Based on California Construction Review issued June 23, 2008 by the CIRB
15,254 building permits for single family residences (SFRs) were issued during the first five months of 2008. At the present trend, approximately 36,609 SFR building permits will issue in 2008, the lowest yearly number in over 30 years. The CIRB forecast is 38,000 SFR permits for 2008.
The five-month pace of permits issued in 2008 is 57% below the number of building permits issued during the same period in 2007. Further, the number of SFR permits issued in 2007 was 36.7% below those issued in 2006, and 2006 numbers decreased 30.5% from 2005. [See chart below]
2005 marked the most recent peak in number of SFR building permits issued with a total of 155,322. The peak prior to 2005 was in 1989 at 162,651. The economic difference between the two peaks is best explained by household formation patterns. The building permit peak in 1989 was powered by the huge crest in household formations by the Baby Boomer generation in 1985. Conversely, the Boomers’ children, dubbed Generation X-ers, will not reach their maximum household formation capacity and first-time buyer availability until between 2015 and 2020, at which time Gen X-ers will drive the next housing boom
Another crucial facet of the 2005 peak in SFR building permits is the source of the trend: the main impetus was created not by prospective occupants of SFRs, called users, but rather speculators and buy-to-let or second home investors. Since Generation Y, born in the early 70’s as the “lost generation” were not populous enough to support construction anywhere near the 2005 peak, we now have a huge oversupply of unoccupied housing, with roughly 7% of all SFRs in California presently unoccupied.
Coupled with the unabated rate of trustees’ sales at nearly 60,000 per quarter for the year — more than double the pace of trustees’ sales at the prior peak in the 1990’s — and the unoccupied housing inventory grows ever more bloated.
A look at the CIRB forecasts for 2009 indicates a meager increase in SFR permits to 45,000. This can be compared with the next lowest year in the last 30 years (barring 2008), which was 1982 when the total number of SFR building permits was 51,650 — just before the Baby Boomers started hitting their 30s, the prime first-time home-buying age.
