Once the fourth largest employer in the Riverside and San Bernardino counties, the construction industry has gone into stasis, cancelling projects, slashing jobs, and vanquishing any hope that it will lead the troubled region out of this recession.
The number of housing permits issued in California dropped precipitously between 2005 and 2009, and this fluctuation is even more dramatic in the Riverside and San Bernardino counties. Builders cannot reasonably begin new projects when the market is already oversaturated with vacant properties, both residential and commercial. Office vacancies in the Riverside and San Bernardino counties have soared to 24.6% from 8% in 2006. To remain solvent, construction employers have no other option but shed up to 90% of their workforce, thus perpetuating the vicious cycle of this economic downturn.
first tuesday take: According to the Construction Industry Research Board (CIRB), California construction employment in June 2009 averaged 642,000, down 18.6% from June 2008. In June 2006, the yearly peak of construction employment, employment averaged 921,900. The decline in the construction category hits primarily tenants and owners of low-level housing.
The total number of new California housing permits, both single (SFR) and multi-family, forecasted to be issued for California in 2009 is 40,000, 20% of the 2004 peak year. In 2008, the number of permits issued was 64,962, down from the peak of 212,960 in 2004. In the first half of 2009, permits for only 2,307 SFR units were issued for all of Riverside and San Bernardino counties, compared to around 25,000 SFR starts in the same period of 2004.
The cause of this decline in construction employment and building permits issued is the massive over-construction performed during our Millennium Boom. California now needs to absorb approximately 500,000 vacant residential properties, a process which will take at least the next three or four years. The commercial property market won’t turn around until employers feel confident enough in the economic recovery to expand and begin hiring, thus requiring more space. This Millennium Boom literally pre-built SFRs for the next three years.
Unless new construction is subsidy-driven to pre-sell homes to buyers who would otherwise normally buy homes in two or three years, builders will be relegated to the waiting-room until California housing is off life-support.
Re: “Vacancies Suppress Southern California Recovery,” from The Wall Street Journal.