California Housing Starts Down 22%

RISMEDIA, May 2, 2007-(MCT)-If California needs to build 220,000 homes a year just to keep up with population growth, 2007 doesn't look like a good year.

Blame it on the Inland Empire.

Numbers released Thursday by the California Building Industry Association showed that while total housing starts in March increased 39% from February, they were still down 22% from a year ago.

In fact, the total housing starts of 32,646 homes and apartments during the first three months of the year were fully 28% behind 2006.

Alan Nevin, chief economist for the association, said in a release that high gas prices and market uncertainty due to subprime lending have had entry-level buyers in San Diego, Los Angeles and Orange counties holding back from buying in San Bernardino or Riverside.

Nevin said about 40% of the entire statewide decline in single-family housing starts was in the Inland Empire.

"Residential homebuilders to a large degree have reverted to a Ã«just in time' mentality that results in starting homes in line with current demand rather than being ahead of demand," he said. "The result of this strategy is to maintain a modest standing unsold inventory and economic viability."

Affordability has been a serious problem for the last few years, with the inland counties a safety valve of sorts for would-be buyers in the coastal counties.

"Compared to the overall U.S., affordability is a much bigger problem in California," said Leslie Appleton-Young, chief economist for the California Association of Realtors. "The California market, particularly new homes, has been dominated by trade-up buyers.

"It's difficult for people who aren't already in the market to be able to buy homes."
That's one reason low production is not good news for people hoping to buy their first homes. There is a great deal of inventory on the market right now, but much of it is existing homes at higher prices than entry-level buyers can afford.

"California needs new homes in all price ranges," said Robert Rivinius, president and CEO of the California Building Industry Association. "Given the ever-rising fees and constraints on housing, it's all but impossible to meet the need in the entry-level market, where the need is the greatest."

Rivinius pointed out that builders haven't reached the target of 220,000 homes and apartments a year since the late '80s.

"Unless major reforms are enacted at the state level to allow increased production," he said, "it does not appear that we will reach it anytime soon."