Los Angeles has a 'homeless' problem that just won't quit. An estimated 60,000 people live on the streets in downtown LA.
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There are a whole bunch of problems in California. Don't confuse them.
It's true that the Middle Class is being squeezed out of many parts of California like toothpaste out of a tube.
Here in the Bay Area (and in LA too) high earners and real estate speculators are bidding up home prices in any remotely desireable neighborhood to unaffordable levels for regular people. In my Silicon Valley neighborhood, comprised of 1950's middle class homes and nothing special, the average home price is about $1.4 million. Great for those of us who own our houses, not so great for anyone of moderate means who wants to buy a home. (Rents are equally exorbitant.) Given the price of housing around here, you have to have an income of over $100K just to exceed "low income" status. (It's true.) Yet houses are selling and are in demand. I get at least one unsolicited offer each month from real estate brokers representing undisclosed buyers (many of them Asian) who are willing to buy my house for cash, sight unseen, for $100K or more above market price. My next door neighbors took the money and left and now their house is an Air B&B short-term rental. I expect that's why they want my house too. (That's today's Silicon Valley. The engineers and scientists that created the Valley couldn't afford to live here now and wouldn't get hired if they could. It's all e-business and social media concepts these days.) My neighborhood once was a community where people knew each other up and down the block. Today I have no idea who lives next door or across the street. (Some Sikhs I think, who never speak to any of the rest of us, replaced the existing house with a huge oversized McMansion and constructed a wall around their property like a fortress.)
At the same time, Mexicans and Central Americans (many of them illegal) are taking over every less desireable neighborhood where crime skyrockets, gang graffiti abounds and schools collapse. It's gotten to the point where you can't get a service job (or a construction job or a skilled trades job) unless you speak Spanish. So the remaining Middle Class is giving up and leaving California. That's one reason why Phoenix has grown so explosively to something like 4 million people. It's the former white Middle Class from Los Angeles. Lots of Californians are moving to Texas too. And the Bay Area's black population, many of whose parents arrived during WWII to work in the shipyards, are disappearing too, selling their modest houses to real-estate speculators, taking the money and moving to Atlanta in many cases.
But the homeless problem is a very different problem and a very different population. Most of these people have never been Middle Class and given their psychiatric and drug problems, they never will be.
Why are they on the street? A variety of reasons. One of the biggest is the disappearance of all the old single room occupancy hotels (SROs) that used to house the more marginal population. These used to be everywhere in skid row areas. But the wonderful progressive social planners tore many of them down in the name of "urban renewal". Then the remaining ones were taken over by immigrant populations. So the psychiatric outpatients and the substance abusers found themselves on the street with their welfare housing vouchers worthless because there were no housing units where they could use them.
Yet California remains a magnet to people like that. They don't fit in wherever they come from (they aren't typically California locals), so they head to LA where the anything-goes sex-and-drugs allure is strong, the weather is (almost) always warm, where social services are (relatively) abundant, where there are others like them so there's a (sometimes pretty scary) social community, and where the local government forbids the police from messing with them and lets them do whatever they like.
People have headed to California in search of fantasyland since the Gold Rush, they hoped to become stars in Hollywood, surfers on Southern California beaches, hippies to San Francisco, people from all over the US (and Asia) head to Silicon Valley today in hopes of getting rich in (hugely misnamed) "tech" (it has less to do with science and engineering every year), Mexicans sneak across the border in their endless hordes (and about 1/3 head to California), and drug addicts and psychiatric sufferers just add to the flood and end up on the streets. You hear about the 'opioid crisis' out in Middle America, this is where many of those people end up.
Meanwhile many of the normal people are moving out and heading the other way in a counter-flow. That explains California's growing cultural peculiarities and its increasing difference from (and sometimes hostility to) the rest of the United States.
Welcome to the Hotel California... you can check out any time you like, but you can never leave...