Building bogged down
Published: Sunday, October 7, 2012 at 5:15 a.m.
Last Modified: Friday, October 5, 2012 at 7:24 p.m.
The bottom just dropped a little lower for Sonoma County’s battered construction industry, now in its fifth year of a historic slump.
Though some in the industry see faint signs of a turnaround, construction activity tumbled to $97 million in Sonoma County during the first half of 2012, down 30 percent from the same period a year earlier, according to new data released by the California Homebuilding Foundation.
“No one in their wildest nightmares ever envisioned that this downturn in the economy and construction would last this long,” said Keith Woods, chief executive officer at North Coast Builders Exchange, a Santa Rosa trade group.
The slump has wiped out thousands of jobs and slowed the region’s rebound from the recession.
In the first half of 2007, construction activity totaled $315 million. Since then home builders have posted their worst years in more than four decades, and commercial construction has slowed, too.
Nearly two in five local construction workers have lost their jobs over the last six years. In August, there were 9,600 construction workers in Sonoma County, down from 15,600 in 2006, the state Employment Development Department reported.
There are fewer construction companies, too. The local builders exchange has lost nearly a third of its members over the past five years. Today, about 1,200 builders belong to the Santa Rosa trade group, a loss of about 500 members over the past five years, Woods said.
Others in the industry insisted the new permit data doesn’t tell the whole story. Home builders maintained there has been healthy demand this year to buy the limited number of new houses available at their developments. And a major retail complex is under construction in Petaluma, featuring a massive 378,000 square feet of space anchored by Target.
Local construction companies are slowly starting to hire workers. The sector has now added jobs for six straight months, compared to a year earlier, its longest streak of uninterrupted growth since 2006, according to EDD figures. It marks a stark turnaround for an industry that had shed jobs in 57 of the previous 58 months.
Even so, most conceded the construction industry is still facing strong head winds.
On the commercial side, the county still has 3 million square feet of empty offices, amounting to a vacancy rate in excess of 22 percent, according to Keegan & Coppin, the North Bay’s largest commercial real estate company.
And for residential construction, builders still can’t buy vacant land and build houses for the price that similar existing homes are selling for in the county. Prices remain held down partly by the historically large number of homes at risk of foreclosure.
“We’re not out of the woods yet, by any stretch of the imagination,” said Bob Glover, executive officer of the Building Industry Association of the Bay Area, a trade group.
For the county, residential construction activity in the first six months declined to $60 million, a 31 percent decline from a year earlier, according to the California Homebuilding Foundation. Commercial activity slid to nearly $37 million, a 29 percent drop.
The foundation, a Sacramento nonprofit founded by the California Building Industry Association, began collecting the data last spring after the closure of the Construction Industry Research Board, which previously tracked permits. As a result, there may be some differences in the year-to-year comparisons.
In the first six months, Sonoma County builders obtained permits to build 210 houses, apartments and condominium units, down from 287 in the same period a year ago. That total is based on data from the foundation, plus numbers confirmed or revised by the building departments of Santa Rosa, Rohnert Park and Petaluma.
At the current pace, Sonoma County builders will post their worst year in four decades, sinking below the previous low of 430 housing units in 2009. By comparison, local builders erected roughly 2,200 homes per year, on average, over the last quarter century.
In Mendocino County, permits issued for residential and commercial work increased 2 percent in value to nearly $20 million for the first six months of the year. However, home permits declined to 37, down from 48 a year earlier.
In Lake County, permits for all construction activity decreased 9 percent in value to $8 million. The number of home permits issued was 14, unchanged from a year earlier.
New home developments this year have been limited almost exclusively to projects that were taken back by banks from financially distressed builders and sold again at steep discounts to new companies. The discounts allowed builders to construct homes and make a profit. But many agreed that few such deals can be found today.
“Most of the broken projects have cycled through the system,” said Randy Waller, broker owner of W Real Estate in Santa Rosa, which represents such new home developments as Arista Place in northwest Santa Rosa.
One new development, Ragle Ranch, was purchased in 2010 by Meritage Homes of Scottsdale, Ariz., the nation’s ninth-largest home builder.
Meritage paid $12 million for the southeast Santa Rosa development, which includes about 135 home sites. Public records showed the lender was owed $22 million by the previous owner, Christopherson Homes.
Barry Grant, Northern California division president for Meritage, said the company is pleased by the sale of 50 Ragle Ranch homes, including 30 this year. The homes are priced from nearly $303,000 to $447,000.
Meritage is now preparing home sites for the next phase of construction and would have done so sooner had it known it would sell so many homes this year, he said.
But Grant echoed the comments of others that the supply of shovel-ready home sites today is “razor thin” in much of the region. It remains possible that home construction activity could lag an eventual economic recovery unless more projects win the necessary approvals from local governments.
Looking forward, Grant said, “the issue that builders are facing is overall scarcity.”
Greg Hurd, a principal with BKF Engineers in Santa Rosa and president of the local builders exchange, said enough new work is on the horizon to cause his Redwood City-based company to hire 15 new engineers for its nine offices in the last six months.
“I’m seeing activity, more so than in the last two or three years,” said Hurd.
The design and engineering work comes early in the building process, but he believes it will lead to new construction in 12 to 18 months.
Most of the design work involves future residential projects, he said.
Industry spokesmen lamented that they are selling homes at 2001 prices but still paying 2012 fees to city governments. As such, they applauded the city of Petaluma, which this fall is lowering the typical fees on a new home by 28.5 percent to slightly under $43,000. Fees for commercial projects also will decline between 20 and 30 percent.
Many said both residential and commercial construction still lag in part because of high unemployment and a struggling economy.
“The problem with California is we still need to see some job growth,” said Lori McGuire, an industry analyst with the homebuilding foundation.
Joan Woodard, president and CEO of Simons and Woodard, a Santa Rosa firm that designs, builds and manages commercial real estate, said the office vacancy rate needs to fall to near 10 percent in order to spur construction of more such space in the county. That will take a significant number of new jobs, especially because companies today are finding ways to operate with less space than they did a decade ago.
“I don’t think we’re going to see anything new come along for quite a while,” Woodard said.
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