If high housing costs are a major economic problem for Orange County, how can a hot construction business also be a big concern for the local business climate?
Well, that’s what I see as a major flaw in the latest economic forecast from Chapman University. The biannual business outlook released Thursday includes relatively upbeat numbers – jobs gains should continue in 2017 for the seventh straight year – with some cautionary commentary.
“Orange County is being propped up by construction, and construction won’t stay strong forever,” says Jim Doti, Chapman economist and forecast co-author.
Look, downturns happen – especially after a lengthy string of successes. Yes, construction is a volatile trade, so the updraft could be fleeting. But my beef: Why do Chapman’s economists seem so antsy about the much-needed building boom that could ease the serious economic challenge of limited housing supply?
The shortfall of places to live is a byproduct of economic success, the region’s general desirability and a grand debate about how we work and live in Orange County. I like to call it “the price of paradise,” and it’s a real pain in the wallet.
Chapman forecasts that by 2017, Orange County home prices – measured against median incomes – will be nearly 50 percent higher than a typical California home and almost triple as costly as the mid-priced U.S. home. But pricey local housing has been roughly the trend for two decades.
The recent rebound only made it worse.
If Chapman’s forecast is correct, through 2017, Orange County bosses will have added 254,000 jobs in the seven years after the Great Recession – the biggest hiring spree since 1995-2001.
Sadly, developers haven’t kept up – even if they’re boosting construction payrolls by 40,000. In the same time frame, again if Chapman’s right, local developers will have constructed just 66,000 new residential units, for sale and rent combined.
That’s a stunning shortfall. Some market watchers translate that to Orange County being short roughly 50,000 housing units to meet true demand. One simple-to-see outcome is jammed freeways (and even toll roads) as workers are forced to commute.
And is it any surprise, then, that the price of housing has soared, negating much of a 30 percent jump in Orange County’s combined personal incomes since 2010?
Home sale prices, by one count, are up 37 percent since 2010. Apartment rents, by another yardstick, rose 33 percent. Those jumps lead Doti to suggest values are at a “bubble” stage, but an overvaluation with no potential burst in sight.
Doti’s angst is compounded by his view that strong job counts are somewhat misleading about local economic health. Why? Many hires have been in the low-paying tourism industry. Plus, the county has been unsuccessful in growing its information-services industry and its high-paying opportunities.
I’ll counter that tourism creates many associated jobs – notably well-paying construction work building hotels and Disneyland expansions of late. Doti acknowledges the building boom has been a very positive development.
And Chapman’s analysis seems to ignore the expanding job count in local professional and business services. If Chapman’s forecast is correct, these companies will have added 60,000 largely well-paid jobs in seven years – roughly one-quarter of all new employment.
I’m not saying that everything’s perfect and the recovery has helped everyone. It’s expensive to live here. Fact. But many things in life come with price levels – and each household has to make that often tough cost-benefit analysis.
Doti says recent economic success masks what he sees as long-term challenges for the region – overregulation, high taxes, substandard education and that stubbornly high cost of living. He cites the net outflow of Orange County residents to other states as an example of what’s wrong.
“We have to address our future,” Doti says.
Yes, exits are a trend. But the net departures represent an extremely tiny slice of the total population, which is still growing, by the way, thanks to births and transplants from foreign lands. Plus, if our old neighbors stayed, where would we house them?
Don’t get me wrong. There are certainly things to be fixed, hopefully with adult discussions about juggling the needs of employers, employees and broader community interests.
And it’s possible the overall economy will run out of its cyclical steam in a year or two. Or the business climate could be buffeted by big political changes ahead.
But I’m not going to get nervous about Orange County’s booming construction trade when both Jim and I know we need a whole lot more housing.
Contact the writer: firstname.lastname@example.org