California production declines in July

SACRAMENTO — Total new home production in California continued to decline across the board in July as declines were recorded for both single-family and multifamily new-home production from month-to-month as well as year over year, further supporting the notion that California will produce the lowest number of new homes in recorded history, the California Building Industry Association reported recently.

According to statistics compiled by the Construction Industry Research Board, 5,168 permits were pulled throughout California, down 45 percent when compared to the same month a year ago and down 23 percent from June. Single-family permits totaled 3,023, down 48 percent from July 2007 and down 25 percent from June, while multifamily permits totaled 2,145, down 40 percent when compared to July 2007 and down 19 percent from the previous month.

During the first seven months of 2008, permits were pulled for 41,823 units, down 44 percent from the same period last year when 74,072 permits had been issued. Single-family permits were down 54 percent while multifamily permits dropped 24 percent.

CBIA Chief Economist Alan Nevin noted that the Riverside/San Bernardino market accounted for 30 percent of the decline in single-family permits while a few areas saw slight upticks in multifamily permits being issued.

“Riverside and San Bernardino accounted for 30 percent of the decline in single-family permits issued during the first seven months of the year where 4,159 permits were issued, down from 12,226 in 2007,” Nevin said. “Multi-family units permitted had a comparatively stronger showing, declining only 24 percent in the first seven months of 2008 compared to 2007.”

He noted that several areas had upticks in multifamily permit activity for the first seven months, including San Francisco, Riverside/San Bernardino and Sacramento, but that most of those upticks were the result of new rental apartment construction.

“The state is on line to finish out the year with 72,000 units permitted, one third of the 2005 total,” Nevin said. CIRB is slightly more optimistic, currently forecasting production will total 75,000 units.

Robert Rivinius, CBIA’s President and CEO, added that building the lowest number of new homes since statewide building permit tracking began in 1954 would lead to another wave of increased prices once the foreclosed homes have been purchased.

“When the dust settles and the inventory of foreclosed and unsold homes has been absorbed, there could be a shortage of new homes to buy. Builders have had no choice but to reduce inventories and will continue to do so until the economy turns around. We are building less than a third of the new housing units needed to keep up with California’s growth and that will ultimately drive up prices. We have seen an increase in affordability, but that will disappear at some point,” Rivinius said.

Rivinius applauded California policy makers for passing SB 1185, a bill to extend expiring subdivision maps statewide by one year to help ease some of that burden, but said there is still more to be done.

“We still need to be looking at ways to ease regulations, reduce impact fees, and streamline the entitlement process so that when the market does turn around, it won’t take as long to get a project approved,” he said. “California is still a growing state and at some point we must build more homes and be able to face the increased demand head on in hopes of keeping prices more affordable than what we saw in the first half of this decade.”