Production Likely to Be Lowest on Record; Homebuilders Call on Lawmakers to Take Quick Action
SAN FRANCISCO – California homebuilders are expected to begin construction on just 72,000 homes, condominiums and apartments this year, significantly lower than earlier forecasts. If that level is correct it will be the lowest production in the Golden State since at least the early 1950s, according to the annual midyear housing forecast released today by the California Building Industry Association.
Ray Becker, a Bay Area developer and this year’s chair of CBIA, said the grim forecast is renewed proof that Congress and the state Legislature must quickly pass housing stimulus bills now being debated, and that longer-term solutions to the state’s chronic housing affordability problems are needed as well.
“Without reforms being considered right now in Sacramento and Washington, D.C., I fear many more builders will go out of business and many more jobs will be lost. Equally important, this attrition will make it even more difficult to ramp up production when the market finally does start to turn,” Becker said at CBIA’s annual press conference at PCBC® The Premier Building Show, the West Coast’s largest homebuilding trade show and conference.
Specifically, Becker said the Legislature should pass bills urging cities to defer building fees to the time of occupancy and to require them to give builders at least one more year to complete approved projects before their approvals to build expire.
And he called on Congress to pass stimulus legislation now being considered, specifically provisions permanently increasing the conforming loan limit to as much as $729,000 and creating a tax credit for homebuyers.
Becker’s comments followed a sharply reduced housing forecast presented by the Association’s chief economist, Alan Nevin, who said the record number of foreclosures and short sales had so depressed the market for new homes that just 38,250 building permits will be issued statewide for single-family homes this year, the lowest on record and a 75 percent drop-off from levels of just three years ago. He said the Inland Empire, Sacramento, and San Joaquin Valley regions have experienced the heaviest rates of decline.
Nevin also said that because condo construction has all but stopped, he was adjusting his multifamily projections down to about 34,000 units, and that the total number of housing starts will barely hit 72,350, down 66 percent from the peak year of 2004. Statewide housing records date back to 1954 and Nevin and other researchers have said it’s likely that this year’s production will be the lowest since the nation focused on the war effort during World War II by reducing production of civilian products.
In January, Nevin – admittedly taking a contrarian stand – predicted that production would actually climb this year to about 128,000 units, up from the 112,300 recorded in 2007, which saw the lowest level of single-family home production in a quarter-century.
(Nevin’s forecast, Chairman Becker’s remarks, and the January 2008 housing forecast are all available in the newsroom section of www.cbia.org.)
Nevin also noted the human cost of the housing construction downturn.
“During the past two years, the state reported a loss of 181,300 construction, finance and insurance jobs. But in fact, the job losses related to construction have been much more severe as the multiplier effect of the construction industry is higher than any other,” he said, adding that the downturn has also crippled state and local government budgets due to the lost revenue from taxes and development fees.
Nevin predicted that while the number of foreclosures should decline significantly by the end of the year, prices will remain depressed until the market reaches equilibrium sometime in 2009. And he added that the pace of construction is unlikely to pick up any time soon.
“Until the resale market recovers and prices stabilize, it will be difficult to entice developers back into the homebuilding business,” he said. “Experience has shown that it is far more financially sound to sit with vacant lots than with completed homes that have no buyers in sight.”
Becker said besides the state and federal stimulus bills, lawmakers should try harder than ever to “do no harm” to the beleaguered industry, which just three years ago was the engine behind nearly 1 million jobs and was one of the largest sectors of the state’s economy.
“We must make housing a priority in California,” he declared. “If we have learned nothing else from this crisis, it is that we must consider the impacts of all of our laws on the ability to produce housing.” Yet, he noted, numerous bills have been introduced this session that would seriously impair the industry’s ability to produce housing.
And finally, he called on policy-makers to enact long-overdue reforms that would streamline the time it takes to approve projects, reduce the ability of NIMBYs to abuse the state’s environmental laws to block development, and reduce the amount of fees charged by local governments, which now often exceed $100,000 per home or condo.
“If there was ever a time for lawmakers, both at the state and national levels, to set aside ideology and partisanship, it’s now,” he said. “There’s simply too much at stake.”
The California Building Industry Association is a statewide trade association representing more than 7,000 businesses – homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. More information is available on the Association’s Web site, www.cbia.org.