Bubble Watch: Southern California Building Permits Take Biggest Tumble Since Recession
Trend reported: Building permits for 56,523 units — single-family and multi-unit projects — were filed in the region last year. Yes, last year’s planning looks good when comparing it with the 2013-2017 average. Permits were up 4,567 units, a 9 percent boost, in 2018 vs. the previous five years. But last year was down 1,750 units (3 percent) vs. 2017 and was the second decline in three years.
Look at 2018: Southern California’s real estate market stalled and builders in the seven-county region cut permitting by the largest amount since the Great Recession ended.
There are plenty of factors are in play including NIMBY-ism as neighbors resist new housing projects. That’s a hurdle most developments must overcome.
But 2018’s slightly cooling job market helped create a large local supply of unsold newly built homes. And as summer began, homeowners were rushing to list their existing homes for sale. More competition for sellers, at a minimum, diminished builders’ immediate need to create more single-family homes.
Southern California builders filed 24,947 permits for single-family homes last year, down 1,577 units (off 6 percent) vs. 2017. It was the first drop since 2011, but I’ll note last year’s permitting pace vs. the 2013-17 average was a 5,019-unit improvement. Yes, a gain of 25 percent!
Similar economic uncertainties — plus a political worry, the statewide rent control initiative that failed — seemed to zap landlords’ enthusiasm for development. Not to mention new rentals that were built nudged up vacancy rates in certain markets.
Southern California’s multi-unit projects — primarily apartments — had 31,576 permits filed last year, down 173 units vs. 2017 or a 1 percent dip. After rising from 2010 through 2015, we’ve seen three consecutive years of multi-family construction declines putting last year’s pace 452 units — 1 percent — below the five-year average.
The region’s slowdown was not found elsewhere in the state where 58,809 permits were filed — up 4,196 units (8 percent) in a year, the fourth-consecutive yearly gain. Single-family permits jumped 12 percent in ’18; multi-family rose 3 percent.
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ZERO BUBBLES.
Remember, developers are in the business of making money while mitigating their risks. Unless someone’s going to guarantee them profits, last year strongly suggests that real estate conditions will have to be near perfect to get developers to produce the gobs of new housing many folks hope will be one fix for the state’s high cost of living.
And that developer caution should diffuse any bubble by overbuilding.
Author: Jonathan Lansner
Source: Los Angeles Daily News (Orange County Register)