The Inland Empire continued to dominate a white-hot California housing market during the first half of 2003, with one in four new homes statewide built in Riverside and San Bernardino counties, according to the Construction Industry Research Board.
Analysts and builders offered mixed assessments on whether rising interest rates could slow the momentum.
Inland Empire developers obtained 24,000 building permits out of 98,000 permits statewide, a 53% jump over the same period a year ago.
Riverside County alone, where apartment rents are rising and builders had raced to beat deadlines for stiff new fees for developments, saw a 66% increase in new housing units and a whopping 321% jump in new apartment units.
"There are just huge amounts of unmet demand for housing in Southern California, and, really, the inland region is the only place you can build it," said Redlands-based economist John Husing.
"No matter how fast we build the houses, we just can't find enough places to put them."
The rest of the state also fared well.
The rate of construction is now nearly double what it was when the California housing market bottomed out in 1996.
"It's the best year since 1989," said Ben Bartolotto, research director for the Construction Industry Research Board in Burbank, which tracks housing permits. "Of the 25 metropolitan areas, 19 have gains, so it's pretty broad."
The Riverside-San Bernardino county area led by a wide margin, followed by Los Angeles, Sacramento and San Diego counties.
More than half the new dwellings so far this year -- 52,069 of 98,695 -- were constructed in Southern California. More than one-quarter of the new permits statewide were for apartments.
Riverside County's rate was fueled in part by builders racing to obtain permits before a new $6,650-per-home transportation fee took effect in February.
"There was definitely a spike in building permit requests ... in the first two months," said Bill Blankenship, deputy executive director of the Riverside Building Industry Assn.
"One could attribute that to the transportation ... fee, but I think overall the building activity is going to be considerable.... There's a real housing shortage in this state."
Though a partial antidote to California's severe housing crunch, construction still has not matched state growth of about 600,000 residents a year.
Housing experts say California needs about 230,000 new dwellings annually.
Even with the increases to date, only 186,000 new dwellings are forecast for 2003 -- a shortfall of 44,000, Bartolotto said.
Historically low interest rates on home loans have made California's housing -- the most expensive in the nation -- slightly more affordable, at least for those who can muster a down payment.
But building industry analysts note that less than one-third of California households can afford a home.
Some warn that rising interest rates could hurt sales.
A 30-year home loan now exceeds 6%, up about one-half point in many areas in the last month.
"Obviously, that's something to be concerned about," said Tim Coyle, vice president of the California Building Industry Assn.
"With this backdrop of high demand and [limited] supply, if mortgage rates pick up, we may have a serious affordability problem."
Others said that although some may be priced out, the risk of a convulsive downturn like the early to mid-1990s was nearly nil.
"That was directly related to the end of the Cold War and the massive cutbacks in defense that destroyed 550,000 jobs in Southern California from 1991 to 1993," said Husing.
"That was a depression caused by the end of the Cold War. There's no parallel circumstance today."
Analyst John Karevoll of DataQuick real estate information service agreed: "If anything, there will be an additional surge of activity as those who get off the fence get in and join everyone else."
Karevoll said interest rates would need to climb to 8% for Southern California buyers to be priced out of the market.
Even then, Riverside and San Bernardino county home builders could win.
"What'll happen ... is that for every buyer who might get priced out of a home, there are two buyers that will get pushed out of San Diego County, Orange County and Los Angeles into the Inland Empire," said Karevoll.
"There's not a lot of elbow room left.... It's either the ocean or the Inland Empire, and you can't build on the ocean."