Sacramento’s Sanctuary Law Is Also a Housing Policy

I arrived in California in 1990 with a high and tight haircut, a criminal justice degree from Northeastern, and the kind of optimism the state doesn’t sell anymore. Home prices in Los Angeles County ran roughly three times the median household income that year. Today a California household needs an annual income of $204,800 just to carry the payment on a median-priced home, and only 22% of the state’s households can clear that bar, according to the California Association of Realtors’ first-quarter 2026 Housing Affordability Index. Nationally, 44% of households can afford their local median home. I’ve spent 30-plus years in wealth management, and I’ve testified as an expert witness on fiduciary duty in courtrooms from coast to coast. I know the difference between a market that’s tight and a market that’s broken. California’s housing market broke a long time ago, and Sacramento still wants to talk about everything except the demand side of the equation.

A new working paper from the Federal Reserve Bank of Dallas gives that demand side a name, and it matters more here than in almost any other state. Economists Daniel J. Wilson and Xiaoqing Zhou spent the past year digging through administrative microdata covering the 2021-to-2024 surge in unauthorized immigration, the largest such wave in modern American history. Their paper, “The Impacts of Unauthorized Immigration on U.S. Labor and Housing Markets,” published in March, is the first systematic empirical look at what that surge did to local labor and housing markets. Pew Research Center’s metro-level estimates place five California metro areas, Los Angeles, the San Francisco Bay Area, San Diego, Riverside-San Bernardino, and San Jose, among the 20 metro areas nationwide with the largest unauthorized immigrant populations, with Los Angeles alone home to roughly 925,000. No other state puts that many metros on the list.

The paper found that unauthorized immigrant worker flows increased local employment at close to a one-for-one rate, with no significant drop in local wages. That’s the finding open-borders advocates will lead with, and fair enough. But the same worker flows also drove up local home prices and rents and did so without any meaningful expansion in housing supply. The authors describe this as a housing demand shock in the face of short-run inelastic supply. Translation for anyone who hasn’t sat through a securities licensing exam: more people showed up looking for a place to live, builders couldn’t add units fast enough to match them, and prices did what prices always do when demand outruns supply. The paper also found that unauthorized immigrant worker flows reduced labor income per capita and sharply cut government transfers, a combination consistent with a shift in the composition of the local workforce and real strain on public finances.

Milton Friedman used to say you can have open borders or a welfare state, but not both. He wasn’t being cute. He was describing an arithmetic problem, and the Dallas Fed paper is that arithmetic showing up in the data 40 years later. Thomas Sowell made the same point in different language: policies get judged by their incentives, not their intentions. California was sold SB 54 on intentions. Nobody in Sacramento ran a fiscal model on what a demand shock does to rent when the state removes its own enforcement friction.

I want to be precise here, because precision separates an argument from a slogan when you’re an expert witness. The Dallas Fed paper studies one episode, the 2021-to-2024 surge, and its authors don’t frame it as a universal law of immigration. I won’t misrepresent their work to score a point. But the mechanism they describe, a demand shock hitting housing stock that can’t expand overnight, doesn’t require unauthorized status to operate. It requires bodies and inelastic supply. What made this episode distinctive was scale and speed.

California didn’t experience that speed passively. Sacramento built the plumbing for it years earlier. Governor Jerry Brown signed the California Values Act, known as SB 54, on October 5, 2017, and it took effect the following January. The law bars state and local law enforcement agencies from using personnel or resources to investigate, detain, or arrest people for immigration enforcement purposes, with narrow exceptions for serious and violent felonies. The Ninth Circuit upheld it in 2019, the Supreme Court declined to review that ruling, and it remains binding law today. Whatever one thinks of SB 54 on due-process or public-safety grounds, and I have views on both, its economic function is the one this Dallas Fed paper puts a number on. It removed friction that once slowed unauthorized settlement into a given California metro. Combine that with housing supply that was already inelastic in Los Angeles, the Bay Area, and San Diego, and the state built the exact conditions the paper describes: a fast-moving demand shock landing on a market that can’t expand to absorb it.

Here’s where I part ways with both the alarmists and the deniers. Treating every immigrant, authorized or not, as a housing-market culprit isn’t what the data shows, and it isn’t what 30 years of watching labor markets has taught me. But Sacramento’s stock answer, that housing costs are purely a supply problem and raising immigration is scapegoating, is a refusal to read the paper. Housing stress in California comes from population growth, weak supply, restrictive zoning, and rising construction costs colliding at once. Immigration adds to that pressure. It doesn’t create it out of nothing.

The actual policy challenge isn’t complicated, even if Sacramento’s politics are. Secure the border so the state controls the pace of inflows into its own housing markets rather than absorbing whatever volume Washington fails to stop. Revisit SB 54’s scope so state law stops functioning as an accelerant on a housing shock the Legislature never accounted for when it passed the bill. And build. California’s housing element law already requires cities to zone for state-assigned housing targets, yet county after county still falls short of its Regional Housing Needs Allocation because CEQA lawsuits and local permitting delays kill projects before a foundation gets poured. Ray Dalio talks about the difference between a problem you manage and a problem you deny. Housing affordability is a problem this state has chosen to deny for a generation, and this paper is one more data point saying the bill has come due.

I coached my sons’ track teams for years, and the lesson I gave every kid who wanted a shortcut to the finish line was the same one Vince Lombardi gave: the only place success comes before work is in the dictionary. There’s no shortcut here either. You don’t fix an affordability crisis by pretending the demand side doesn’t exist, and you don’t fix it by pretending Sacramento’s own statute had nothing to do with how fast that demand arrived. The Dallas Fed just handed the state the receipts.