California builders not in much of a homebuilding mood

California homebuilders modestly increased their single-family construction plans in 2020, but the expansion badly trailed a national building boom.

In an odd pandemic year that boosted homebuying, California recorded 61,700 new permits for single-family residences, according to Census Bureau data compiled by the St. Louis Fed. My trust spreadsheet tells us that 2020 permits in California were 4% higher than 2019’s pace, but that’s fairly meek growth …

1. Single-family permits rose 14% elsewhere in the U.S.

2. Only 11 states performed worse than California.

3. California’s slice of the nation’s single-family home creation fell to 6.3%, below its 6.9% average in the previous five years.

California’s meager production of new homes was certainly a reason statewide sales price leaped 11% in a year, pushing the median sales price for an existing single-family home to $659,380. Limited choices and higher prices didn’t deter too many house hunters as sales rose 3.5% vs. 2019.

Now, builders claim the state is a tough place to build as regulations make construction costly and new land hard to develop. Let’s also note that California is one of the nation’s most-profitable places for new-home construction, and developers seem in no hurry to bolster the supply shortage.

However, the state’s strict pandemic business restrictions made 2020 development even trickier. Those “stay at home” mandates also clouded the statewide economic picture, which scared some builders from a rapid ramp-up of California house construction.

The pandemic’s hit to landlords also cooled multifamily development, primarily rental projects. Lockdowns clobbered the typical renter’s job market, making it hard to keep apartments full — especially as historically low mortgage rates motivated wealthier renters to buy.

Last year, California had 42,800 multifamily permits, 15% lower in a year and the slowest pace since 2013. That dip ranked No. 27 nationally as investors in many states decided more rental communities wasn’t a great idea.

In the rest of the U.S., multifamily permits dipped 10% to the slowest pace since 2017. Still, California underperformed with just a 7.6% share of U.S. multifamily permitting in 2020 compared with a 9% average in the previous five years.

Limited construction is one reason why the typical California residence has nearly three people per household — only Utah and Hawaii have denser living, followed by Texas and Alaska.

As California’s meek home production pushes housing costs up, some families are left with cramped living arrangements. There are other factors in the housing supply puzzle, too, such as the state’s youthful population (kids at home) and cultural preferences (multigenerational living).

Yet it’s clear that Californians want more housing options. The state has 10% of the nation’s households but the last time builders in California filed 10% of the nation’s building permits was 1991.

Blame can be spread widely. Municipalities are slow to allow construction. Only 3% of California’s cities and counties are fully on track to meet state goals to build sufficient housing, according to an analysis of state data by the Southern California News Group.

It’s a sad bottom line. California builders’ overall plans for 104,500 new residences last year — for ownership and renting — equals a new housing supply that was 5% below 2019. It was the fewest permits in four years, and only 14 states were slower.

And, somehow, the rest of the nation boosted total permitting by 4% to the swiftest pace in 14 years.

Meanwhile, California’s population growth has all but stalled. Has costly housing scared folks from the state — or does stagnating demographics scare off builders?

Source: Orange County Register