Townhomes and Condos Not Unattached for Long

Buyers in search of recently built homes nearly picked the Southland clean this spring, driving supplies to record lows. The dearth of new attached housing was particularly acute: Only one townhouse in Los Angeles and Orange counties was unclaimed at the end of June.

The lone unit, in a gated community in Malibu with an asking price of $769,000, reflects the widening chasm between housing demand and new construction in the state’s largest metropolitan areas.

Production of all types of housing in Southern California has fallen well below peak levels from the mid-1980s, but a new report shows the shortfall in available townhomes, condominiums and other attached units has reached extraordinary depths.

Meyers Group found only six new townhomes or duplexes unsold at the end of June between Rincon Point in Ventura County and the Mexican border, a region with more residents than each state in the U.S. except California and Texas.

The number of unsold homes that were finished or would be finished within a month has sunk to the lowest point since the real estate research firm in Irvine began tracking what’s known as standing inventory in 1990.

Less than a one-week supply of new attached and single-family homes existed regionwide during the quarter that ended in June, which almost certainly will lead to higher prices. Typically, a four-week stockpile is needed to balance supply with demand, analysts at Meyers Group said.

“It’s disheartening,” said Ray Pearl, who heads the Los Angeles and Ventura County chapters of the Building Industry Assn. of Southern California, an industry trade group. “It’s just another example of the huge demand for housing and the difficulty in providing the supply.”

Even for Southern Californians, who have been known to wait months to learn whether their names have been selected in lotteries of potential buyers or to camp out for days to buy homes sold on a first-come basis, the scarcity of new units was remarkable.

“It’s a warning,” said Joe Carreras, the lead regional planner for the Southern California Assn. of Governments. “If you want to avoid further price escalation and other side effects of too little housing, then this is not good news.”

The drop in new construction has occurred at the same time that falling interest rates have driven up demand. Earlier this week, mortgage applications reached their highest level in more than a decade, according to a report released by the Mortgage Bankers Assn. of America.

Buyers’ choices, meanwhile, are dwindling. In Orange County, only 23 new single-family homes--and no attached homes--were available at the end of the quarter, a drop of 84% from a year earlier. In Los Angeles County, the number of new homes fell to 147 units, half the number that were available at the end of the quarter a year ago.

Home builders are much more active in other, smaller metropolitan areas of the country. In Seattle, for instance, more condos and townhomes were sold in the second quarter than in Orange and Los Angeles counties combined.

“A lot more new units could be sold in Southern California if they were available,” said Jeff Meyers, whose Irvine firm compiled the quarterly report. “But a limited supply is really catching up to us now since we have job growth and favorable interest rates.”

With home prices climbing to record highs nationwide, some U.S. metropolitan areas have seen construction of townhomes and condominiums rise. In Chicago, slightly more than half of all new homes sold are attached.

But development of attached units has become rare in Southern California. In Orange County, such housing accounted for about 63% of new units built in 1992. Today only about 18% of the units coming to market are attached.

Analysts cite several factors that have led to the decline in construction of condos and townhomes in California. Construction defect lawsuits are the most common complaint of builders, who could face disputes as long as a decade after completing a project.

Although builders say the cost of settling predictable lawsuits makes condo development too risky, other market observers believe that poor construction standards are to blame. And insurers, often stuck with paying $4 or more in claims for every $1 taken in premiums, essentially have stopped writing coverage for condo construction, an insurance trade group said.

Condo developments often face opposition from nearby homeowners, who fear their presence will lower property values while adding unwelcome density and street traffic. Analysts say consumer preference for single-family homes and lenders’ reluctance to finance such projects after the market was saturated in the 1990s also contributed to the decline.

Remedies that could stimulate production of attached units have been elusive. New laws and recent court rulings have yet to settle long-standing differences between builders, insurers, trial lawyers and consumer advocates.

Those groups have been meeting with state legislators, trying to craft a bill that may be approved by the Assembly before it breaks at the end of the month. The proposal would grant builders a certain amount of time to resolve disputes before homeowners could file lawsuits.

Insurance lobbyists are uncertain whether the new proposal would reduce costs enough to lure back underwriters to the attached market, or to curb fears over rising defect litigation on single-family homes.

“The hope is that you will reduce the number of cases coming to trial by solving them, but we don’t know to what degree that will happen,” said Mark Sektnan of the American Insurance Assn.

In California, only 5,600 attached homes came to market last year, the vast majority of them in the Southland.

Several new projects are in the works, but supply is expected to fall far short of demand.

At Playa Vista, whose initial phase over the next three years will put 3,200 condos, townhomes and apartments in West Los Angeles, as many as 10 potential buyers could vie for each home, said Ken Agid, vice president of marketing.

“If we built all 13,000 units that we potentially have,” Agid said of the project, “we would still have difficulty in supplying the demand.”

The builders of the lone Malibu townhouse left at the end of June easily found a buyer. Co-developer James Rodgers expects the property to be in escrow by early next week.