Drop in May Building Permits Another Blow for Industry : Outlook: The Construction Industry Research Board reports a slowdown in residential and non-residential development.
Signs of a slight recovery in Orange County’s stunted residential construction industry dimmed Tuesday with word that area builders pulled back sharply in May after three consecutive months of growth.
Adding to the recessionary woes, non-residential development continued a three-year slide with permit valuations in all categories--industrial, retail and office--well below year-earlier levels.
The news comes on the heels of Monday’s downbeat unemployment report of a 5.9% May jobless rate in the county, the highest monthly rate since January, 1984.
“The economic trend in Orange County has been consistently down since the recession began, and there is just no encouraging news,” said Lester Goodman, principal of Goodman-Hixson & Co., a new-home marketing firm in Irvine.
“Between the recession and the riots (in Los Angeles) and the earthquakes, the building industry is just getting clobbered,” he said.
The building permit figures, compiled monthly by the Construction Industry Research Board in Burbank, are considered one of the most reliable indicators of future building activity. Most permits are obtained one to three months before actual construction begins.
The steep decline in May residential permits--to 385 from 1,160 a year earlier--ended the first five months of 1992 with the lowest January-through-May residential permit total since the Construction Industry Research Board began monthly reports in 1986.
The five-month total of 2,563 permits was down 13% from 2,951 in the year earlier period.
“I just don’t know what to make of it,” said Ben Bartolotto, the board’s research director. “We are still waiting to see better numbers, but so far it is just the same old sluggish recovery.”
Residential building permit tallies for May were off throughout the state, he said, with major areas like Los Angeles County posting even larger declines than Orange County.
Most of the May permit drop came in the apartment building arena. In Orange County, cash-strapped developers obtained permits for just 95 units, down from 207 a month earlier. Permits for single-family units dropped 40% to 290 from 480 in April.
For the five-month period, county permits for 785 apartment units were issued, down 35% from 1,211 during the same period last year. Builders obtained 1,778 single-family permits through May, up slightly from 1,740 for the first five months last year.
Industry specialists say it is bankers’ reluctance to make land acquisition and construction financing loans that is at the root of the slump today--particularly in apartment construction.
“It is difficult to get financing for a single-family project today, and as you move away from single-family development, it gets even harder to find lenders,” Bartolotto said.
One reason lenders don’t like apartments is that rents have been depressed by the recession, said Ken Agid, an Irvine marketing specialist.
He said rents in the county are running 20% to 25% below what they would be in a normal economy. So builders are converting apartment plans to condominiums, he said, “and almost nothing will be available for apartments in the next two or three years.”
As a result, he said, “we could be in for a big sticker shock when employment starts picking up” and rents increase because of a lack of supply.
The same kinds of price increases, builders say, are in store for home buyers as the supply of unsold new homes continues shrinking without much new construction in the pipeline.
“I don’t care what the (Federal Reserve Board) or George Bush says, the banks still are not aggressively lending to developers, even to the best-managed companies. So builders cannot keep up even with the reduced demand we have now,” Agid said.
Decline in O.C. Building Permits
Stung by the continuing economic slump and tight banking industry credit controls, developers in Orange County have reined in. The first five months of the year were the worst for residential permits since the Construction Industry Research Board started tracking them in 1986.
JAN.-MAY
VALUE OF NEW HOUSING UNITS NON-RESIDENTIAL PERMITS* Single Multi- (in thousands of dollars) Period Family Family Total Indust. Office Retail Total 1988 5,004 5,153 10,157 $32,130 $155,565 $101,421 $567,392 1989 3,622 3,596 7,218 37,133 179,082 75,313 611,824 1990 1,707 3,935 5,642 38,573 108,047 88,637 510,699 1991 1,740 1,211 2,951 18,789 77,945 57,224 379,507 1992 1,778 785 2,563 8,143 18,490 29,787 230,484
1992 MONTHLY TOTALS
VALUE OF NEW HOUSING UNITS NON-RESIDENTIAL PERMITS* Single Multi- (in thousands of dollars) Period Family Family Total Indust. Office Retail Total Jan. 267 123 390 0 5,105 1,727 44,260 Feb. 375 49 424 2,708 7,380 13,329 48,807 March 366 311 677 426 0 6,603 41,737 April 480 207 687 1,431 4,521 3,178 46,553 May 290 95 385 3,578 1,484 4,950 49,127
* Non-residential building totals include other categories such as hotels, parking garages and hospitals.
Source: Construction Industry Research Board
