casden Multifamily Forecast in Los Angeles in November. In his opening remarks, Moussa Diop, an associate professor at USC Sol Price School of Public Policy, described the complex issue as two-fold: a housing shortage alongside anemic new development that isn’t keeping pace with demand. While the U.S. as a whole adds about one percent to its housing stock per year, California only issued 99,000 permits to build new housing in 2024—well below the one percent average at just .67 percent.
Compounding the crisis, Diop added, developers are struggling to make new housing projects work financially because of high construction costs, labor shortages, and strict regulations. This dynamic—too little supply and too little construction—shaped the panel discussion moderated by Mary Lynne Boorn, an associate professor at USC Sol Price School of Public Policy. Also joining Diop on the panel was Gino A. Canori, president of Related California, and Mitchell B. Menzer, partner at Cox Castle.
Scarce and unaffordable housing leads to population loss
Despite California’s economy ranking fifth in the world, the lack of affordable housing has been forcing more and more people to move out of state over the past decade, with large numbers of them leaving Los Angeles and Orange counties. This poses a major problem for the state, because a declining population reduces both labor and talent and can be a drag on future economic growth.
The USC report forecasts that California’s multifamily vacancy rate will eventually worsen, falling below four percent in the next few years. As a result, housing will become scarcer and unaffordable, putting even more pressure on people to leave the state.
“Trying to sustain an economy when you are losing population is difficult,” Diop said. “We need to deal with our housing problem in order to solve this, and that will take time.”
San Diego stands out for addressing housing shortage
Some cities have done better jobs than others in remediating their local housing shortages. According to USC Casden Forecast research, San Diego has delivered twice as many units as Orange County since 2021 (15,500 units vs. 7,500), and in 2024 it added 4,000 units with another 8,000 in the pipeline. As a result of its active development, the San Diego market is projected to sustain rent growth of two percent to four percent over the next two years.
Diop was also impressed by the housing development activity in Koreatown and Studio City, suggesting they could be good models for downtown Los Angeles to follow. Santa Ana and Anaheim have also done a good job of creating new supply. As a result, these markets have more affordability, more rent growth, and less population loss.
“Because Orange County is not adding enough supply, it is losing people to other counties, but Santa Ana and Anaheim are getting it right,” Diop said. “People are moving to those areas because they are more affordable. This shows how serious the housing crisis is in Orange County.”
Related California’s Canori disagreed, however, saying he was “very bullish” on Orange County, citing good schools, rezoning efforts, and low rates of crime and homelessness. He said Related California had construction underway on a new multifamily project in Costa Mesa near South Coast Plaza, a premier shopping mall.
Developers struggle to build enough (but, there is good news)
The expert panel also addressed the difficulties that developers face in trying to build enough affordable housing in California: high construction and operation costs, accompanied by tight restrictions, especially in Los Angeles. Canori noted that construction costs have increased 40 percent to 45 percent since 2018, along with higher operational costs and higher interest rates.
Even incentives like density bonuses fail to make much of a difference now, Canori said. He explained that Related California is building $1 billion worth of new housing in Santa Rosa, Santa Clara, and Santa Monica, but only to save five percent to seven percent on the margin—not the 15 percent to 18 percent it saved following the Global Financial Crisis. Now that interest rates are higher, even that modest cost savings has evaporated.
“People are going to continue to vote with their feet until things turnaround,” Canori warned.
There is good news. Many cities are updating their general plans to help encourage and support new entitlements. Canori and Menzer were particularly encouraged by general plan updates in Orange County and Los Angeles County. Menzer noted that Los Angeles County is zoning for 400,000-plus new apartment units, plus new entitlements around transit and opportunity zone corridors.
“Because of the nature of this, I think there are going to be some real opportunities for new development in these areas,” Menzer said. “That is a very positive development.”
