The Silver Lining in Home-Building Gloom
At least on the surface, it’s pretty dismal in the California home-building business these days. Drive through Palmdale or Rancho California, two hot spots for developers only a year ago, and you’ll see house after unsold house. Reduced prices and near-desperate marketing are to be found everywhere.
There is no hiding the seriousness of the situation. But among all the depressing numbers pouring out of this big industry are some interesting tidbits which indicate that things may not be as bad as they seem. They also tell an intriguing tale of California’s insatiable desire for the detached single-family home.
The latest information from the Construction Industry Research Board shows that the number of permits to build new single-family homes in the state fell almost 27% in the first eight months of this year compared to 1989. Permits for apartments and other multifamily dwellings, which were already sagging, are off another 8.2% so far this year.
Employment in the California construction business, which hit an all-time peak of nearly 665,000 only last February, has dropped by 24,000 since then. And it’s expected to average just 585,000 for 1991.
All this is going to be painful, since home construction has always been a major industry in California. This is, after all, the place where housing tracts become “planned communities,” and the split-level ranch house is sometimes considered a California birthright.
But a closer look shows that five big counties accounted for 80% of the drop in new permits for single-family houses this year: Los Angeles (down 55%), Orange (down 57%), Solano (down 58%), Riverside (down 36.5%) and Contra Costa (down 35.7%).
The rest of the state’s home-building industry may not be booming, but it isn’t slumping badly either. Some places, in fact, are very healthy. Kern County--which includes Bakersfield--is up 29%, Tulare County 33%, Shasta County 58%, Merced County nearly 8% and even big Sacramento County 4%.
“Outside the high-priced coastal and urban areas, the California home-building industry is holding up during this slump,” said Ben Bartolotto, research director of the Construction Industry Research Board. “The metropolitan areas were probably overheated, and prices ran past demand.”
That last comment is surely an understatement, considering that home values more than doubled in the major metropolitan areas of California during the 1980s.
What’s happening, however, is more than just a slump in the areas that used to be the state’s hottest for home building. What seems to be occurring is a population shift to less expensive areas of the state. That phenomenon is expected to continue, whether we have a bad recession or not. And, because it involves mostly white, middle-class families, it could have major political and economic consequences.
Before the recent downturn, even in booming Los Angeles, Orange and Riverside counties, the biggest growth in home building occurred in areas where land was cheapest. The windblown Antelope Valley near Palmdale has been the state’s single largest area of home-building growth until this year. Although large, expensive homes were being built throughout the state, new houses that sold for $150,000 or less became the most popular segment of the market.
The demand for such homes was so great that some areas, particularly Palmdale and parts of Riverside County, were swamped by development, and municipal services simply couldn’t keep up.
Now the demand has begun to slacken in some of those areas, mostly due to the softer economy. But another factor is at work: Many of those places that became popular because houses were affordable have simply run out of places to build more $150,000 homes. The newer developments in Palmdale and Riverside County often cost much more.
This hasn’t stopped Californians, however, from their seemingly indefatigable quest for affordable single-family houses. That’s why we’re seeing explosive growth in the Central Valley area, in Sacramento, around Bakersfield and elsewhere.
“This is where the readily developable, affordable land for houses is now,” said Michael C. McGee, president of the Central Valley division of Kaufman & Broad Home Corp. New houses in Stanislaus, San Joaquin and Merced counties can sometimes still be found for $100,000.
No wonder that 75% to 80% of the families buying new homes built by McGee’s division are from the San Francisco Bay Area, more than an hour’s commute away. Many of these people are continuing to work at their old jobs, sweating out horrendous commutes in order to live in a new house at an affordable price.
Similar stories are told in Kern County, a two-hour commute from most of Los Angeles.
“People moving (to the Central Valley) are looking for the family way of life,” McGee said. He sees parks full of families with children and crowded shopping malls. “Not just couples, but families with children. They are moving here from someplace else.”
In effect, what he is saying is that families are running away from what has become of California’s big urban centers. The chase for the $150,000 single-family home has become so frenetic because people are seeking what they hope will be the better lifestyle that goes with it.
Even as the state home-building industry as a whole heads into what promises to be a bad recession, the quixotic search for the affordable house goes on. The minute a new development opens with houses for sale at or below $150,000, most sell out immediately.
So, perhaps the real challenge for California isn’t just to perk up a sagging home-building industry. Maybe what’s written between the lines in the home-building statistics these days is a vote of no confidence in urban California.
Too expensive. Too polluted. Too difficult. Too dangerous. Too congested. Too unfriendly to families.
Too bad.
