The Pulse of the Homebuilding Industry

Analyzing the health and well-being of California housing by the numbers
By Allison Paul

The housing market is such a dominant force of our economy that it is often personified as a living entity, and for more than 60 years, the CIRB (Construction Industry Research Board) has been the data source tracking the vital signs of California housing unit construction. With annual 2015 and semi-annual 2016 permit statistics calculated, and year-end totals approaching, CIRB reports are helping the industry keep its finger on the pulse of homebuilding activity.

The health and well-being of housing in California can be quantified by the number of permits pulled by county and municipality building departments. More specifically, how many new single- or multi-family dwelling units are present in these issuances. In a rigorous month-by-month endeavor, CIRB analyzes residential and commercial permit records for all 536 incorporated cities and 58 counties in California, and distributes the statistics in monthly and annual subscription-based report publications.

Statewide housing data, published in CIRB’s 2015 Annual Building Permit Summary, cumulated 98,073 total units, indicating a 14 percent increase in building activity from 2014. Historical numbers reveal that the past year produced 61,864 more units compared to 2009—the lowest point in all housing activity recorded since 1954. Though 2015 appears to be the “healthiest” year for housing since the Great Recession, it’s also more than 110,000 units behind the construction peak of 2005.

As for the current year, January through June 2016 cumulated 50,635 total new housing units—a 2.5 percent decrease compared to the 51,923 units permitted in the first half of 2015. Single-family units increased by 3.4 percent year-over-year, while multi-family production decreased by 7.5 percent. These comparisons, located in the CIRB 2016 Semi-Annual Building Permit Summary report, indicate a not-so-significant improvement in homebuilding activity, but the year is not over yet.

According to Robert Raymer, Senior Engineer/Technical Director for the California Building Industry Association (CBIA), “We can anticipate a slight uptick in permits in the fourth quarter of 2016, due largely to new energy efficiency building standards that take effect on January 1, 2017. For some builders,” Raymer continues, “the $3,000 cost and the significant design changes associated with the new 2017 energy standards, such as high performance attic and wall insulation, may prompt [them] to submit permit applications in late 2016.”

Taking the upcoming code changes into account, CIRB predicts approximately 42,540 single-family and 64,399 multi-family units will be permitted by the close of 2016 for a total of 106,939 new housing units*, a potential 9 percent increase from 2015. Additional sources included in the 2015 Annual Building Permit Summary report, such as the California Economic Forecast and the UCLA Business Forecasting Project, also predict an increase in new housing units in 2016 and a continuing upward trend through 2017.

Forecasting housing unit activity through the next five years is an important factor in anticipating our state’s economic future. On September 1, 2016, CIRB joined forces with the California Economic Forecast to provide a county-level unit outlook for 2016 to 2020. These highly anticipated, customized forecast reports indicate that, although statewide numbers may generally increase in coming years, certain counties may progress or regress in activity at varying rates.

Merced, Riverside, Sacramento, and Stanislaus counties are all forecast to consistently increase through the year 2020, particularly Sacramento, which reveals a 76 percent total unit increase in 2020 compared to 2016. Raymer believes that “There has been a pent-up demand from lower construction numbers over the past eight years, and other counties are still trying to emerge from the economic downturn.”

Orange, San Diego, and Santa Clara counties, however, are predicted to experience the most noticeable decreases in unit production over the next five years, following several previous years of high-level permit activity.

A definitive outlook on the California housing market is not easily diagnosed, as several factors, such as statewide code changes or regional fluctuations in economic recovery, can impact construction activity. Health is not always predictable, but CIRB has the statistical insight to conclude that the pulse of homebuilding is getting stronger and steadier by the year.

Allison Paul, CIRB Lead Analyst / Media Specialist, directs the research operations of CHF’s CIRB Report and facilitates all media and public relations for CIRB and the Foundation. She may be reached at apaul@mychf.org

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