California home construction hits 13-year high. It’s not enough to slow skyrocketing prices

Housing construction in California jumped last year to the highest level since the Great Recession, topping 100,000 new units despite the COVID-19 pandemic and a historic state population decline.

But economists and housing analysts say the Golden State remains mired in a housing crisis, still unable to produce enough homes and apartments to adequately house working families and to break the cycle of escalating real estate costs.

Some 103,000 new housing units were built in 2020, an 8% jump from the previous year, according to data from the state Department of Finance demographics unit. Slightly more than half were single-family homes, slightly less than half were apartments.

The total is far more than the recent low of 36,000 units in 2010, at the end of the state’s last major recession. It’s also far off the peak of 200,000 the state saw in the hyper-aggressive and speculative housing construction market of 2005.

“We very much still have a housing crisis,” said economist Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific. “One year of housing production exceeding population growth does not reverse the effect of many years, if not decades, of home building lagging far behind population growth.”

Despite a one-year drop in California’s population in 2020, housing demand is still strong and has pushed housing prices to record levels this spring. At the same time, people are moving out of state, leading to an uncertainty about where the state’s housing market may be headed in the post-pandemic era.

“It’s a very odd pattern,” said Hans Johnson, a senior fellow at the Public Policy Institute of California.

Economist Adam Fowler of Beacon Economics in Los Angeles blamed local jurisdictions for failing to take strong steps to implement zoning and other changes that would allow for more housing and more housing types that would make the state more affordable for working class people.

“This is not a test,” he said. “This is the crisis.”

Los Angeles, by far the largest city in the state, saw the most housing growth in 2020, nearly 17% of all new housing in the state, followed by San Francisco and San Diego.

Central Valley, foothills growing

In per capita terms, the state’s housing construction center shifted to the Central Valley and foothills during 2019 and 2020, led by San Benito, Yuba, Placer, Butte, Merced, San Joaquin and Tulare counties.

Those numbers reflect a flow of people moving from the coast to the state’s lower-cost interior and hill country in search of affordable housing, some of them freed up by the ability during the pandemic to telework while living farther from the office.

As coastal California migrated to the valley, developers in the four-county Sacramento region built 16,427 new housing units in 2019 and 2020, according to state figures. Those are some of the strongest regional numbers in the state.

That Sacramento-area boom continued into April amid high demand, when the region saw nearly 800 houses constructed, most of them in Folsom’s sprawling new area south of Highway 50 as well as in south Placer County, according to the North State Building Industry Association.

That’s the most in April in 16 years, a sign that the capital region continues to be a magnet in 2021 for new arrivals with money to buy homes.

But Sacramento area builders warned this week that the local housing boom is running into higher and higher construction costs, saying “forces outside of builders’ control ... are forcing costs upward.”

“In just the past year, lumber prices nationwide have skyrocketed by nearly 250%, causing the price of a new single-family home to increase by some $36,000,” BIA local head Michael Strech said in a press statement.

Local government fees can add $100,000 to the cost of building a home, he said, as well as costs to meet state climate change energy efficiency goals. Those fees pay for various infrastructure costs that make the new housing possible, such as highway expansions. Energy requirements include solar paneling on the roofs of most new homes.

In April, new homes in the region were generally selling in the $400,000 to $750,000 range, the building association reported.

Economist Fowler said the high cost of lumber is “a very real challenge, but not a systemic, on-going challenge.” Instead, he said, local jurisdictions must streamline their systems for permitting construction and change zoning to allow more flexibility in housing types.

Economist Michael said a lack of construction workers appears to be an immediate problem, and surmised that may be a result of a number of them moving out of California due to high housing costs.

“Construction workers are exactly the kind of moderate income, moderate education people that are most likely to leave the state due to extreme housing costs,” Michael said. “The housing crisis can drive away the labor force needed to solve the problem.

“In the long-run, the answer may be some of the new types of prefab and factory-built housing that is less labor intensive.”

Among the Sacramento region’s 15 largest areas, Folsom saw the fastest growth in new homes per capita in 2020. Folsom added 1,747 homes, or 21.2 homes per 1,000 residents, during 2019 and 2020. Roseville, Woodland and Rancho Cordova also added homes at a relatively fast pace.

The slowest rate of growth in new housing per capita was in Citrus Heights, unincorporated Sacramento County and Galt.