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Economist: Sonoma County’s economy strong but slowdown coming second half of 2020

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Although California’s housing crisis remains a major economic threat, the lack of construction workers makes it difficult to build enough new homes, a top economist told Sonoma County business and political leaders on Friday.

“We don’t have enough people to build the houses,” said Jerry Nickelsburg, director of the UCLA Anderson School of Management’s forecast service.

Nickelsburg spoke at the annual state of the county breakfast at DoubleTree by Hilton Hotel Sonoma Wine Country in Rohnert Park, offering his economic assessment and outlook.

Overall, the local economy remains relatively strong with low unemployment, despite the risk of a U.S. recession sometime in the future, he said. His local forecast called for solid gains in personal income from 4% to 4.7%, but slower employment growth at less than 1%.

The economist predicted the county economy will slow during the second half of 2020, before rejuvenating next year.

The county’s economy is helped by a 2.4% jobless rate as of December 2019 that mirrors much of the surrounding Bay Area, where unemployment in some of the counties is less than 2%. The U.S. jobless rate was 3.5% last month.

The county’s tight labor market, however, also presents challenges, Nickelsburg said, alluding to the difficulty area companies have hiring.

“Where do you get people to grow? You are not going to get them from the other Bay Area counties,” he said.

The push to hire workers is especially critical in the construction sector because of the enormous demand for affordable housing, which was exacerbated locally by the 2017 North Bay wildfires that destroyed more than 5,300  homes in Sonoma County.

“That’s one of the challenges going forward,” Nickelsburg said.

There are more than 900,000 workers in the construction sector in California. However, the state had 950,000 such workers during the building boom of 2006 before the Great Recession, he said.

“This is going to be a slow process,” the economist said of homebuilding efforts to help alleviate the housing shortage.

The Sonoma County Economic Development Board estimated last year that 1,000 additional construction trades workers will be needed here by 2025 to keep pace with housing demand.

Nickelsburg credited local efforts such as a nearly $9 million regional construction trades training center planned at Santa Rosa Junior College’s Petaluma campus to train up to 500 workers annually.

He acknowledged barriers exist in restrictive local zoning rules in California that have discouraged necessary housing construction, especially since the state needs to build 1.3 million homes over the next decade to meet population needs.

Efforts to stimulate affordable housing construction were stymied in the state Legislature Thursday when the Senate defeated a bill (Senate Bill 50) that would have overridden local zoning rules to allow midrise apartments near transit stations and make it easier to build townhouses in single-family neighborhoods.

“In the near term, bills like SB 50 are not likely to have much impact simply because we have building capacity constraints like not enough construction workers,” Nickelsburg said. “One needs to think of housing policy as long-term policy, addressing demand issues and supply issues. And only part of the demand issues are in the regulatory environment.”

For example, he said it would take an estimated 350,000 more workers to produce 200,000 additional homes a year in California.

Those workers also would need a place to live as well in the midst of a tight housing market.

“Where are you going to find them? If they are coming from the outside, it means they are bringing families with them. They need a place to live. They need structures. They need schools,” Nickelsburg said. “There aren’t quick fixes to it.”

You can reach Staff Writer Bill Swindell at 707-521-5223.

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