California Has the Jobs but Not Enough Homes

SAN FRANCISCO—California’s economy is adding jobs far faster than affordable places to live, forcing some employers to leave the state as they expand.

Companies that move from California have historically left behind its diverse industries, renowned public universities and balmy climate for states with lower taxes and lighter regulation. But now home prices and rents, higher on average than anywhere else in the country, have surged to the top of concerns for businesses and workers.

For employers, “we’re at a crisis stage,” said Rob Lapsley, president of the California Business Roundtable, an association of executives. Companies are struggling to recruit or promote from within as people turn down offers to come to California, Mr. Lapsley said. And with the types of jobs being taken out of the state, he added, “we’re not growing the strong middle class that we used to.”

Karen Holian, 44 years old, joined the startup Lottery.com when it was founded here in 2015. Though a San Francisco native, Ms. Holian, a marketing manager, was excited when the company last year moved to Austin, Texas, because she could finally plan to buy a home.

“In San Francisco, that never seemed like a possibility,” she said. A mother of two, she is for now renting a four-bedroom house for $2,000 a month, a third of what a comparable place costs in her hometown.

Lottery.com CEO Tony DiMatteo said that as the company grew, he found it difficult to persuade current and prospective employees to move to the area. “We can give them a much better bang for their buck if we’re not in San Francisco,” he said.

The median home price in California in 2018 was $570,010, according to the California Association of Realtors, more than double the nationwide figure. The median price for a house in the Bay Area hovers around $1 million.

In addition to tech startups like Lottery.com, employers that have moved out of California or stopped adding jobs in the state in the past five years come from such industries as finance, manufacturing, biotech, and food and beverage. They include brokerage firm Charles Schwab & Co., which has focused expansion outside its San Francisco headquarters, and smoothie-maker Jamba Juice, founded in San Luis Obispo, Ca.

Core-Mark Holding Co., which grew from a San Francisco tobacco shop in the 1800s to the second-largest distributor to convenience stores in the U.S., said last year it would relocate to a suburb of Fort Worth, Texas.

CEO Scott McPherson said recruiting new employees to the Bay Area became challenging given housing prices and long commutes.

McKesson Corp., the nation’s largest pharmaceutical distributor, in November said it would move its global headquarters from San Francisco to the Dallas suburb of Irving, Texas, bringing hundreds of jobs.

In the Bay Area, the tech industry’s historic home, even high-salaried engineers say they are looking to put down roots elsewhere because they can’t afford to rent or buy homes near their jobs.

Carl Guardino, chief executive of the Silicon Valley Leadership Group, said CEOs tell him “that any new job that doesn’t absolutely need to be in the Bay Area is located outside of the Bay Area.” The public-policy advisory group counts some 360 companies, including Silicon Valley’s largest, as members.

There is no government data on how many companies and jobs have left California.

An average of 80,000 homes were built each year in the past decade, far below the 180,000 homes needed year to keep up with population growth through 2025, according to state estimates.

Gov. Gavin Newsom’s chief business and economic adviser, Lenny Mendonca, says he regularly hears from employers that they can’t recruit people because housing costs too much, but “in terms of the absolute scale of employment and the number [of companies] that move every year, that is very small.”

California’s unemployment rate in January was 4.2%, slightly higher than the national rate. But more than half its renters, and over a third of mortgage-holding homeowners, spend more than 30% of their income on housing, the maximum experts consider affordable, according to the state housing department.

Mr. Mendonca said California was still creating more companies and jobs than its undersupply of housing can handle. Since taking office in January, Mr. Newsom, a Democrat, has focused on trying to coax local communities to build more affordable homes more quickly.

Texas has drawn more companies leaving California over the past decade than any other state, according to research by Joe Vranich, a relocation consultant who encourages businesses to leave California.

Housing costs are “a major selling point for us,” said Mike Rosa, senior vice president of economic development for the Dallas Regional Chamber. “It’s a factor in just about every [relocation] search we see.”

Tech companies searching for talent in other states have taken note.

Duolingo, a language-learning startup based in Pittsburgh, put up a billboard last year along a San Francisco freeway reading: “Own a home. Work in tech. Move to Pittsburgh.”

Lowell Reade, formerly a user-experience researcher at Facebook, was among Duolingo’s recruits. He took a job at the company last year and swapped his $2,300 per-month, 350 square-foot apartment in the city of Palo Alto, Ca., for a three-bedroom in Pittsburgh that rents for $1,800.

“It was becoming difficult to imagine a future that was appealing to me” in Silicon Valley, said Mr. Reade.

Duolingo put the billboard back up last week.