Construction Forecast Sees Long Slump
After five years of stellar growth, new home and commercial building in California is headed for a decline this year and next, according to a leading industry forecast revised after the terrorist attacks.
The biggest drop-off is expected to come in spending for additions and renovations, as homeowners and private building owners put off projects because of the slumping economy, according to the Construction Industry Research Board.
The report, which is widely followed by the building trades, signals weaker hiring in the once-booming construction sector. A decline in building activity also has repercussions for a wide range of other businesses, including lumber suppliers and furniture manufacturers.
Michael Stanton, a San Francisco architect, said all of his firm’s hotel projects are on hold or uncertain right now. Stanton has laid off several workers at his firm and has cut back hours of his senior staff.
“I don’t anticipate any more layoffs, but we’re scrambling,” he said, noting that he is starting to design homes to make up for lost revenue in commercial projects.
Other contractors are shifting gears to public construction projects, although California’s anticipated budget shortfall could affect some of the public spending. “For us, it seems like there’s more of the public-sector work coming available now,” said Wayne Lindholm, vice president of Hensel Phelps Construction Co., an Irvine contractor. “I don’t see a recovery on the private side for a while.”
The Burbank construction research group said the number of new homes planned in California, as measured by building permits, will probably total 144,000 this year. If that forecast holds, it would be a 3% decline from last year. And the group is expecting another 3% decline in 2001. Two weeks before the Sept. 11 disaster, the research board projected a 1% increase for this year and next.
Nationwide, home building also is projected to fall by about 1% this year because of the economic malaise made worse by last month’s attacks in New York and Virginia, according to the National Assn. of Home Builders.
David Seiders, chief economist for the trade group, said that housing--which has been a major contributor to the nation’s record economic expansion--will be a drag on the economy in the third and fourth quarters, widely projected to be recession quarters. Seiders, however, is expecting new home building nationally to show a small increase next year.
In revising California’s residential and commercial building outlook, Ben Bartolotto of the construction research group said that permit activity was already declining in the Bay Area and Central Coast. Southern California showed stronger activity. Still, he said, permit activity statewide just about came to a halt in the days immediately following the attacks. And this week’s retaliatory strikes by the United States and Britain have increased uncertainties that might further chill home buying and home building.
Forecast Homes in Rancho Cucamonga said orders fell about 11% and cancellations rose in late September. Even though the company believes the decline will be short-lived, the company has pushed back production in Southern California by as many as 10 days. What’s more, the builder has plans to cut prices or to offer incentives as a selling tool if the downturn lingers.
“We can’t go on the premise that if we build it, they will come,” said Michael Dwight, who heads marketing at Forecast, a large builder that will complete about 2,100 homes this year in the Inland Empire, Central Valley and Sacramento areas. “We’re now in a more competitive universe.”
Robert Rivinius, chief executive of the California Building Industry Assn., a trade group based in Sacramento, said that the projected housing decline was still relatively modest. “In light of the economy and events that have transpired, that kind of modest downturn is not all bad,” he said.
Still, spending by the private building industry--residential and commercial--is expected to fall 7.4% next year, according to the Construction Industry Research Board. Before the attacks, the group had projected a 2.4% decline.
The 5-percentage-point swing translates into losses of $2.5 billion to the state’s economy. Much of the decline will come from cutbacks in remodeling and additions by homeowners and commercial and retail property owners.
Nonresidential spending on renovations is expected to decline by more than 11% next year--double the drop-off projected before the terrorist attacks. In the residential area, alterations and additions will probably decline by almost 7% in 2001, the construction research group said.
Rob Doezie, who owns Coastal Craft Construction in Villa Park, said several of his clients already have canceled remodeling projects, scaled down plans or decided to wait until things settle. Doezie said he still has lots of work to keep him busy until next spring.
