Fewer New Homes Go on the Block Even as Demand Swells

Home building in Southern California, a powerful engine that has long propelled the growth and defined the region’s character, is grinding to a virtual halt.

The slowing economy has dimmed the outlook for new home construction this year, even as mortgage rates drop and demand for housing grows. Even last year’s vibrant economy could not revive what had once been the nation’s most dynamic residential machine.

Los Angeles County added barely 8,400 new homes last year, a tiny fraction of the 78,000 homes that went up in the peak building year of 1950. The anemic performance in 2000 has been followed by further erosion, with just 2,193 housing permits issued in the first quarter. Typically, housing permits overstate actual building. And the picture is not significantly better elsewhere in the region.

New construction is stagnating in Orange, Ventura and San Diego counties, according to building permit statistics from the Construction Industry Research Board. San Bernardino and Riverside counties are building homes in sizable numbers, but hardly enough to absorb the region’s demand.

Increasingly powerful political and economic forces are creating long-term roadblocks to a massive house-building crusade by the private and public sectors in Southern California, even as population growth continues unabated.

Neighborhood opposition to growth is becoming entrenched. Zoning laws, for example, thwart high-density residential development in most cities and counties. Open spaces are reserved for stores, warehouses and schools, but usually not housing. And local officials have chosen to allocate federal housing funds to other purposes, including planting trees and improving sidewalks.

Across Southern California, significant housing projects, such as the massive Newhall Ranch, are stalled. Slow-growth advocates won a majority of the 61 land-use measures statewide during November’s elections, according to Solimar Research Group Inc., a Ventura research firm.

“It seems the outcry against new development has reached a crescendo,” said Ken Agid, a marketing executive at Playa Vista, a Marina del Rey development still awaiting final approval after two decades. “Certainly, it’s a message that people are fed up with growth and have taken an attitude that ‘we’re going to do something about it.’ ”

Lawsuits are blocking some big developments, asserting environmental effects or the lack of government infrastructure to support more people. Indeed, the state’s ability to provide electricity, transportation and education has raised new roadblocks to massive housing projects.

All these impediments to development, however, have not prevented the Southern California economy from booming, despite repeated warnings in recent years that the region faces a crisis. Moreover, compared with a decade ago--the region’s last peak housing period--it is actually less expensive to own a house today.

In July 1991, the median entry-level home price in Los Angeles County peaked at $147,250--a $1,124 monthly mortgage payment for a buyer with 10% down, according to John Karevoll, an analyst at DataQuick Information Services Inc.

The median entry-level home price in February 2001--the peak since 1991--was $145,000 in Los Angeles County, with an $854 monthly mortgage. The lower mortgage payment reflects a 20% drop in interest rates from a decade ago, and that does not take today’s higher wages into account.

Adjusted for consumer price inflation, the current mortgage for a median-priced house amounts to $662 a month, just about half of what it was a decade ago.

Southland Cities Are Nearly Built Out

Although Southern California home prices are considered high compared with those of smaller cities nationwide, Los Angeles ranks 11th in median home prices among the country’s major metropolitan areas, behind such areas as Boston; Newark, N.J.; Seattle; and New York City, according to a National Assn. of Realtors survey.

“We’re in good shape,” said UCLA senior economist Tom K. Lieser, referring to stability in the residential market. “Housing here is robust, interest rates are low. This is nothing like the ‘90s.”

The clash between anti-growth forces and the burgeoning population will sharpen in coming years.

By 2025, the region is expected to grow to a population of 23 million, up 35% from today’s 17 million, according to the Southern California Assn. of Governments. Accommodating those people would require changes to public policy that face many obstacles. Cities are nearly built out at their present level of land use, according to a stream of recent reports.

It is projected that to meet Orange County’s housing needs, the region will use 76% of its developable and accessible land at the current density by 2025, according to the Southern California Assn. of Governments.

Across Los Angeles, population growth would require a 150% increase in housing density, a scenario rejected by many city officials and homeowner groups.

“The housing problem can be fixed, but we need a political coalition to build solutions around,” said Marlon Boarnet, associate professor of urban planning at UC Irvine.

But political solutions will be difficult to come by.

City officials still prefer revenue-generating commercial projects over residential projects. Elected officials, facing strong community resistance to multifamily housing in suburban areas, encourage apartment construction in already-dense areas, such as downtown Los Angeles.

In early 1999, for example, Palmdale and Lancaster imposed moratoriums on apartment construction. That same year, a moratorium on new multifamily housing was floated among candidates for the 7th City Council District seat in the northeast San Fernando Valley.

“We’re not going to build the multistory high-rises that go up in other cities,” said Los Angeles Councilwoman Cindy Miscikowski, who represents parts of the Westside and west San Fernando Valley. “We have to work with market-based and nonprofit groups to build projects that don’t destroy neighborhoods, but improve them.”

Anti-growth sentiments are even stronger among neighborhood groups.

“We have taken our fair share of high-density housing here,” said Diana Plotkin, president of the Wilshire Homes Assn. “We don’t want any more. Develop them in other communities.”

Newhall Ranch, which was approved by the Los Angeles County Board of Supervisors in November 1998, would be the largest residential project in Los Angeles County history, but the 22,000-home development is stalled by several lawsuits, including those questioning its effect on endangered species and the Santa Clara River. Getting around such opposition will require a comprehensive government strategy that so far is not within sight, housing experts say.

The state’s and cities’ political leadership historically has come up with solutions only when problems have escalated into a crisis, said Richard Willson, a Cal Poly Pomona urban and regional planner. “Until the economy is clearly suffering, and our quality of life is declining, we won’t adopt new policies.”

Even when the money is available to redress housing issues, many local jurisdictions have balked.

Last year, the city of Los Angeles spent only $24.6 million, or 27%, of its federal Community Development Block Grant funds on housing. New York City spent $137.6 million, or 65%, of its funding on housing. Boston spent $13.9 million, or 39%, of its grant funds on housing.

‘If We Don’t Build It, They Won’t Come’

New York City spent $265 million of its own funds on housing last year, while the city of Los Angeles allocated only $5 million, according to Peter Dreier, an urban planner at Occidental College.

“There’s no excuse for L.A. not spending more money on housing,” Dreier said. “Housing is crucial to the way people live and to the business climate here. It’s been ignored too long.”

But housing is just one problem in a complex system of accommodating more people.

The state’s highway capacity grew by only 7% during the last two decades, yet the state’s population jumped more than 40% in the same period. Investment in infrastructure, as a percentage of state spending, has shrunk from nearly 20% in the late 1960s to about 3%.

California schools already have some of the most overcrowded classrooms in the country. Los Angeles has identified the need for 85 new schools over the next five years, for example. And the state’s electricity grid is overtaxed--electricity-generating capacity could be 6% to 12% short of peak demand this summer, according to the California Independent System Operator.

One reason for the lack of spending, experts say, is that foes of urban sprawl have adopted an attitude of “if we don’t build it, they won’t come.” But that attitude is short-sighted, UC Irvine’s Boarnet said.

“Growth is not a spigot; you can’t turn it off by turning off infrastructure,” Boarnet said. “Besides, growth is the sign of a healthy economy. If you think it’s bad, try no-growth.”

Many argue that Southern California’s quality of life already has declined and that the housing situation still can damage the economic outlook. Los Angeles and Orange counties have become magnets for only the affluent and the poor, as middle-income workers increasingly are forced to live in the most distant suburbs. The average commute from home to work in 1990 was 24 minutes, according to the Southern California Assn. of Governments. In 1999, the commute time was 45 minutes.

Some companies are bailing out. TRM Manufacturing pulled out of La Mirada after 28 years because of high rent and because so few of its employees could afford the cost of nearby housing. Now located in Corona, owner Ted R. Moore attributes the move to lowering his company’s costs.

At the same time, many outsiders are not coming. Sung Won Sohn, executive vice president and chief economist for Wells Fargo Bank in Minneapolis, said that he is unwilling so far to “make the significant sacrifice” of moving to Los Angeles, even though he must spend half his time here on business. Sohn, who owns a $450,000 home in a tony section of Minneapolis, said he looked at comparable homes in Los Angeles that started at $1 million.

It’s a lot tougher on the poor. Almost three-quarters of Los Angeles County’s low-income families spend more than half their income on housing, and 95% of the region’s poor renters pay more than 30% of their income on housing.

Enriqueta and Gabriel Serrano and their three kids moved into Enriqueta’s father’s home in Watts three years ago, because even with their combined incomes the couple could not afford the first and last month’s deposit on an apartment.

Enriqueta, 28, a special-education assistant at a Los Angeles public school, and Gabriel, 33, who works for an environmental supplies company, pay the rent, utilities and all expenses on her father’s two-bedroom home, which eats up about 60% of their joint income of $2,000 a month. The little money left, Enriqueta said, is impossible to save.

“We’ve just started looking for our own place, but so far I haven’t found one we can afford,” Enriqueta said. “We might be able to make the monthly payments, but we wouldn’t have food in the refrigerator.”

Proposed solutions to the problem are languishing.

The Los Angeles Housing Crisis Task Force recommended in a March 2000 report that Los Angeles create a $100-million housing trust fund to subsidize new construction and rehabilitate housing, assist with mortgages and provide down payment assistance.

Last year, the city allocated just $5 million to the fund, $2 million of which has been spent.

Another recommendation would require builders of multifamily housing to set aside a certain number of units for low- and moderate-income housing.

One way to raise money for the housing trust fund is to force developers to pay a fee instead of setting aside units for low-income residents. About 70 California cities already have adopted ironclad “inclusionary ordinances,” but not Los Angeles. Los Angeles, the task force says, should impose a linkage fee, in which developers pay a fee that goes to low-income housing.

One of the critical policies, experts say, is to link jobs to housing. One such project is a UC Irvine faculty-housing program that allows employees to lease a lot from the university at very low cost and buy only the house, saving as much as 50% on the purchase. Owners must agree to controls on appreciation of the house, so that future buyers still will be able to afford the property.

Without comprehensive government planning, however, any solutions are likely to be piecemeal.

“We need to advocate for affordable housing across the income spectrum,” UC Irvine’s Basolo said. “Our quality of life as a collective is affected by not having it.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Less Building

The number of building permits issued for single-family houses in Los Angeles County has dropped dramatically over the last 50 years.

*

Building permits issued in Los Angeles County each year

1950: 78,025

2000: 8,399

Source: Construction Industry Research Board

*

Ahead in This Series

Up Next: Today’s housing market is far less vulnerable to the violent cycles of the past.

Sunday Real Estate: A look at nonprofit developers who convert buildings to small apartments.

*

More Inside

Roadblocks: Developers say community opposition is one of the leading factors in the building shortfall in California. C1