California Slump Leading to Thin Supply of New Housing
Housing starts in California declined further in August as builders continued to work down their existing inventories, the California Building Industry Association (CBIA) reported last week, and once the industry does begin to recovery, for-sale housing will likely be in short supply.
The state’s total housing starts, as measured by building permits issued, were down 19% in August compared to the same month a year earlier, according to data supplied by the Construction Industry Research Board.
The decline occurred entirely in single-family homes, with the 5,220 permits pulled showing a 34.6% decline from August 2006, while the 5,605 permits obtained for condos and apartments represented a 4% increase from a year earlier and an almost 60% surge from the prior month.
The jump in multifamily production was due to large projects getting underway in Southern California — in Orange County, Los Angeles County and the Inland Empire.
During the first eight months of the year, production began on 84,492 homes and apartments in the state, down 30% from the same period of last year. Single-family housing permits for the year are down 35% and multifamily starts are down 19%.
Nearly half of the decline in single-family home production this year has occurred in the Riverside-San Bernardino market, noted CBIA Chief Economist Alan Nevin, while production in other parts of the state was down just over 25%.
Nevin said that the number of completed unsold homes in the state has continued to decline because builders are holding off construction on new homes until they are confident the homes will sell.
Builders have learned that it’s far less expensive to pay the interest on a lot than the interest on a completed unsold home, he noted, and the decision to delay production will allow home builders to remain more economically solvent until the market recovers.
California’s downturn in the multifamily sector this year, Nevin said, has been concentrated in vertical construction as both builders and lenders have withdrawn from high-density condo projects, leaving apartment rentals to make up the bulk of the multifamily production.
“It is unfortunate that higher density condominium construction has almost stopped,” he said, “because once the market turns around, it generally still takes two to three years to complete a new project. Therefore, there will inevitably be a supply/demand imbalance.”
CBIA President and CEO Robert Rivinius added that home builders need to continue building homes to avoid an imbalance between supply and demand that will make homes less affordable in the future, especially for entry-level home buyers.
“With a steadily growing population, we need to make sure that we are meeting the demand and supplying enough homes, which ultimately helps affordability,” Rivinius said.
“Ever-growing fees and increasing restrictions will only make it more difficult for first-time buyers to afford a home,” he said. “We still need to enact new policies and legislation that will ease regulations on new home construction and stimulate production.”
In the meantime, Rivinius said, good deals are available for buyers as builders continue to sell off existing inventory.
Attend the Fall Construction Forecast Conference in October
Plan to attend NAHB's Construction Forecast Conference on Oct. 24 at the National Housing Center in Washington, D.C. The conference brings together the nation's premier housing economists and finance experts for an in-depth examination of the economic outlook for the housing industry.
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Free NAHB Kit Gives Builders Back-to-Basics Tips in Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.