Center for Continuing Study of California Economy's Annual Economic Forecast for the State

This summer the strains on California's physical infrastructure have reached a new level of impact on the daily lives of millions of residents. Double-digit housing price and rent increases are steadily reducing the number of Californians who can afford to live near where they work. The market is saying clearly that not enough housing is being constructed. Until substantially more housing is built, the financial and emotional stress on innocent families will grow and, eventually impact the economy .

Strong economic growth is exposing the shortage of capacity to move people and goods in most regions of the state. Travel delays are growing, the hours of congestion are spreading throughout the day, and there is no strategy to reverse these trends. Airport delays and electricity shortages were added to the list of infrastructure strains this summer.

Questions about the California economy are being answered. Job and income gains are solidly based, and the strength of the state's economy is providing rising living standards and opportunity to families where hope was previoulsy absent.

The questions that remain are about our collective ingenuity and will to provide the world class educational, housing and physical infrastructure to match California's world class economic base.

Issues and Challenges

In 1989 California was in the midst of a fierce debate about growth. Five years of strong economic growth had housing affordability plummeting to the lowest levels in the state's history.

Congestion seemed to be increasing everywhere. Class sizes were rising; the roads were becoming crowded. There were worries about California having enough basic infrastructure capacity-in schools, transportation, water, prisons, open space, ports and airports-to maintain the state's quality of life.

Californians were in conflict about the impacts of sustained economic growth. Strong calls were being voiced both to accommodate growth and to stop it.

Then, the long recession arrived and the debate about growth faded in the midst of rising unemployment and state budget deficits.

Now once again, powerful economic forces are on a collision course in California.

Six years of sustained economic growth are creating shortages and intense supply pressures in labor markets, housing markets and many areas of infrastructure. Market forces throughout California are sending out warning signs-warnings about the disruptive impacts that shortages can create to California's economy, quality of life and social equity.

The failure to build enough housing, combined with six straight years of solid job gains, is sending housing prices and rents sky rocketing in many regions of the state.

As prices and rents rise, hiring becomes more difficult and commutes longer. In many regions of the state it's nearly impossible for teachers, nurses or firefighters to live near where they work .

• A summer of high demand has exposed shortages in California's electricity supply. The result has been service outages and significant price hikes, especially in San Diego.

• Strong growth in travel is leading to more airport and takeoff delays .

• And all throughout California's urban regions, travel demand growth is swamping the capability of both the roadways and public transportation systems to carry people and goods.

Californians are, once again, in a fierce debate about the impacts of growth. While most are thankful for the sustained rise in living standards, many are fearful about the pressures of growth on California's land, environment and public facilities.

Unlike in 1989, however, current market pressures aren't likely to ease soon. Today's forecast is for continued economic strength . And the long run outlook is for 5 million more jobs, 11 million more people and 3.5 million more households by 2020.

Markets react quickly to shortages. This year, housing affordability plummeted and rent increases are running 2 to 10 times faster than inflation in California markets. No one really knows how long California has before the collision between strong economic growth and shortages of housing and infrastructure cause more severe disruptions in our economy and quality of life. The events of 2000 are providing another "wake up call" to develop a long term strategy to prepare for California's current and future growth.