2018: A GOOD YEAR FOR NEW RESIDENTIAL, COMMERCIAL DEVELOPMENT
A construction crew works on the roof of one of the buildings making up the Californian Apartments under construction in the 5400 block of North Salinas Avenue in northwest Fresno. Photo by David Castellon.
Back in 2010, as the Valley and the rest of the nation were in the midst of the Great Recession, Mike Miller looked at how badly the crisis had hurt new home construction and worried whether business would survive.
“I’m looking into the future, going, ‘I’m not sure if we’re going to be around in Central California more than another year,’” recalled Miller, vice president of the Central Valley Division of Lennar Homes of California, Inc., which builds new homes from Merced to Bakersfield.
What he didn’t know at the time was the recession was winding down.
By 2011, the economy had picked up enough that Lennar Homes became the top single-family home builder in the Valley. based on permits drawn that year and the estimated combined values of those projects, based on data collected by ConstructionMonitor.com.
And the improvements continued for both the Valley’s economy and Lennar, which for each year after 2011 continued being the Valley’s top single-family homebuilder, drawing 695 construction permits in 2018 valued at more than $188.13 million.
“2018, it was a very good year for us,” though it didn’t match up to new home construction activity during the housing booms before the recession, in the early to mid 2000s, Miller said.
Still, he said of last year, “this was one of the better years since the recession.”
And 2018 wasn’t just a good year for building single-family homes in the Valley.
New construction activity also was strong for multi-family homes and commercial properties, said B. J. Perch, vice president of B. J. Perch Construction, Inc., the Visalia-based builder that bears his father’s name.
“I would say we’ve been on an upward trend, so we’ve been progressively increasing our volume and growing, so it was a good year,” said Perch, whose company ranked first last year in combined permit values for multi-family homes, more than $14.15 million, and second for commercial permits, valued at $20.82 million.
Harris Construction, based in Fresno, was the top commercial builder in the Valley last year, with permits valued at more than $34.73 million. Officials for Harris didn’t respond to an interview request.
“We’re mainly a commercial contractor, so we build health care facilities, corporate offices, industrial [buildings], retail and multi-family,” along with senior living facilities, Perch said.
“We had a significant increase in multi-family. I just think the demand out there [has grown].” Perch noted that his company alone is working on or planning to start work this year on apartment complexes with 700 combined units in Visalia, Tulare and Fresno.
“The demand is there. In
Fresno, there is a lot of multi-family going on, and I think there has been for awhile,” a shift from just a couple of years ago when new single-family home construction dominated the market, he added.
“2018 was one of the busier years we have had for multi-family homes,” he said, adding that he knows of cities in the Valley looking to amend zoning rules to allow more high-density housing and are working with developers to attract such projects.
One fallacy about the local housing market appears to be that the housing demand here is being significantly elevated by an exodus of people from the Bay Area coming here for the cheaper housing.
While it’s true housing in the Valley is cheaper, Miller said the influx here of Bay Area people is small, because it’s too difficult to commute there from here, and it’s still rare to encounter telecommuters looking to buy homes here.
“We have seen that willingness to travel or drive further in our Merced area, but our Central Valley is still mostly operating on people who live here and are continuing to live here, so we aren’t seeing that huge influx from outsiders.”
As good as 2018 was for new construction, it did have its challenges, with both Perch and Miller noting the growing difficulty in hiring skilled construction workers.
“And what happened is when the market crashed, a lot of people left the [construction] industry, and when the market came back, they never came back,” instead going to manufacturing jobs and other fields, Miller said. “Where construction seemed to be a place to go, it seemed to be a place to flee away from.”
In fact, Miler said that the agricultural industry also is facing worker shortages and in response has raised wages to the point that for the first time Valley ag jobs are drawing people away from construction jobs.
That leads to the other big challenge: higher wages for construction workers combined with increasing costs driving up prices for new homes.
In fact, that’s why California becoming the first state to require solar panels in all new homes sold starting Jan. 1 of next year is a major concern among developers.
Miller said he’s unclear how many solar panels will be required on homes as well as whether homebuyers would have to buy the solar panels with their new homes or if buying a house and leasing the panels — or some similar system — will be permitted.
At least here in the Valley, Lennar includes solar with each of its new homes, but if buyers don’t want to buy the systems, the developer has an alternative allowing the systems to be owned by the solar company, with the homeowners buying the power they generate at a discounted rate.
Losing such options could hurt new home development, Miller said, “especially [for] first-time and first-move-up homebuyers, because there is going to be another $15,000-$20,000 worth of cost immediately added to the cost of the home,” and some of them may not be able to afford it or be able to get loans covering the added costs.
“The whole industry is trying to understand the effect it’s going to have on all of us.”