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California Housing Market: Recent Reports Indicate Employment’s Impact

by | Dec 28, 2016 | Real Estate Law

Many are watching as Southern California’s construction industry continues to slowly gain traction after years of decline, southern California real estate investors particularly. And a recent report issued by Los Angeles County Economic Development Corp. pointed out numbers that interested parties will want to take note of:

313,700 workers were employed by the industry in 2015.

This is a decrease of 23.7% (or close to 98,000 workers) from the industry peak in 2006.

Why are these employment numbers important to southern California’s housing industry? You have to consider the employment ripple effect. The report explains it in detail. Consider that those 313,700 jobs were supported by 189,600 other jobs affected by the decline in the construction industry such as suppliers, etc. Plus another 151,900 jobs that were supported by the household spending of employees in both the construction industry and the indirectly affected industries that experienced employment declines as a result of the construction’s industry crisis.

Yet recently, construction permits, a great indicator of forward movement to come, are showing an increase. After the housing market collapse, new home construction in southern California experienced a sharp division between a surge in apartments and the slower recovery of single-family homes. In 2015, there were 29,000 multi-family building permits on record and 15,000 for single-family homes filed. These numbers have seen gradual increases each year beginning in 2009, which recorded 6,000 building permits for multi-family projects and 9,000 for single-family construction.

As of 2015, Los Angeles County had the highest number of employed workers in the industry with 125,747 (constituting 40.1% of all construction jobs in Southern California). Orange County had the second highest number with 89,360 followed by Riverside County (52,844), San Bernardino County (31,737) and Ventura County (14,077). While these numbers seem impressive at first blush, they represent an almost 20% decrease since the industry’s peak in 2006.

While many industry influencers are positive that industry expenditures are rising, sluggish wage growth and tighter lending standards have left single-family home construction recovering slowly in Southern California. The slow growth is also affected by land constraints, competition for available land, and intense regulatory measures and standards. Builders are managing the adjusted landscape of their industry by focusing more on commercial projects or high end residential that allow them to keep their profit margins high. This trend is leaving California without the supply of available homes to meet the demand as not enough single-family “starter” homes are being built. In response, median home prices in southern California have risen each year for over four years, now coming close to pre-recession pricing peaks. Yet the prices are being driven by a lack of available homes, not a plethora of buyers. California’s nonpartisan Legislative Analyst’s Office indicated that California would need to add another 100,000 units (mostly in coastal communities) to their annual average of 100,000 to 140,000 units they are expected to build in the coming years in order to offset housing affordability issues that have been created by the limited supply.

If you need assistance with your upcoming southern California real estate transaction please get in touch with the experienced southern California business and real estate attorneys at The Law Office of the Law Office of Ernesto Aldover.