Developers are building residences in California at the fastest pace in years. From recent economic reports suggesting a slowing economy, the construction might appear to be risky. But builders are banking on two irrefutable facts: There is no end in sight to the state's population growth, and all of those people need a place to live.
According the Construction Industry Research Board (CIRP), 2003 is shaping up to be the best year since 1989 for homebuilders. If CIRB's estimates hold, the industry will erect 188,200 dwellings this year. That represents $37.5 billions in residential permit values across the state.
Homebuilding began declining rapidly in 1990, foreshadowing a deep recession in the Golden State's economy. Homebuilding hit bottom during the middle of the 90s before starting a good run in 1997. The turnaround marked the first time that homebuilding became a leading indicator of economic growth, rather than a lagging one.
If that pattern holds, the current, sniffling economy may not catch the flu. CIRB expects 2004 to mark another increase in housing starts - this a 5.2% jump.
"This strength in homebuilding derives from several factors," said Ben Bartolotto, Research Director for CIRB. "Pent-up demand, record-low interest rates, and continued population growth all fuel the marketplace."
Just like in the 1980s, home prices are also on the upward curve and have reached all-time highs in most of the state's sub-markets. And that is another factor that keeps builders building.
Embedded in the overall growth in housing starts are some telling regional variations. Whereas all five regional markets tracked by the CIRB showed year-to-date increases in overall homebuilding for the first nine months of 2003, there were two exceptions by housing type: The Bay Area was the only market to log a decrease in single-family dwelling unit starts (-3.3%), while the Central Coast logged the only decrease in multi-family units (-21.5%). During the same period, the San Joaquin Valley marked the largest percentage increases in both single-family building (+26.6%) and in multi-family construction (+127.6%).
In raw units, Riverside County built the most single-family houses (19,945) during the first nine months of 2003, nearly 2 1/2 times more houses than second place San Bernardino County. Los Angeles County built the largest numbers of multi-family dwellings (7,673). The figures suggest a number of continuing trends, namely, densification and infilling of the state's urban areas, and an increasing suburbanization of the inland valleys. But these simplistic generalizations mask the hybridization of California's housing market.
The fact is that housing construction of every type is happening all over the place. If a city is "built-out" – planners' jargon for a city covered by urban uses and lacking land area on which to expand because of geographic conditions – then recycling of uses to more intensive, multi-family housing is occurring. Everything from high-rise condos in downtown San Diego to live-work loft apartments in Los Angeles and San Francisco are now part of the commercial homebuilding industry. Elsewhere, suburban housing tracts are spreading outward from farm towns in Fresno and Kern counties and formerly rural places. And in many areas, like San Jose and Sacramento, both urban infill/reuse and suburban growth on the fringes are happening at once.
"There is no ignoring the single most important factor fueling housing construction, and that is the ever growing population of California," said Mark Geiberson of the California Association of Realtors.
And that is perhaps the real point. While Governor Schwarzenegger blames Gray Davis for sinking the economy and vows to turn it around, one might wonder which economy Schwarzenegger is referring to. With housing construction projected to top $39 billion in 2004, thereby marking nine straight years of growth, and with population growth remaining a constant, maybe the economy is just fine.
Housing Starts in California
Year: Single-family / Multi-family / Total / Value in constant $ (billions)
1990: 103,819 / 60,494 / 164,313 / $28,213
1995: 68,689 / 16,604 / 85,293 / $17,257
2000: 105,595 / 42,945 / 148,540 / $30,179
2001: 106,902 / 41,855 / 148,757 / $30,171
2002: 123,865 / 43,896 / 167,761 / $33,998
2003 (estimate): 134,000 / 54,200 / 188,200 / $37,509
2004 (forecast): 138,500 / 59,500 / 198,000 / $39,072
Housing Start, first 3 quarters of 2003
Region: Single-family / Compared with 2002 / Multi-family / Compared with 2002
So. California: 49,793 / +16.3% / 23,396 / +27.6%
SF Bay Area: 10,686 / -3.3% / 9,899 / +68.0%
Sacramento Valley: 17,037 / +0.3% / 3,704 / +34.6%
San Joaquin Valley: 20,245 / + 26.6% / 2,053 / +127.6%
Central Coast: 3,764 / +16.7% / 991 / -21.5%
Rest of state: 3,371 / + 15.3% / 472 / +60.5%
CA totals: 104,896 / + 12.8% / 40,515 / +37.5%
Stephen Svete, AICP, is president of Rincon Consultants, Inc., a Ventura-based consulting firm.