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Housing: The Disaster Zone Of California

August 24, 2008

Housing: The Disaster Zone Of California

The California Building industry Association (CBIA) within its Report California Building Industry Association - California Housing Production Continues Decline in July, CBIA Announces issued 22 August for the month of July - reports further declines in permits issued - and expects just 72,000 permits for residential construction for 2008.

According to the CBIA - this is the lowest in recorded history.

The California Association of Realtors within its report for the month of June C.A.R. June 2008 Sales and Price Report issued July 25, reported that single family median house prices had been $591,280 in June 2007 and $384,840 in June 2008.

DataQuick within its July Report for California states that homebuyers committed themselves to mortgages with repayments of $1,501 per month in July 2008 - down from $2,316 per month in July 2007.

Businessweek reports California unemployment rate jumps to 7.3 percent - and in some parts of California it is in excess of 9% (further media reports). The State of California is now in a "crisis situation" - following years of prolificacy as the bubble inflated earlier - due to irresponsible governance.

To illustrate what a "disaster zone" California is - in comparison with the normal open urban markets of Texas - the Houston Association of Realtors within its Report for the Month of July 2008 issued August 19, 2008 illustrates how median single home prices were $156,000 in July 2007 and $161,370 in July 2008 - an increase of 3.4% year on year.

The reasons why California is a "disaster zone" are obvious - as outlined within The Housing Bubble: The Planner's Role and Lessons Learned | Planetizen and Affordable housing no accident in Houston - Houston Business Journal: .

The California Building Industry Association (CBIA) in reporting that the permits expected to be issued in that State during 2008 at 72,000 is the "lowest in recorded history" - is understating the severity of the situation - because it is not making adjustments for the underlying population bases over time. It is misleading if the population differences are not taken in to account.

California's population (US Census QuickFacts) is now likely 37,000,000 with in excess of 13,174,378 residential units (2006 Census statistics). The CBIA statistics go back to 1954. In 1950 California's population was 10,586,223.

With California's population base of 37,000,000 and expected residential building permits of 72,000 for 2008 - this represents a residential building permit rate of 1.94 per thousand population - very near the other "disaster zone" of the Western world, the United Kingdom at 1.6 per thousand population. These build rates are well below replacement levels - which will age and degrade the housing stock over time.

If the United States with a population of 305,000,000 was issuing building permits at the California rate of 1.94 per thousand population - that nations residential permits for 2008 would be 591,700. In its July 2008 report issued August 18,2008, the US Census reported that privately owned residential permits are now running at 937,000 (3.07 / 1000 population) - below current starts of 965,000 (3.16 / 1000) - illustrating that residential construction will likely keep falling going forward in the "bubble markets".

To illustrate further - if the following countries / states had the same current annual permitting rate as California at 1.94 units per thousand population - the figures would be as follows -

Australia - 40,740 (currently in excess of 145,000 units annually)

New Zealand - 8342 (currently in excess of 16,000, down from 24,000 last year, 33,000 previous year)

Texas - 46,560 (2007 178,908 - 7.45 units permitted per 1000 population)

Ireland - 8,356 (currently around 50,000 had peaked at near 90,000 units).

Canada - 64,706 (Statistics Canada - dollar volumes - no permit numbers provided)

United Kingdom - 118,340 (currently at a build rate of 1.6 / 1000 - the UK with a population of 61 million is likely to get slightly under 100,000 new residential units in place during 2008. It appears incapable of solving this problem politically).

It is clear that once the "comprehensive disruption costs" (in political, social and economic terms) become obvious to the finance sector, policymakers and the wider public - that these artificially created housing bubbles will not be tolerated again.

This could be called "learning lessons the hard way".

ENDS

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