Why is the Baja California peninsula so sparsely populated?

We should take it. Great Vaca spot.

Sea of Cortez is sketchy

Giant sharks and they also filmed a giant squid on some documentary a couple years ago. No thanks.

BUILD THE WALL

I think a lot of it is desert.

Maybe it's Andy Dufresne's fault. Even he passed it up after crawling through a river of shite.

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That's the case. No lakes or reservoirs.

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Florida has water, but this peninsula was also no man's land until air conditioning was invented. Solve the water issue, and the Baja could be great for some golf courses.

Geography much.

It's all desert dumbass

Good question! And a few good answers are above. I'll throw my two cents in and it is about driving distances and migration. Despite that there are two ferries from mainland Mexico to La Paz, I believe the crossing is almost 150 miles and takes 17-20 hours (board-time to de-board time). I believe it is pricey too. I planned to drive this route a while back, but it fell through. Given that, consider this:

Tijuana to La Paz: 18.5 hours / 914 miles and Tijuana to Cabo San Lucas: 20 hours / 1,009 miles

TJ to Cabo is equivalent (mileage-wise) to San Diego, CA to Portland, OR: 16.5 hours / 1,083 miles.
TJ to Cabo is equivalent (time-wise) to San Diego to Seattle: 19.5 hours / 1,255 miles.

And that doesn't even come close to the drive times from major mainland cities that 'seem' nearby, but for that pesky Sea of Cortez / Gulf of California.

So think of it the way you might see a cross-migration to and from Los Angeles, to and from these cities:
San Diego - 1h48m / 120mi
Las Vegas - 4h09m / 270mi
Phoenix - 5h40m / 372mi
San Francisco - 5h45m / 383mi

I got more, but tired...