California is at full employment. That’s slowing down the state’s economy
California is at full employment. That’s slowing down the state’s economy
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Carpenters Chris Gauer and Donny Harp left to right install a window on the old Gothic house in it's new location in Chico, Calif. Tues. Sept. 5, 2017. (Bill Husa -- Enterprise-Record)
By Kevin Smith, San Gabriel Valley Tribune
POSTED: 09/21/17, 5:36 PM PDT | UPDATED: 1 HR AGO 0 COMMENTS
California has been one of the fastest growing states in the nation for most of the post-recession era, but its momentum has slowed in recent months due to the high cost of housing and a lack of available homes, as well as a workforce that’s effectively at full employment.
That’s the conclusion of a new report from Beacon Economics.
A ROBUST ECONOMY
From early 2012 through mid-2016, the Golden State added jobs at about twice the rate of the U.S., often exceeding 3 percent year-over-year growth, the report said.
That whittled down the state’s unemployment rate, which dropped from 12.2 percent in 2010 to 5.4 percent in 2016. More recent readings from the state Employment Development Department have placed it as low as 4.7 percent, although it edged back up to 5.1 percent in August.
Meanwhile, California’s annual growth rate has slipped to 1.6 percent, putting it roughly on par with the rest of the nation.
And with the state at full employment, future job growth and economic gains will be blunted by the availability of workers.
That’s good news for employees who may be in line to receive pay hikes in the coming months. But it presents a challenge for businesses that are looking to grow but can’t because they are unable to find the workers they need.
THE ROOT OF THE PROBLEM
The root of California’s problems, according to the report, are high home prices and the fact that not enough homes are being built. The study advocates easier underwriting standards (but not as loose as in the 2000s), reduced down payments and special finance programs for would-be buyers, as well as rent subsidies for qualified households.
But economist Robert Kleinhenz, Beacon’s executive director of research who authored the report, said the fundamental problem is still a lack of inventory.
“All you would do with these programs is increase the demand for housing in an already tight and high-priced marketplace,” he said. “Until we actually come up with supply-side solutions we are going to have this problem. The solution would be coming from government agencies, but they are not addressing the heart of the problem.”
ROADBLOCKS TO HOUSING CONSTRUCTION
Under California’s current building standards, a proposed housing project that complies with a city’s general plan can still be subject to planning commission approval and can also be open to CEQA lawsuits, which can impede or block development.
The California Environmental Quality Act requires state and local agencies to provide a full analysis and public disclosure of environmental impacts associated with proposed projects.
They are required to adopt all feasible measures to mitigate those impacts.
Kleinhenz said multi-family developments, in particular, are often slowed by concerns from residents who don’t want high-density housing in their neighborhoods. Projects are also slowed by the high fees developers are forced to pay to gain entitlement to properties.
Jordan Levine, a senior economist with the California Association of Realtors, said many potential homebuyers would jump into the market if they were better informed.
He said a recent CAR survey showed 75 to 80 percent of California renters would buy homes if they could afford the down payments.
“A lot of them are thinking they’ll have to come up with $100,000 to $110,000 for a down payment,” Levine said.
“Only 20 percent of the people we surveyed knew about FHA or other low down payment loans.”
Despite all of these problems, California’s economy will continue to grow, according to the Beacon report.
Most of the job gains will occur in health care, leisure and hospitality and construction.
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