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Housing starts drop 81% in five-year period

There were 81 percent fewer housing permits issued in San Diego County in 2009 than in 2004, according to this year’s Economic Benefits of Housing in California report released Monday.

Conducted by the Center for Strategic Economic Research (CSER) and funded by the California Homebuilding Foundation, the report found that the statewide housing industry’s economic output has fallen 80 percent since 2005.

The housing industries in San Diego, Los Angeles and Riverside counties are the largest in the state. Combined, they account for over one-third of total construction valuation and residential units within permits granted in both 2008 and 2009, the years for which the study provides actual figures.

In 2009, San Diego County pulled 2,946 residential building permits for a valuation of $687,860,000. Those numbers are down 45 and 35 percent from 2008, when the county pulled 5,357 permits for a valuation of $1,069,645,000.

Valuation figures do not include the value of the land that’s subject to construction.

The 2006 installment of the Economic Benefits in Housing report found there were 15,587 permits pulled in the San Diego-Carlsbad-San Marcos region in 2004 for a valuation of $2,967,544,000.

In 2005, permits issued declined 8.8 percent and construction valuation 10 percent from 2004.

Permits issued fell 35 percent in 2006 from 2005, with valuation declining 33 percent.

The number of permits issued and the corresponding construction valuation fell 19 percent in 2007 from 2006.

In 2008, permits issued declined 27.9 percent from 2007, with valuation falling 25 percent.

Comparing 2009 to 2004, there were 81 percent fewer permits issued, amounting to a 76 percent loss in construction valuation.

“When you consider each intervening year is when you see the cumulative loss,” said Borre Winckel, CEO of the Building Industry Association of San Diego. “This explains why we are having such a rough time in the economy unless you work for the federal government or armed forces.”

“This set of numbers tells the story of the astonishing drop-off in economic output by the industry,” he said.

Sounding an increasingly popular refrain, Mark Riedy, executive director of the Burnham-Moores Center for Real Estate at the University of San Diego, said it’s time to get used to the new normal.

“State, county and local governments, especially in impacted areas like San Diego, are going to have to say, if you’re going to get realistic, maybe a good year is 8,000 permits," he said.

The report calculates the contribution of construction of new single- and multi-family homes in San Diego County, including direct, indirect and induced impacts, to be more than $1.1 billion of output and 6,400 jobs, based on 2009 values.

The study defines direct benefits as those related exclusively to new housing construction, such as employees of homebuilders and the expenditures of those companies. Indirect benefits are the economic activity resulting from the provision of operating inputs for builders, such as the wholesale trade of lumber, roofing, electrical, along with freight delivery services, engineering and architectural services. Induced benefits measure the consumption of direct- and indirect-sector employees.

In both jobs and output, the 2009 numbers for construction of new homes are 35 percent declines from 2008, when new housing contributed 9,972 jobs and $1.7 billion in output to the county.

The housing industry as a whole — residential real estate sales, financing, brokerages, repairs, the maintenance and operation of existing homes, along with new home construction — provides $35.7 billion in output and 122,000 jobs to San Diego County.

Winckel said the county needs to issue 15,000 permits each year to keep up with population growth, saying the difference between that number and actual permits issued each year has accounted for a cumulative buildup of demand.

“It’s an order of magnitude of houses not built,” he said. “What we’re doing is causing the next housing crisis.”

Riedy said the break-even number has actually increased from 15,000 permits a year as the actual permits issued have decreased. As that disparity continues to widen, the market won’t be able to help a spike in prices, he said.

Because there’s also a shortage in developable land, he said the county needs to embrace growth in dense areas.

“It’s a totally different way of looking at things, but if you can’t go horizontally, you’ve got to go vertically,” he said.

CSER uses numbers for its yearly report provided by the U.S. Census Bureau.

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Building Industry Association of San Diego

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Building Industry Association of San Diego Executive(s):

Paul Tryon

  • Chief Executive Officer

Borre Winckel

  • Chief Executive Officer

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