In case you’re not aware, our housing market is red hot right now with prices rising year-over-year by double digit increments as too many buyers chase too few homes. This is not a locally isolated occurrence as it also impacts most of the state and much of the rest of the country as well. There are myriad contributing factors to the problem but as I’ve been pointing out for the past two decades, the root of California’s problem lies in a lack of new product – homes just aren’t being built fast enough to address the need that exists.
It is estimated that our state requires some 180,000 new residential units every year to meet demand. This in spite of the increasing number of people exiting the Golden State for greener pastures. That goal was achieved briefly in 1988 and 1989, but following a couple economic downturns, production fell well below the number from 1990 – 2002. From 2003-2005 housing, again produced a sufficient number of homes but since 2006 has come nowhere close to adequate construction. In the five-year period from 2008-2012 there were fewer than 180,000 homes built cumulatively.We had clawed out way back to just over 100,000 homes by 2017 -2019 when the pandemic brought things to a grinding halt last year.
But even a resurgence of construction (which is still a ways off), is unlikely to produce the necessary volume and/or affordability that is required to address the problem. And in California one need look no further than Sacramento to find the cause. This issue will focus on one of the root causes of unaffordable housing:
Self-inflicted wounds – the timber industry and the cost of housing.
Even before the current pandemic strictures, state mandated costs, prevailing and minimum wage mandates, entitlement costs, and centrally planned zoning, drove the cost of housing construction to the 2nd highest in the nation, outranked only by New York.
Sadly assuming that construction will eventually rebound, the average cost of raw materials, especially lumber, is now estimated to add $23,000 to the cost of an average home. For every $1,000 increase in the cost of a home, some 6,000 – 8,000 people are removed from the prospective pool of buyers for that home. As a result, affordability will be denied to 10’s of thousands of Californian’s in pursuit of their American Dream. As interest rates inevitably rise from their current historic lows, this will only exacerbate that divide.
The cost of lumber alone has more than doubled during the pandemic. You would be correct in asserting that this is not a problem unique to California, but you would be only partially correct. Because unlike a mere 50 years ago, virtually ALL lumber used to build our homes today must be imported, and subject to Canadian or other tariffs. This is a self-inflicted wound.
California used to be home to hundreds of local and regional sawmills and timber processing facilities capable of supplying the raw materials locally and cheaply. The state once numbered among the largest timber producers in the country. They supplied the necessary materials to fuel the post WWII housing boom that produced millions of affordable housing units that drove the great California migration through the 1950’s and 1960’s. By 2006 the number of mills had shrunk to just 33, of which fewer still survive today. Softwood production in the state has declined by over 80% with much of today’s production going to chipped mulch because most of the trees feeding the few remaining mills are using fire harvested trees unsuitable for home construction.
Sacramento’s obeisance to the environmental lobby and mismanaged forestry policies has not only led to the increase in disastrous wildfires but predicated the demise of our timber industry and contributed to the high cost of housing we face today. (BTW, in case you hadn’t noticed, those same efforts and policies are also contributing to the demise of our petroleum industry, the results of which you experience every time you fuel your car.)
Next issues we’ll talk about CEQA’s contribution to the problem, and some of the measures proposed as housing relief bills in Sacramento that are anything but.
Meanwhile, despite the Siren Song of mortgage lenders, please don’t treat your home like at ATM. In case your memory has lapsed, the last time that was done in volume, we lost 60% of our home values in just 18 months. We’re not there yet, but the temptation is strong and it wouldn’t take much to tip the scales of the pandemic from mortgage forbearance to mortgage meltdown. I guess that is one way to get more affordable housing, painful but effective.
Gene Wunderlich is Vice President, Government Affairs for Southwest Riverside County Association of Realtors. If you have questions on the market, please contact me at GAD@srcar.org.