Now, I'll talk about why California ended up with way too many empty malls and way too few houses.
But to do this, I have to focus in on a really arcane detail of how state and local government is financed. Just as background, state and local governments traditionally rely on three types of taxes to stay solvent: sales tax, property tax and income tax. There's some variation based on how many services each government provides, but in general there's no free lunch. (This is why Texas, for example, has such high property and sales taxes - to compensate for the lack of income taxes; NYC relies on the city income tax a lot more than others.) Currently, California local governments generally rely on the sales tax to stay afloat, unlike in other states where the property tax keeps the lights on. This is because California decided to destroy its own property tax base in 1978. Yes, you guessed it, I'm going to talk about the third rail of California politics: Proposition 13.
Before Proposition 13, the traditional way of funding the government was the property tax. In the old days, property tax would be levied by the county assessor coming out to your house, assessing the value of your real estate, and charging you accordingly. The assessors had a pretty large amount of discretion. Assessors were publicly elected, and because they wanted to get re-elected, they'd usually charge businesses more than homeowners, even if that was totally illegal. In the early '60s, LA's businesses were being taxed at double the rate of homeowners, and in SF, businesses were being taxed at quadruple the rate of homeowners.
There was only one problem with this system: it was hilariously corrupt. In a series of scandals in the mid-60s, the San Francisco assessor was jailed, the San Diego assessor killed himself rather than face charges, and the LA assessor was arrested. (LA's assessor beat the charges.)
So, in one of the great unintended consequences of the 20th century, the state government decided to reform property tax assessment. The new system eliminated assessor discretion. So, state property assessments for tax purposes would be set at 25% of market value, across the board. This eliminated the crooked assessors, but it also meant that homeowners were actually taxed at what the law required for the first time. During the economic stagnation and inflation of the 1970s, this meant that large numbers of Californians were facing the prospect of losing their houses due to high property tax.
This, among other reasons, led to the infamous Proposition 13. Proposition 13 meant that your property tax would be based on the price you paid for it, not the actual value of the property. So, for example, my brother's place in Oakland is valued at $250,000 for tax purposes, because it was bought in 2011 at the bottom of the real estate crisis, even though its actual market value is $750,000. This creates huge inequities, because Baby Boomers who bought houses when it was cheap might be paying 1/10th of what their Millennial neighbor pays. And because of this tax freeze, it wasn't possible for local governments to keep the lights on using property taxes anymore. Critically, Proposition 13 meant that building new housing would be a drain on local government finances, because the increased property tax ended up being less than the cost of providing additional libraries, police coverage, schools, and so on.
Sales taxes, on the other hand, were basically free money for local governments. If you built malls, or car dealerships, or any other kind of retail commercial space, the sales tax revenue would come in, free and clear. As California kept growing, everyone wanted to attract new businesses, but no one wanted to build housing for new workers. But this was a zero-sum game. Every dollar you brought in was effectively being taken from your neighbors. So, nearly every city - no matter their socioeconomic status - felt they had to get into this game, especially in the 1990s and 2000s when I was growing up. You can see the dramatic shittiness that resulted, if you drive east on I-80 from the Bay Area.
We'll start at the foot of the Carquinez Bridge in Vallejo, the first town in Solano County after you leave the core of the Bay Area.
Vallejo is an ex-military town which went into decline after its Navy Yard closed. Vallejo is poor, its schools suck, and it's unsafe. Vallejo is mostly made up of run-down, expensive suburban subdivisions which haven't changed much since they were built, and miles and miles of decaying strip malls.
Go 15 minutes further east, and you're in middle-class Fairfield, which hosts an Air Force base. Drive around a little and you'll see strip malls plus car dealerships. 15 minutes more, and you're in Vacaville, which has pharma factories and two state prisons - you'll see an outlet mall, in addition to the strip malls and car dealerships. Continue 15 minutes more and you're in agricultural Dixon, which has (you guessed it) strip malls and a Walmart. 15 minutes more and you're in Davis, a wealthy college town. There, it was a huge fight at the City Council, but even Davis gave in and allowed a Target and a TJMaxx.
In every single one of these towns, the housing shortage is awful. The average house sells for $450,000 or more, and yet, there's truly enormous amounts of land devoted to identical strip malls and unnecessary car dealerships. This worked in the 1990s and early 2000s, but now no one can afford to live anywhere, retailers have decamped for the Internet, and the brick-and-mortar retail sector is in freefall.
And Proposition 13 is a major reason why. For each individual town, from sketchy Vallejo to bougie Davis, it just made more financial sense to compete for the sales tax dollars, instead of being stuck with the burden of new residents. Like so much of the housing crisis, it didn't really make much of a difference that four small cities off I-80 decided to do this. But when the process gets replicated in every single city across the state, you end up where we are today: too many dying shopping centers, and too few places for people to live.