You can't redistribute your way out of a housing shortage

Blue states are failing the poor

San Francisco is still predominantly single-family neighborhoods, which keeps housing prices sky high.

We’re taking The Argument to San Francisco! On May 13, Kelsey Piper and Jerusalem Demsas are debating a question that feels unavoidable right now: Is AI actually changing how science gets done, or are we in the middle of a very expensive illusion? Jerusalem is bullish; Kelsey is skeptical.

And you won’t just be watching. You’ll get to join in on the argument, too.

Join us May 13 at The Chapel from 7 to 10 p.m. Come argue with us! RSVP here

---

By all accounts, California offers a comparatively generous set of welfare state and labor market institutions. It offers a high statewide minimum wage, is friendly toward organized labor, and is one of only 11 states (plus the District of Columbia) with its own refundable CTC to lift the incomes of the state’s poorest families with children.

Poverty, however, is not merely a function of a family’s income level. The poverty threshold measures the income needed for a family to meet its basic needs in a particular place. That threshold is lower in Boise than in San Francisco due to higher housing costs in the latter.

In California’s tug-of-war between the state’s income support policies and the rising costs of basic necessities (housing, especially), the latter is winning. In fact, the state’s rising housing costs have effectively absorbed much of the income redistribution flowing through the state in recent decades.

As I quantified in a report for the Niskanen Center, the $11.4 billion increase in SNAP (“food stamp”) benefits provided to low-income Californians between 1980 and 2023 has effectively been wiped out by the $13.3 billion rise in how far Californians fall short of the poverty line as a result of surging housing costs.

If it weren’t for its high housing costs, in fact, California’s poverty rate would fall from highest in the nation to mirroring the national average. This is because the Supplemental Poverty Measure (SPM), a Census-produced poverty measure that most researchers prefer, incorporates variation in rental costs across municipalities into its poverty thresholds.

For example, in 2023, the poverty threshold for a two-adult, two-child family renting in San Jose, California, was roughly $58,000, nearly 1.5 times as high as for an equivalent family renting in Minneapolis (almost $40,000). That’s almost entirely because of how expensive it is to rent a home in San Jose.

That California and New York have higher poverty rates than Alabama and Mississippi may turn heads, but the patterns align with some other measures of destitution. The states with the highest rates of homelessness include California and New York — not Alabama or Mississippi. The city where nearly 1 in 7 public school students experience homelessness each year is New York City — not Huntsville, Alabama, or Jackson, Mississippi.¹

“Build like Austin” is comparable to an expanded Child Tax Credit

California is not alone in suffering high poverty rates due to high housing costs: New York, New Jersey, Massachusetts, Connecticut, and Hawaii join it as being states where rental prices consistently outpaced the income growth of the 10th percentile (that is, low-income households) from 1985 to 2024. What these states share is a tradition of electing Democrats to statewide office and, more directly, a shortage of housing supply relative to demand.