Hat tip to DB for sending this along, from the latimes.com:
UCLA forecasters have seen the future of California’s housing market, and it looks like this: more apartments near the coast, fewer McMansions in the desert.
That prediction is based on several factors, including expectations that rising fuel prices will encourage people to live closer to jobs along the Southland coast and in the San Francisco Bay Area.
The state’s population is also skewing younger, meaning there will be more demand for urban rental units and less demand for suburban cul-de-sacs, according to the quarterly economic forecast released Wednesday by UCLA’s Anderson School of Business.
“The incremental demand for housing is moving more into multifamily housing,” said Jerry Nickelsburg, senior economist with the forecast. “Many of the younger generation have been buffeted by the boom and bust in the housing market, and see value in living closer to work.”
That’s bad news for the state economy, however, for two reasons. One is that construction of multifamily homes requires less labor than construction of single-family homes. Second, areas such as the Inland Empire and Central Valley that were hit hardest by the housing bust won’t get a construction boom to help pull them out of the economic doldrums.
This means “there is an even larger structural unemployment problem in California than we originally thought,” Nickelsburg wrote in the forecast. “Not only do we have excess construction, real estate and support skills, but some of those that will be demanded will be in the wrong geography.”
California won’t start adding a significant number of building permits until 2013, forecasters say, which is one of the reasons the state’s unemployment rate will stay above 10% until the middle of that year. Nonfarm employment in the state won’t return to pre-recession levels until 2014, and construction employment won’t reach those levels until at least 2021.
“In a typical recovery, you get a bounce-back in housing and hiring of a lot of construction workers,” Nickelsburg said in an interview. “We’re not seeing that this time, which definitely slows the recovery, and slows economic growth.”
Changes in the state’s demographics are driving some of these shifts, forecasters say. Household formation has slowed in California as the unemployed have moved in with their family members to save money, leading to less demand for new homes.
In addition, California is one of the youngest states in the nation, according to census data, with a median age of 35.2, compared with 38.0 in New York. Although there are many Gen Xers of home-buying age in the state, many “bore the brunt of sub-prime mortgage and housing bubble crash,” Nickelsburg said, and now do not think a home is a safe investment.
The market is already responding to this trend, according to UCLA. Building permits for single-family homes have continued to decline while permits for multifamily complexes are starting to regain strength. Permits for multifamily homes are now at 40% of the peak number, comparatively stronger than permits for single-family homes, which are at 20% of their previous peak.
These housing issues, coupled with the financial pain experienced by state and local governments, will keep California’s unemployment rate at an average of 11.7% this year and 10.9% next year.
The picture is slightly rosier on the national level. Gross domestic product will grow at an annual rate of 3% through 2013, and the unemployment rate will decline slowly, reaching 7.8% by the end of that year. This year, the U.S. unemployment rate will average 8.9%.
The recovery will remain tepid because many jobs are gone for good, said Ed Leamer, director of the UCLA Anderson Forecast. Outsourcing and robots have replaced about 2.5 million manufacturing workers. About 2 million construction jobs are gone permanently because they had been created by artificial demand. Retail technology and Internet shopping, coupled with consumers’ spending fatigue, have led to the displacement of 1 million retail jobs.
Those 5.5 million workers are one reason the economy won’t grow as robustly as it has in past recoveries, Leamer said. “We have been vigilant for signs of a real recovery,” Leamer wrote. “These have been hard to find.”
I’m not a big fan of these college forecasts – the Harvard study last week was so bad I couldn’t bear to include it here. At least this one has more local application.
They are done by students, which I’m guessing are short on homebuying experiences themselves, so they hypothesize what might be, based on media reports that do the same.
We end up with a national belief that may or may not have any relation to reality.
I’ll agree with a growing trend towards multi-family living, but I’d like to see some proof of “many” GenX-ers who:
“bore the brunt of sub-prime mortgage and housing bubble crash,”
I think those who bore the brunt of the sub-prime were those who were greedy or trusted people that took advantage of them. There was no age limit on that segment.
Plus, the same guy in this same article said, “Many of the younger generation have been buffeted by the boom and bust in the housing market, and see value in living closer to work.”, so which is it? Or can you quantify please? How many is ‘many’?
All these forecasters need to stop saying things like “California won’t start adding a significant number of building permits until 2013”.
No supporting evidence given, you are just guessing, yet writing it in a way that makes it sound like it’s factual.
Jiim. Fwiw, gen X has a lot of school debt and they got a lot of medical debt and they have little wealth.
That means they had to leverage harder, and take more risk to buy housing.
Link please.
Medical debt? From medical school? I haven’t seen nor heard of one doctor who took a sub-prime loan and got foreclosed.
Most of the GenX’s I know were/are very cautious with their money.
Maybe being children of Boomers gave us a different view on what’s important.
People love generalizations. Or is that what I’m doing now?
I think the Gen Xers did get nearly wiped-out. I say this because I can think of 5 friends, all with young families, who had to short sale because of diminished income or one spouse being laid-off. Nothing to do with greed, only fear of being priced-out of San Diego were the reasons they bought. They are all renters now and they are in fact priced-out.
So they rent beat-up houses near the coast, (and within earshot of the 5 usually), not apartments. But, I think the appeal of the suburban tract is unfortunately in our cultural DNA. It is a given and there is no good alternative.
As is the draw of living in a city for people in age from 25-40, and then again around 60+.
It would be ideal if we could build something in between 5 story condo/apartments and sprawling tracts. A little more dense, something with a small private garden/yard, like a townhome or row home, individual entry, no double loaded corridors, no underground parking, 3 stories. The “either/or” of current zoning leave us with bad choices. Kettner Row in Little Italy is a good example of what could be done;
http://proto-architecture.com/blog/?p=691
Pinpointing an economists predictions to a specific date is a waste of time. Just realize that the data doesnt lie and unless there are circustances that can affect those models, just know that if they say something is going to fail, it probably will. Just be aware. Kinda like Bernanke telling lawmakers to start doing their job for the past two years and actually start creating legislation to protect the economy. If they dont, we are again going to be in a world of hurt and may not be able to help.
I personally think Anderson does a superb job at gauging certain sectors of an economy regionally. They are sociologists, they are data driven economy guys. Thornburg of Beacon Economics is a good guy to listen to. He has a great beat on the regions economy.
Expecting housing construction to reduce unemployment is an inherent “structural unemployment problem.” Houses are what people buy when they have jobs doing something else. The only way to make housing generate enough jobs to create demand for more housing is with a bubble…or a perpetual motion machine.
When you mentioned “doctor who took a subprime loan and got foreclosed” this immediately came to mind:
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/28/AR2010052803388_pf.html
Read down to the fourth section where it says “… included a young Harvard-trained doctor …”
Yes this is an extreme case but I am sure there are others. I know of some doctors who speculated in Las Vegas.
Yeah right. Those roofers and drywall guys make make so much money so they go out buy those suburbian tract houses. The CA housing recovery totally depends on them getting jobs. *snort*