Housing Gap Threatening State’s Economy, Study Says
The California economy is roaring ahead, creating thousands of new jobs and putting more spending money in the pockets of consumers, but the state’s slow pace of home building presents a growing danger to continued economic prosperity, UCLA forecasters warned Wednesday.
In the latest UCLA Anderson Forecast, a closely watched quarterly report, economists said California’s economic resurgence remains in full swing and is surpassing levels achieved in the 1980s.
Personal income will soar 10.3% this year, they predicted, the highest gain since 1984. That’s giving people more money to spend, resulting in a 10.9% gain in taxable sales. And with a jobless rate averaging 5.1%, unemployment is almost 2 percentage points below its level during what UCLA called the “Golden ‘80s.”
“The big question now is: Where and how will we house everyone?” UCLA economist Rajeev Dhawan said in the forecast.
Dhawan said the state’s population will grow by 5 million people over the next decade. Roughly half that growth will be people attracted by the more than 3.5 million new jobs UCLA forecasts the state will create during the same period.
But according to his estimates, this period will see the least home and apartment building activity of any recent economic expansion. Dhawan forecasts an annual average of 170,600 building permits for the next five years. That compares with 245,000 during 1985 to 1990, the last economic boom.
He said home building in urban areas has been stymied by an increasing anti-growth sentiment, tax laws that push cities to favor commercial development over housing, environmental regulations and the rising cost for land.
“We are even seeing a lot of ‘not in my backyard’ attitude”--people putting pressure on cities because they don’t want to live next to renters,” Dhawan said. “All of these factors combine to keep the supply of housing low.”
Dhawan said this growing mismatch of job creation and home building is already apparent in soaring home prices and rents in California’s urban centers. The state’s real estate tumble of the early ‘90s has been more than erased in the last few years, and shortages will drive home values still higher.
The median price of a home in Los Angeles County hit $205,000 last month, up 7.3% from a year ago, according to DataQuick Information Systems of La Jolla. Rent for a two-bedroom apartment in the San Francisco Bay Area reached $2,075 a month in June, up 28% from the same period a year earlier, according to M/PF Research Inc. of Carrollton, Texas.
Continued increases of this magnitude will spark crowding in existing housing, as people double up to both defray expenses and to stay within a reasonable commute of their jobs.
For now, the building gap’s greatest impact is on renters and first-time buyers, groups that are the most vulnerable to rapid increases in housing costs. Los Angeles, for example, issued multifamily housing permits for 7,426 units for the 12 months ending in July, according to M/PF Research. That ranked Los Angeles 10th among metropolitan areas, below smaller cities such as Orlando, Fla., and Austin, Texas. As the housing gap widens, it will threaten the quality of life for millions of Californians, economists say.
In a report on commuting that will be released next week, the Southern California Assn. of Governments found that 43% of the respondents in a survey said their commute times have increased over the past year. That’s up from 39% in the prior year’s survey.
“These trends create severe disruption in the lives of ordinary families,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto.
UCLA noted the home price disparity between California and the rest of the nation in its report Wednesday. It said the average price of a home in San Francisco is almost double the national average. In Southern California, it is 44% above the national average.
Employers are already working to counter some of the negative impact of longer commutes. Sports Chalet, a La Canada-based chain of sporting goods stores in Southern California, tells potential employees about its ability to offer shifts that start at different times of the day. “We can offer some flexible work hours. For example, if someone comes in for a shift that starts at 1 p.m. they can avoid much of the worst traffic,” said Craig Levra, the company’s chief executive.
But economists warn that the growing gap between houses and jobs will eventually damage the economy. In an echo of the late 1980s, Levy said it will chase some employers to less expensive regions. Others will decide against expanding their businesses in California. Employers will also face more difficulty finding workers. Levy expects that soaring rents will spark a new rent-control movement.
Dhawan and other economists say the state government should intervene to move housing construction onto a faster track.
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Boom but No Build
California’s economy looks rosy through 2010, with robust job creation and increasing personal income, which is up more than 10% this year alone. The fly in the ointment is a looming housing shortage.
Source: UCLA Anderson Forecast, September 2000
