New federal report offers historic view of Sonoma County’s economy, housing

A new look at the local economy suggests that Sonoma County is returning to its roots.

Having survived the tech bubble bursting and the brutal Great Recession, the rural county is now seeing job growth increasingly coming from food production and hospitality.

The rise of jobs in those two sectors is one measure of change noted in a new federal report that looks back on the county’s economy and housing market since 2000. The report by the U.S. Department of Housing and Urban Development provides a historic overview of factors affecting where local residents live and work.

Keith Adams and Rob Hunter may have planted themselves right at the intersection of those two sectors. This summer they began releasing their first cloth-bound aged cheddar cheese from William Cofield Cheesemakers in Sebastopol. The two men have outfitted a 3,000-square foot cheese production/retail facility in the Barlow, a business center showcasing craft food makers and original eateries. The North Bay’s organic dairies and its growing artisan food, beer and wine sectors made this a natural place to start their business.

“It’s a mecca for people who are interested in good food and drink,” said Adams, a native Californian who has made cheese for nine years in Minnesota. Tourists and local visitors to the Barlow will find “an amazing collection of people doing cool things.”

The HUD report offers a snapshot both of the economy and of housing, and concludes that over the past 17 years here “we’ve seen a shift in the types of jobs,” said HUD spokesman Ed Cabrera. Its data on housing underscores trends long noted by government, building and real estate leaders - namely how a lengthy drop in home and apartment construction followed a national housing market crash and led to a lack of available units for both home buyers and renters.

In 2000, manufacturing was the largest jobs sector in the county, the report noted. But soon thereafter, the county’s telecommunication companies went through a wrenching shakeout, even as other tech employers transferred thousands of production jobs overseas.

Manufacturing now ranks fifth for jobs among local industries, and its employment base “is contracting and has been for quite some time,” Cabrera said.

However, while tech jobs declined, the county has increasingly gained a reputation for craft foods and beverages and has had considerable success in drawing tourists to experience the county’s food, wine, beer and natural beauty.

“I think what’s really interesting about Sonoma County’s economy, with the tech bust, is for better or worse, it’s returned to its roots,” Jesse Rogers, an economist who follows the county for Moody’s Analytics in West Chester, Pennsylvania.

Rogers added that the emphasis on agriculture-related products and tourism has been “in many ways for the better.” The related sectors draw visitors worldwide and add economic activity to “towns throughout the county.”

The county is in its seventh year of job growth, the HUD report noted. It represented the longest period of employment gains since a nine-year economic recovery from 1992-2001.

“We’re in a boom, with all the good and bad that goes with that,” said Ben Stone, executive director of the Sonoma County Economic Development Board.

The good news is the county has some of the lowest unemployment and highest hotel occupancy rates in the state, Stone said, with a jobless rate in July of 3.9 percent. The downside of economic growth is that employers are having trouble finding qualified workers, while renters and home buyers have seen a steep rise in housing costs. County manufacturing jobs hit their peak in early 2001 at slightly more than 20,000, according to state employment data. Tech companies then were major employers, including in Petaluma’s so-called Telecom Valley, which gained a reputation as a global supplier of communications equipment.

The high-water mark for that sector came in 1999, when Cisco paid $7 billion for Petaluma-based telecom startup Cerent. Two hundred employees at the 2-year-old company became millionaires that day, at least on paper, based on the value of their stock options. The county’s telecom sector then employed more than 12,000 workers, many of them engineers making more than $80,000 a year, double the county’s average wage at the time. But when the dot.com recession struck in 2001, local companies shed 6,000 jobs in two years, and many companies eventually shut down their operations here.

Those telecom jobs that left went to other states, other countries or simply “went away,” said Dick Herman, president of 101 MFG, a Petaluma-based alliance of manufacturing executives.

About the same time, other county tech and medical device companies began to send manufacturing jobs overseas in a process known as offshoring. The HUD report notes that electronics measurement company Agilent Technologies, then the county’s largest employer with 5,000 workers, cut its workforce here to 2,600 between 2001 and 2003. Malaysia was the country where Agilent increased its manufacturing.

The local Agilent division, now known as Keysight Technologies, currently has about 1,300 county workers. Today technology, manufacturing and lifestyle products companies still comprise the county’s top business cluster based on economic output. The sector accounts for $3 billion, or nearly 11 percent, of the county’s $29.6 billion economy, according to Moody’s.

Manufacturing’s strength has remained partly because of increased automation and job productivity, the latter doubling roughly every 10 years, Herman said. He emphasized that tech and manufacturing will continue to bolster and add diversity to the local economy. Moreover, he said, the county’s roots include “some really cool manufacturing.”

Among business sectors, health care has remained a leader in employment growth and the one cluster that didn’t shed jobs during the Great Recession of 2007-2009, the HUD report stated. Also, both the report and state employment data suggest that tourism and craft food and beverage manufacturing have made significant strides, together adding nearly 10,000 jobs since 2010.

Craft food and beverage products offer a wild card not typically available for tourist regions, said Jonathan Coe, president and CEO of the Santa Rosa Metro Chamber of Commerce. Those who taste the county’s fine wine, food and beer often want to come for a visit, while those who visit often want to join wine clubs or keep partaking of the food and beer when they return home.

“It becomes a mutually reinforcing thing,” Coe said.

Stone of the economic development board said the county’s food products and natural attractions also help raise awareness among those searching for a good place to live and work.

“Companies have told us it helps for recruiting,” he said.

The county’s reputation certainly affected Adams’ decision to start a cheese company here. He partnered with his old UC Davis fraternity brother, Hunter, a longtime winemaker at such Napa County wineries as Sterling Vineyards, Markham and Bennett Lane, as well as his father’s Robert Hunter winery in Sonoma.

The North Bay already has a number of quality producers of soft-ripened cheeses, the two men said, as does Adams’ Alemar Cheese in Mankato, Minnesota, where he remains a managing partner. Therefore, they are turning to their English heritage and making cheddar and Stilton style blue cheeses, along with selling Midwest style cheese curds to such eateries as Bear Republic Brewing Co.’s two brewpubs.

“If we pull it off,” Adams said of their new business, “it’s going to be so much fun.”

The HUD report was the first of its kind produced for the county in four years. It will be used to help inform local officials and the agency’s newly regional leadership appointed by President Donald Trump.

In housing, HUD charted steep drops in home and apartment construction here starting in 2007 and continuing through last year, though 2016 did show improvement for single-family homes. Nonetheless, the drop in new construction has led to tight markets for renters and home buyers, Cabrera said, “and that mirrors the Bay Area.”

County home prices have more than doubled since home values hit bottom in early 2009. In July the county’s median single-family home sales price hit a new record of $644,000. Meanwhile, rents here have risen dramatically. The HUD report stated that since 2010 rents have increased an average ?6.6 percent a year, compared to ?3.7 percent nationally. It pegged the average county apartment rent in the year’s first quarter at $1,623. In comparison, two other reports this spring put the average asking rent for a two-bedroom apartment in the county at between $2,100 and nearly $2,300.

Shirlee Zane, chairwoman of the Sonoma County Board of Supervisors, said the high cost of housing is making it hard for employers to attract workers here.

“We know we’re in dire straits,” Zane said. The solution is to attract “some big projects” offering high-density and transit-oriented housing that can serve all types of county residents, she said.

The HUD report forecasts a need for 1,375 houses and condominiums and 1,700 rental units in the county “to achieve a balanced market” in the next three years. Currently under construction are 200 rental units and another ?230 units to be for sale.

Some of the current demand for housing might be met by 13,000 “vacant units,” the report stated, the largest portion of which Cabrera said are various types of vacation and short-term rental homes.

Scott Gerber, a real estate broker who has been tracking North Bay rents for two decades, said more apartment developments are on the drawing board to help satisfy the demand.

“With a rising rental market comes the economic feasibility of building more units,” said Gerber, managing director of Bradley Commercial in San Rafael.

Rick Laws, a senior vice president in Santa Rosa for Pacific Union International real estate brokerage, said builders similarly have told him that only recently has it made sense economically to build new homes.

But Laws doubted that a mere 1,375 new houses and condos over three years would do much to relieve the shortage in the for sale segment of the market.

“I think the demand is much higher than they realize,” said Laws, who prepares the monthly housing report for The Press Democrat. If the extra housing came along, the market “would suck it up with hardly a blip.”