Business & Real Estate

Sacramento’s economic growth was twice the national average last year. Here’s why

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The Sacramento region’s rebounding housing market, which had collapsed during last decade’s downturn, helped drive economic growth last year to more than double the national average, economists said Monday.

“The Sacramento region had a bunch of catching up to do because it got so hard hit by the recession,” said Stephen Levy, head of the Center for Continuing Study of the California Economy, based in Palo Alto.

The center issued its take Monday on the federal Bureau of Economic Analysis’ figures for gross domestic product by metropolitan area in 2016. California and a number of its urban areas were among the big winners in the federal numbers released last week.

The Bay Area, with Silicon Valley leading the way, saw a 5.2 percent increase in gross domestic product in 2016, more than triple the 1.5 percent national growth rate. The Bay Area’s GDP was estimated at a massive $781 billion.

With a 3.1 percent surge in GDP last year, the Sacramento region’s growth was more than double the national average. The report rated the region’s overall economic output last year at $128 billion.

GDP is the monetary value of all goods and services produced in a specific area. As defined in the report, the Sacramento region included Sacramento, El Dorado, Placer, Sutter, Yolo and Yuba counties.

In the six-county region, construction was a big contributor, though “we still have a ways to go there,” Levy said. Home construction has traditionally been a major economic driver in the Sacramento region but remains low by historical standards.

Kevin Carson, president of the New Home Co. for Northern California, said home construction fell to fewer than 2,000 units during the low years of 2009 and 2010 but has risen by about four times that amount since then. He said he hopes the region will produce more than 10,000 new homes by next year.

“All signs are that sales are strong and buyers continue to look,” Carson said. “We haven't seen the Bay Area buyers like we thought we would. The buyers that are buying are Sacramentans, which is really encouraging.”

Professional services – from lawyers, architects, accountants and the like – also drove GDP growth in the Sacramento area, Levy said. Software professionals doing business with the state government was part of that sector’s growth, he said.

Job growth rebounded, too, he said. “After some really terrible years, Sacramento was one of the leaders in job growth because of (the rebound). State and local governments, public universities and health care services were among those hiring, he said.

The financial sector played a large part in the capital region’s economic upsurge.

“Finance leads the gains, but within finance almost all of the growth is in real estate,” said Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific in Stockton. “The surging real estate market played a major role in 2015 and 2016 growth.”

It drove income gains in leasing activities, development and related banking, Michael said. “Construction also saw nice gains during these two years,” he said.

The report added that the agriculturally rich San Joaquin Valley had 2.5 percent annual GDP growth in 2016.

Specific Golden State metropolitan areas seeing strong year-over-year growth included San Jose (5.9 percent), San Francisco-Oakland (5.4 percent), Fresno (3.4 percent), Sacramento (3.1 percent) and Riverside-San Bernardino (2.6 percent).

“It’s not just the Bay Area, but now the Sacramento region and Fresno and Riverside-San Bernardino participated,” Levy said. “Sacramento may be the only one that has a bit of the Bay Area spinoff.”

Statewide growth was 2.9 percent in 2016, with a GDP total of nearly $2.5 trillion.

The center noted that the five-county Los Angeles Basin – which had 2 percent growth last year – amassed a 2016 GDP of $1.2 trillion. That alone would have ranked it fourth among states behind only California, Texas and New York.

If the Los Angeles area were a country, it would rank just behind Australia and ahead of Mexico, the center said. The Bay Area would fall between Turkey and the Netherlands economically. And the Sacramento region would rank 55th – behind Kazakhstan and ahead of Hungary, it said.

Levy said the state’s strong numbers were accompanied by a downside: the lack of affordable housing. “Despite job growth, falling unemployment and the return of some workers to the workforce, poverty adjusted for housing costs remained above 20 percent in California,” Levy said.

“This is not caused by economic weakness but is totally the result of insufficient housing construction that has led to rents and prices far outpacing income gains.”

Pat Shea, president of Lyon Real Estate, said he believes the growth figures are a sign of more to come.

“I think we have room to grow … as long as the national economy remains strong and stable,” Shea said. “At the end of the day, Northern California is so strong, from the Bay Area to Sacramento, that there seems to be a clear path to growth and sustainability.”

Hudson Sangree: 916-321-1191, @hudson_sangree