California is Failing in Affordability and Homebuilding: Can Governor Newsom Change That?

California’s housing market remains one of the most challenging in the nation.

The state earned an F on Realtor.com® State-by-State Housing Report Card, part of the Let America Build campaign that measures how effectively states are balancing affordability and construction.

In all fairness, California has been plagued by many unique obstacles, particularly in the past year and the devastating wildfires, but even before those events, the state struggled with housing.

Hoping to spur on action for the country at large, President Donald Trump recently put pressure on large homebuilders to increase construction nationwide. In a post on his Truth Social platform in early October, he accused major builders of hoarding lots to prop up prices—likening them to OPEC, which restricts oil output to maintain high prices.

“They’re my friends ... but now, they can get Financing, and they have to start building Homes. They’re sitting on 2 Million empty lots, A RECORD,” Trump wrote. He urged Fannie Mae and Freddie Mac to intervene and “get Big Homebuilders going” to “restore the American Dream.” 

So what can be done about California’s housing shortage as it continues to deepen—and is Governor Gavin Newsom doing enough to get the state there?

The story behind the failing grade

California earned a total score of 19.5, ranking near the bottom of all 50 states and Washington, DC. The state’s median listing price of $756,185 at the time was among the highest in the nation, while the median household income of $92,605 falls far short of what’s needed to buy a typical home. The Realtor Affordability Score came in at 0.43, reflecting a market where only a small fraction of homes are affordable for average earners.

The state’s new construction metrics paint an equally troubling picture. California accounted for 6.8% of all new housing permits in 2024, yet it represents 11.7% of the U.S. population—yielding a permit-to-population ratio of just 0.58.

The new construction premium, or price gap between new and existing homes, stood at -7.1%, meaning that even when builders deliver new inventory, it often comes at a discount due to slowing demand and the high cost of living.

Regional contrasts

The Realtor.com New Construction Insights report shows a very different story in the rest of the nation. Across the country, new homes are becoming a key source of affordability relief, at a time when so many feel displaced.

“America is short more than 4.7 million homes, and every new home built helps close that gap while fueling local economies," says Shannon McGahn, executive vice president and chief advocacy officer at the National Association of Realtors®.

"NAR research shows that the U.S. has faced a persistent housing shortage for more than a decade, driving up prices and limiting options for buyers. Expanding housing supply creates jobs, supports small businesses, and affords families the opportunity to build generational wealth.”

Nationally, the median price for newly built homes was $450,797—virtually flat year over year—while existing home prices rose 2.4%. This pushed the national new construction premium down to 7.8%, the lowest on record.

Southern and Midwestern states dominate the top of the rankings for both affordability and building activity, thanks to more available land and streamlined permitting. By contrast, Western states like California continue to struggle under zoning restrictions, land scarcity, and rising labor and material costs.

Governor Newsom’s reform push

Given the struggles in his date, Governor Newsom has made housing reform a cornerstone of his administration. In 2025, he signed Assembly Bill 130 and Senate Bill 131, which overhaul key elements of the California Environmental Quality Act (CEQA). The changes are designed to remove major bottlenecks that have long delayed housing projects.

The legislation streamlines environmental reviews for qualifying infill housing, cutting down timelines that once stretched for years. Projects that meet urban density and zoning requirements can now proceed without the full CEQA process, significantly reducing costs and uncertainty for developers.

“There’s no question—Californians are ready for us to build housing and infrastructure now,” Newsom said after signing the bills. “With this new authority and broad public support, we have real momentum to continue accelerating progress and deliver the results our communities deserve”.

The reforms also incentivize projects that prioritize affordability, transit proximity, and sustainability. By reducing red tape, Newsom aims to accelerate both market-rate and affordable housing developments in a state that still faces a shortage of roughly 3.5 million homes.

Clearing the path ahead

The National Association of Home Builders’ Blueprint to Address the Housing Affordability Crisis outlines similar recommendations to California’s new approach: eliminating excessive regulation, simplifying permitting, and expanding financing options for new housing. The plan calls for coordinated action between federal, state, and local governments to “remove barriers that hinder the construction of new homes and apartments”.

California’s F grade underscores how far the state still has to go. Yet the groundwork for change may finally be in place.

This article was produced with editorial input from Dina Sartore-Bodo and Gabriella Iannetta.