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State's Housing Starts Fall for First Time in 10 Years

A sharper decline could come this year. The contraction could limit overall job growth.

January 27, 2006|Annette Haddad | Times Staff Writer

New home construction in California fell last year for the first time in 10 years and could drop more sharply this year, according to a report released Thursday that provided the latest sign of a cooling real estate boom.

Residential permits totaled 207,200 last year, the second-highest level in 16 years but 3% below 2004's rate, the California Building Industry Assn. said. The trade group blamed the decline on strict regulations that limited construction.

The trade group said housing production could drop by as much as 11% this year -- potentially bad news for a California economy that has depended on construction as its leading job creator.

A construction slowdown also could worsen the state's housing shortage, said Alan Nevin, the association's chief economist. He said California needed as many as 250,000 new housing units every year to meet potential demand.

"Housing is definitely taking a breather," Nevin said. He expects permits to fall to between 185,000 and 205,000 in 2006.

By some estimates, more than 40% of all new jobs in California since 2001 were in construction or real estate-related fields.

A slowdown could mean no increase or even a decline in construction jobs this year, economists said.

"Builders will be building fewer homes so they won't need to keep the same number of people on the payroll," said economist Esmael Adibi of Chapman University in Orange.

He predicted that employment growth in California would slow this year to 1.1% from 1.6% in 2005, largely because of the ripple effects of the slowing housing market. Some regions, particularly the Inland Empire -- where most of the state's new-home construction has been in recent years -- could see an even bigger decline in employment growth, Adibi said.

A construction slowdown coupled with steady demand would probably boost home prices, Adibi said.

Nevin and members of his trade group contend that builders would gladly construct more homes if state and local zoning and building codes were less onerous. However, rising home prices may be starting to hamper the public's ability to buy. The number of homes sold in Southern California was flat last year, the first year sales hadn't increased since 1996, according to research firm DataQuick Information Systems.

At the same time, home prices rose 16.5%.

Moreover, Calabasas-based builder Ryland Group Inc. reported this week that its new-home orders were down 34% in California and the West last year. Dallas-based Centex Corp. held a 12-hour "sale" Saturday at many of its new communities around the state, offering a select number of houses for as much as $100,000 off.

"Potentially, there are a lot of people out there wanting to buy a home," Adibi said, "but they can't afford to."

The fall in housing production last year was largely attributed to a big drop in permits for condominiums and apartment buildings.

These so-called multifamily permits fell 15% from last year, to 52,338. The fall was led by a steep decline in the Inland Empire, where starts fell 45%, and in Los Angeles County, which experienced a 10% decrease.

Nevin figures that there were fewer apartment buildings constructed as opposed to condos and town homes. If such construction had kept pace, "it would have been a bonanza year," he said.

Still, 2005 was the second time since 1989 that California's housing production exceeded 200,000 units.

Single-family housing construction, which accounts for the bulk of the state's new housing activity, rose 2.2% statewide to 154,816. While most metropolitan regions showed gains, the biggest jumps were in the booming San Joaquin Valley.

Back in 1995, the last time construction declined, the slowdown coincided with a housing market downturn that was caused in part by overbuilding of new homes.

From 1992 to 1996, fewer than 100,000 homes a year went up across the state.

Now, fearful of a repeat, builders are trying to line up buyers before laying foundations.

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