Fewer new homes will built in California this year than in any year since WWII, and 2009 doesn't look much better, the California Building Industry Association (CBIA) announced at the Pacific Coast Builders Conference (PCBC) on Wednesday.
"Things are troubled in our industry," said CBIA president Bob Rivinius, adding that by association estimates California builders need to produce 230,000 homes a year just to keep pace with demographic demand.
By contrast, the CBIA's freshly revised forecast estimates the construction of just 72,000 homes, condominiums, and apartments this year, a significant reduction from earlier forecasts. This will happen even as the California economy continues to grow dramatically in population.
Alan Nevin, chief economist for the association, pointed to a California Department of Finance report that found the state had added 490,000 people in the last year, an estimate that didn't include illegal immigration. "It doesn't make much difference whether there are houses or jobs here, we just keep growing," Nevin said, adding that virtually every other industry in the state with the exception of home building is doing well.
In January, Nevin forecasted a 128,000-unit construction level, which would have represented a small increase compared to 2007. He attributed the difference to a failure to account for rising foreclosures, short sales, and higher energy prices that are harming commuter markets. It doesn't make any sense to live somewhere such as Bakersfield, where you can save $100,000 on the price of a home, only to spend $1,000 extra a month to commute to north L.A., he noted.
Nevin said that some markets, such as Riverside/San Bernardino, are feeling the effects of foreclosures more than others. Areas with high foreclosure rates, he said, are seeing bigger declines in home prices than more established communities. "It is apparent that the residential construction industry cannot compete with the foreclosure/short sale market," says a report released by the CBIA.
Ray Becker, a vice president with DMB and this year's CBIA chair, said the loss of jobs in construction and related industries--181,300 in the last two years--threatens the entire state economy. Becker has been pushing state and local governments to extend the life of subdivision plats, defer impact fee payments, and consider the impact on housing of any new legislation. "Without reform, many builders will go out of business," he said, which will cripple the industry's ability to respond once market conditions improve.
Nevin said that the heaviest declines this year will be in Sacramento, San Joaquin Valley, Riverside, and San Bernardino. Single-family production in the state, at 38,250 units, will be off 75 percent from its peak of 155,322 in 2005.
Boyce Thompson is editorial director of BUILDER magazine. He blogs about the housing industry at http://www.builderonline.com/blogs/postdetails.aspx?BlogId=thompsonsblog&postId=84894.