State Sees Surge in Residential Building in June
New-home building in California jumped unexpectedly in June to the highest monthly level in a decade, bolstered by a surge of apartment developments in the state’s largest metropolitan areas.
Statewide, builders last month pulled permits at an annual rate of 188,160 units, up 25% from a year earlier, according to a report released this week.
The burst of activity could provide a shot of adrenaline in Los Angeles, Orange and other counties, where a long period of relatively weak home building has tightened supply of houses and apartments and pushed rents to record levels.
“We are finally getting the market response you’d expect from low vacancies and rising rents,” said Ted Gibson, chief economist at the state Department of Finance. “We have to be pleased. It’s a good thing not only for the building industry itself, but for the overall economy.”
In April and May, the number of home-building permits dropped from year-earlier levels, raising concerns that California’s housing market may be slowing amid higher interest rates and signs of an economic slowdown. Nationally, housing permits continued their downward trend, and analysts expect a notable drop-off in residential construction this year in most parts of the country.
The pattern of home-building permits can be volatile from month to month, and last month’s surge in California may have been caused by several large projects getting approved concurrently. Permits indicate development that is about to get underway.
Still, the spike in June numbers was seen as an encouraging sign of the still-robust demand for housing in California, especially in urban regions. And if the trend continues, as some builders think it will, it could help alleviate the severe housing crunch in the state.
“We’re continuing to see strong demand for any kind of lot,” said Bruce Elieff, principal of Anaheim-based SunCal Cos., which is developing $1.7 billion of residential projects statewide.
A big factor in June’s resurging permit activity was the pickup in multifamily units, which include apartments and condos. Many builders had long shied away from condos because of the risks of being sued for building defects, and developers have encountered community resistance for apartments. But more recently, analysts say, developers have made a bigger push for multifamily units, especially high-end ones, seeing the brisk demand for them.
For the first time in eight years, multifamily permits in Los Angeles County are expected to top single-family-home starts this year, according to the Meyers Group, an Irvine research firm.
Statewide, multifamily units accounted for 42% of the permits that builders pulled last month. Irvine, San Jose and San Diego, three cities where job growth and housing needs have been among the highest in California, were responsible for more than half of all new multifamily permits issued last month, said Ben Bartolotto, research director at the Construction Industry Research Board.
Based on recent trends, state economists say builders could put up 55,000 multifamily units this year. That would rate far below 150,000 units annually during the 1980s peak, but more than 40% higher than 1999 levels and far above the 15,000 figure recorded during the depths of the recession in the early 1990s.
Builders are producing more multifamily units, Gibson said, because they see the shifting demographic forces. California’s job growth is stronger than the nation’s, and that’s pulling more people to migrate here. At the same time, the growing number of younger people in California is driving up demand for new rentals, even as prices rise.
In Orange and Los Angeles counties, average rents in large complexes rose in June by more than 10% during the second quarter to $1,106, compared with a year ago, according to RealFacts, a Novato, Calif., research firm. Those increases tend to pull up rents across the board.
Overall, the June permits for all housing at an annual rate of 188,160 is considerably higher than the 140,000 permitted units in 1999. Still, analysts say that a rate of production of 220,000 to 250,000 units a year is required to accommodate California’s projected growth.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
California Construction
June saw a spike in the rate of home-building permits issued in California, while the nation as a whole suffered a decline.
Permits, annualized rate
California 188,160
United States 1,528,000
Change from year-ago rate
California +25.4%
United States --9.9%
Sources: California Dept. of Finance, U.S. Census
