Builders Keep Putting Up Housing -- but Not Enough

Home builders just can’t seem to dig California out of a hole fast enough.

Data released Monday by the California Building Industry Assn. suggest that by year’s end, builders will have obtained more than 200,000 new-home permits, the most since 1989. In June alone, 19,841 permits were issued for single-family and multifamily units -- 21% more than in June last year.

“The new-home market continues to excel,” said Alan Nevin, chief economist for the building association.

But in this state, that’s not enough. Nevin and other economists figure that 225,000 to 250,000 new homes would have to be built each year to keep up with demand as the population swells.

“With 200,000, it sounds like we’re almost there,” he said, “but we have a huge backlog of unsatisfied demand. We have to continue to put out over 200,000 a year to catch up.”

Builders have been cautious in recent years. They remember what happened after 1989, when California’s economy tanked and the housing market collapsed. Many were stuck with thousands of unfinished houses and empty lots. The downturn put the brakes on housing production for much of the last decade. Between 1992 and 1996, fewer than 100,000 homes a year went up across the state.

Today, fearful of a repeat of the early ‘90s, builders still want to line up a buyer before they start laying a foundation. That prudence has helped to fatten profits and stock prices -- and keep the fire going under housing prices in Southern California.

In June, the median price in Los Angeles County hit a record $445,140, up 31.6% from a year earlier, according to the California Assn. of Realtors. The statewide median in June was also a record at $469,170, up 25.3% from June 2003.

The new-home permit data didn’t offer encouragement that the dynamics would change. “This ... is telling us about the supply and demand story in California,” said Robert Kleinhenz, deputy chief economist for the California Assn. of Realtors. “To the extent that household growth exceeds current production, the likelihood of price appreciation will continue.”

Still, Kleinhenz said, at least “things are headed in the right direction.” He said the fact that permits were on pace to exceed 200,000 this year -- after falling just short at 194,956 in 2003 -- was “a good sign.”

In Los Angeles County, Kleinhenz said, permits were up 18.6% year-to-date over the same period last year. “It’s the strongest year in recent memory,” he said.

In June, the number of new single-family home permits rose 14.3% from a year earlier, to 14,186, according to the building industry group. The multifamily sector recorded 5,655 new permits in June, a 43% jump.

Builders know, said Nevin, “that what they’re building is not a function of people needing homes.” Most new permits are for “trade-ups,” homes priced above $300,000 for homeowners looking for a larger place.

“What we need to develop more of are row or townhouses, like they have on the East Coast,” Nevin said.

Meanwhile, the industry is wary of what’s ahead. If interest rates climb in the coming months, as is widely expected, new-home production could slow.

Nevin has warned the industry that for every half-percent rise in rates, housing demand could decrease 5%, and that could crimp production.

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Permission to build

Percentage change from a year earlier in the number of permits issued in June to build single-family and multifamily housing, by area

Riverside/San Bernardino/Ontario: +79.0%

Santa Ana/Anaheim/Irvine: +66.0

Los Angeles/Long Beach/Glendale: +61.8

San Diego/Carlsbad/San Marcos: +39.0

Santa Barbara/Santa Maria/Goleta: -5.0

Oxnard/Thousand Oaks/Ventura: -26.9

Source: Construction Industry Research Board