CBIA Chairman Horace Hogan’s Remarks During Press Conference on State of the Industry at PCBC

Remarks of Horace Hogan II
Chairman, California Building Industry Assn.

June 18, 2009 – (RealEstateRama) — Good morning, and thank you for joining us today, either in person or by conference call.

I don’t think that I have to tell any of you that California’s homebuilding industry is in the worst shape ever. You have heard the statistics:

• In 2008, housing starts were the lowest ever recorded. Builders pulled just 65,000 permits last year. 33,000 single family and 32,000 multifamily. To put that in context, just four years ago we pulled 212,000 permits, and we need to build about 240,000 units every year to keep pace with population growth.

• But bad as last year was, right now 2009 looks like it might even be worse. Based on the number of permits pulled during the first four months of the year, the Construction Industry Research Board is projecting that we’ll only begin construction on about 40,000 homes, condos, and apartments this year.

• What does that mean?

It means nearly $50 billion has been taken from the state’s economy, along with over 360,000 jobs.

It means that hundreds of California-based homebuilders, contractors, suppliers, and other small businesses have shut their doors.

And as lawmakers in Sacramento struggle to plug a $23 billion budget deficit, it means $2.3 billion in reduced state revenues and $446 million in reduced local government revenues.

Every builder I know has laid off most of their staff, and contractors and suppliers we’ve done business with for years have folded up shop. I can assure you this is the worst housing recession we’ve ever experienced.

But we’re not giving up hope. Maybe we should – but as my good friend Bob Rivinius often says, homebuilders are by nature optimists. We tend to see the glass as half-full. Or maybe today a quarter-full. But there are signs of hope:

• Single-family starts are up. In April, they were at the highest level since last October, and the year-over-year declines are showing a clear downward trend.

• And while we don’t have the May permit numbers from CIRB yet – John Frith and Mike Castillo in our PR Department will be releasing those numbers on the 24th – the Commerce Department yesterday reported that housing starts in the West (and that mainly means California) were up by a robust 28 percent.

• And Mark Zandi, chief economist for Moody’s economy.com, told us yesterday that he thought we were hitting bottom and that it’s time for builders and developers to get back in the game.

Why is that? We think there are a number of reasons, including increased consumer confidence and signs the national economy is beginning to stabilize.

But there’s no doubt in my mind that the biggest reason we’re seeing improvement in California is the combination of state and federal tax credits. As predicted, these incentives are getting people off the fence and back into the market.

The state tax credit of up to $10,000 for new-home purchases went into effect in March, and builders quickly saw the impact. We immediately saw increased traffic and sales and most of us with a standing inventory of new homes quickly sold them.

As a result, builders started building again, putting people back to work and boosting the economy.

But as usual, there’s a catch. Although the Legislature intended this program would run until next March, virtually all of the $100 million allocated for the tax credits has been claimed. As of last week, $88 million had been reserved, an we expect that the rest will be taken by the end of the month.

So to keep the momentum going, we need to increase funding to keep the program running thru next March. We’re asking lawmakers to add another $200 million to the program, which we think will be enough to fully fund it.

Of course, we’ve been asked the obvious question: with the state trying to solve a $23 billion budget deficit and slashing funding for schools, health care and prisons, why should lawmakers extend a new-home tax credit? There are three very good reasons:

First, the tax credit generates money for the state and local govt because building a new home generates $16,000 in tax revenue to the state and about $3,000 to city/county.
Second, it’s creating jobs. And with unemployment continuing to rise, every job we can add helps the economy in numerous ways.
Finally, the credit stimulates the economy. When you buy a new home, you also spend money at Home Depot, furniture stores, landscaping companies and so on.
As Bob Toll, the CEO of Toll Brothers remarked a few weeks ago, housing always leads an economic recovery. Quote – Housing is the fastest way to increase employment. Housing employs more people faster, and it has a much greater multiplier effect. Nobody buys furnishings for a bridge! Unquote.

So let’s give this tax credit the chance to work its magic here in California.

We have several other priorities, this year, including giving us more time to begin work on approved developments, construction financing, and reducing the onerous developer fees that make building here so expensive and in today’s market nearly impossible in many communities. But the tax credit is our top priority because we see it as getting our industry off its back and leading California out of its current economic and fiscal crisis.

Bob and I would be happy to answer any questions on any of these subjects that you might have.

Michael Castillo
Communications Specialist
(916) 443-7933 ext. 346
mcastillo (at) cbia (dot) org