South-Western College Publishing - Economics  
California Residents Spread Out Over Multiple States
Topic Supply and Demand
Key Words California, immigration, emigration, housing, property prices.
Full Article

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Reference ID: A157851643

News Story The term for it is strange: Californication. It's the term given to the process by which people leave California in such high numbers that the places where they settle tend to look much like the California they left. And it's not stopping.

At this point, more than five million people born in California now live outside the state. But as a state, California continues to grow rapidly. As it brings in foreign-born residents, it churns out former residents who turn elsewhere - to Utah, Colorado, and nearby states. Not only do these emigrants bring their California values to other places, they bring with them enough power to move markets to make them look more like California.

While in absolute terms, the largest jumps in housing prices can be found in San Francisco and Los Angeles. But in relative terms, the largest jumps can be found wherever California residents have settled. Known as "equity refugees," these individuals have sold a house in California and now have a significant amount of money to invest in a new home elsewhere. In Salt Lake City, a popular destination for former Californians, housing prices rose 19% last year alone, one of the biggest jumps anywhere.

Of course, such actions don't occur without tradeoffs. Big jumps in housing prices like the one in Salt Lake City tend to price first-time buyers out of the market, and those who leave California fear that they won't be able to return, because the price of housing in California will have outpaced them before they come back.

It can't be considered white flight, either. California tends to lose more Hispanics than whites. These Hispanics are typically members of the working class, made well-off in California, lured elsewhere by the promise of higher wages. No longer can someone from Denver assume that a Hispanic is from Mexico; s/he could be from just across the mountains.

Questions
Discussion Questions:
1. Consider the immigration into / emigration from California. Describe the relative changes in population that this would imply for there to be a continual increase in the population statewide.
2. Draw a graph of supply and demand for housing in Los Angeles and in Salt Lake City to describe what is happening in the article.
3. As people get priced out of the housing market in Salt Lake City, what do you think would happen? Use your economic analysis to explain what kind of housing these people would look for, as well as the impact on price of that housing.
Multiple Choice/True False Questions:
1. The housing prices in places like Salt Lake City are increasing because
  1. Demand is rising faster than supply is rising.
  2. Demand is falling faster than supply is rising.
  3. Demand is rising faster than supply is falling.
  4. Demand is falling faster than supply is falling.
2. The inability of former Californians to return to their home state can be referred to as a(n)

  1. Fixed cost
  2. Sunk cost
  3. Variable cost
  4. Opportunity cost
3. As more and more Californians leave the state for others, what impact will that eventually have on wages in those destinations?
  1. Wages should rise because of the increase in supply of workers.
  2. Wages should fall because of the increase in supply of workers.
  3. Wages should rise because of the decrease in supply of workers.
  4. Wages should fall because of the decrease in supply of workers.
Source "Dreams of Californication." The Economist. January 18, 2007.
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