Newsom’s campaign promised to solve California’s housing shortage and associated homelessness, for example. California and New York are the most expensive places to live in the mainland US. San Jose, San Francisco, Los Angeles and San Diego, all Californian cities, make up four of the top five US metropolitan areas for median house price to income ratios. New York City’s exorbitant prices are well known.
Development-killing land use planning and zoning laws, union-friendly construction rules, and pernicious environmental regulations inflate these prices, especially out west. Sound familiar? California, in fact, shows the endgame when politicians allow vested interests to block housing supply and the reform needed to deliver it. New construction came in 85pc below Newsom’s target, according to University of California economist Lee Ohanian. A family still needs an income of £100,000 per year to afford the median Californian home.
Adjusting for living costs, California subsequently has the highest state poverty rate in America, with New York sixth of 50. But rather than go about rescinding regressive regulations, Newsom has prioritised new ones: banning single-use shampoo bottles and outlawing petrol car sales from 2035, as Cuomo closed a nuclear plant, despite the apparent need for “clean,” affordable energy. The Tories here should remember their legacy will be more bound up with living standards and housing than plastics and pledges.
California and New York are often used as case studies of the disincentives created by high taxes and misguided regulations. These effects can be overhyped, but New York has long suffered from domestic net out-migration, with 126,000 people leaving between July 2019 and 2020 alone. The reasons listed by those departing always include the cost of living, harsh winters, and the very high tax rates — something today’s tax-raising Tories would do well to bear in mind.
In 2019, Cuomo extended “temporary” income tax hikes on the wealthy. Donald Trump’s federal tax reforms had weakened a deduction so that wealthier New York taxpayers felt more of the pain of these high rates. Cuomo recognised the danger, saying, “Tax the rich, tax the rich, tax the rich. We did that. God forbid the rich leave.” Well, then the pandemic allowed yet more people to work out-of-state, and New York’s budget, heavily dependent on these taxpayers, saw a bigger loss of revenue still.
With better weather and tech clusters, California rested on its laurels about people’s location decisions. But as Tesla’s Elon Musk, who recently moved himself to Texas, said: “If a team wins for too long, they become complacent.” CEOs regularly rank New York and California as the two worst US states to do business in. Some major businesses are now acting on those perceptions.
California’s population trends are not just driven by plans from Hewlett-Packard, Oracle and Tesla to move operations out of state though. There’s been a domestic net outflow of people too, but mainly driven by fewer people moving to California. A net of 365,000 people left in 2018 and 2019. The high cost of living is, again, the primary deterrent to moving there.
But it’s not the only one. Exacerbated by the pandemic, US cities are increasingly filled with large numbers of homeless tent encampments. These eyesores bring the inner-city public into regular run-ins with people with mental health and drug addiction problems. Add to this a blind eye being turned to low level crime and a rise in homicides and smash-and-grab theft following more stand-off policing, and you can see why the middle-classes might be reluctant to move to certain (mainly Democrat-run) cities.
New York and California, as states, retain major attractions and appeal, of course. As the pandemic subsides, their economies will surely still rebound strongly. But with focused, competent state-level leadership addressing structural problems, it’s difficult not to conclude they could be so much more. In a telling recent survey of Californians, a majority said their prospects for each of the cost of living, housing, quality of life, taxes, schools and other government services would be better in another state. How damning.
It would be easy to observe these developments and say the Conservatives should heed the lessons: get planning reform done, maintain a friendly tax environment, focus on living costs, and keep on top of crime and homelessness. But is that the key takeaway? The more worrying observation is perhaps that when one party dominates for so long, competence can suffer and policymakers lose their sense of what truly matters for the whole population, rather than just their base. That complacency is more difficult to guard against.