To Fix the Economy, Fix Housing

Adding to the chorus of recent articles about the economic importance of homebuilding, Alejandro Lazo writes in today's L.A. Times that the continued slump in homebuilding is a major factor in the failure of the overall economy to rebound from the Great Recession.

The headline sums it up nicely: "New-home slump keeping door shut on U.S. recovery." In the article, Lazo quotes economist Ed Leamer, director of the UCLA Anderson Forecast:

If the recovery is going to come, it is going to be driven by two sectors: manufacturing and construction, and it doesn't look like there is going to be a big recovery in manufacturing. It is going to have to come in housing; otherwise we are going to limp along as we have been.

Lazo cites several major reasons why homebuilding hasn't rebounded - the large number of foreclosures that continue to drive down prices (and make it almost impossible for builders to compete with the bargain-basement prices), continued high unemployment and a lack of consumer confidence.

But there's another critical reason not cited - the fact too many local governments still think it's perfectly OK to charge $50,000 or $60,000 in "developer fees" for every new home built. With prices held down by short sales and banks willing to sell at a loss, builders can't make projects pencil out if they are asked to keep funding communitywide amenities outside their project areas.

While the overall tone of the piece is gloomy, it does end on a more optimistic note, quoting noted housing economist Ivy Zelman.

(S)he said that "we think a lot of the weakness of the housing market is really sentiment-related," meaning that once potential buyers feel more secure about the future, they will step up.

"The outlook is gloomy, but I don't think it is going to look much worse from now on," she said. "The builders "have enough cash on their balance sheets and enough debt that doesn't come due for a few years that they are not going to be out of business next year."

How Do You Spell Jobs? H-O-U-S-I-N-G

Journalist Joe Mathews hit the nail on the head (so to speak) with an insightful post on NBC4's PropZero blog. Mathews discusses the various pronouncements by state officials about how to boost the economy, but says none of them are talking about the housing sector, which traditionally leads the state and nation out of recession.

(I)f the issue is jobs, the focus should be on the biggest drag on employment in California: housing and construction.

The state has done relatively well on job growth in other sectors, but the construction sector has been decimated by the housing collapse.

Housing seems to be at the core of California's economic problems.

About a third of California homeowners with mortages owe more than their homes are worth. That overhang -- estimated at nearly $200 billion in the state -- deters the kind of broad spending and investment needed for economic recovery.

A real conversation about jobs and the California economy would see the governor and legislature  doing everything in their power to deal with housing and housing debt.

Since most of the tools to deal with that crisis are at the federal level, California's representatives in Washington should be fully engaged.

Unfortunately, the end of the session conversation about "jobs" doesn't seem this focused, or robust.

You can read the entire post here.

Buffett: Homebuilding to Lead Economy Out of Recession

It's an old cliche that housing leads the economy out of recession, but sometimes cliches are based on solid facts. Thus, the glacial pace of the U.S. recovery from the Great Recession may be due in large part because the housing industry is still dealing with the large number of foreclosed homes across the nation.

Lending evidence to that theory is none other than the Oracle of Omaha, legendary investor Warren Buffett, who today told Charlie Rose in an online interview that the housing market - and homebuilding in particular - remains the key to recovery. He also says the housing market might turn around quicker than a lot of people think.

Unemployment will fall significantly, in my view, when we get back up to a million housing starts. We’ve recovered on corporate profits, we’ve recovered in terms of getting the banks back in shape—banks are in good shape now—we’ve recovered in all kinds of areas. Corporate America is doing fine in most areas. It’s not doing fine in things tied to residential construction. That won’t come back until we work off the excess inventory. But the amount of excess inventory is not as high as a lot of people think, in my judgment.

He predicts that when the million housing starts level is reached, unemployment will fall below 7 percent.

You can read more on Forbes.com.

Environmentalists File Lawsuit to Block New Housing

As predictably as the sun rising in the east, a trio of environmental groups have gone to court to try and litigate to death the proposed SouthShore development in south Oxnard, the Ventura County Star reports.

Opponents have complained for years that the project is too close to the sensitive Ormond Beach wetlands, where ongoing environmental restoration efforts are under way. But having lost their arguments before the City Council, opponents are now saying the city didn’t devote enough attention to groundwater, greenhouse gases and the possibility that sea levels might rise someday.

Since it’s clear they just want the site to remain a strawberry field forever, let’s look at the facts.

• SouthShore is a good mile-and-a-half from the beach. It is surrounded on the north and west by existing residential development. To the east of the parcel is a junior high school. And southwest of the project – far closer to the beach and the wetlands – is a power plant, wastewater treatment facilities and a number of other industrial uses.
• The project is inside Oxnard’s SOAR boundary. The building industry recognizes that development can only take place within urban boundary lines. What’s the point of designating where growth can occur if development is still opposed every step of the way?
• Finally, SouthShore is a well-planned community that drew heavily on input from the Urban Land Institute. And city officials agree it’s needed to provide a boost to long-struggling south Oxnard, which badly needs economic development and revitalization.

The city of Oxnard wants to develop and do its share to house the county’s growing population. And after years of planning and review, the city has approved a well-thought out and environmentally sensitive community. It’s time to let the process continue.

Lancaster Cuts Development Fees

The Lancaster City Council yesterday voted to reduce and defer fees on residential and commercial builders in an attempt to jump-start building in the community. Officials expect the action to create more than 200 jobs and generate some $4 million in revenue to the city.

We encourage other cities, counties, school districts and other local governments to follow suit. The more a project pencils out, the more likely it is that construction will actually occur, with all of the economic benefits that brings with it.

You can read our press release here.