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Housing industry's economic output falls 80%

August 16, 2010 |  2:46 pm


Housing is a big business in California. Home builders employ hundreds of thousands of people, and other industries such as retail, manufacturing and restaurants benefit from the spending of those employees.

The slowdown in construction in California has muted those benefits. According to a report released Monday by the California Homebuilding Foundation and the Center for Strategic Economic Research, the economic output of the housing industry has fallen 80% since 2005.

Economic output includes the money spent on sectors that supply goods and services to the residential construction industry, as well as cash spent by construction industry employees.

In 2005, which the report says was near a peak in the housing industry, residential permit levels were around 205,000 units, generating 487,000 jobs and $67.7 billion in economic impact. By 2009, residential permit levels dropped to 35,000, employment hovered around 77,000. The economic benefits of housing dropped to around $13.8 billion, according to the report.

That sweeps through dozens of sectors in California. In 2009, construction of new residential units directly contributed about $7.8 billion to the state’s economy. But the indirect effects spread much further, leading to $468 million of output in trade, $267 million for petroleum refineries, $151 million for food services and drinking places.

Other sectors affected by the home-building slowdown include insurance carriers, furniture retailers, automotive repair and even cable TV companies. 

If the residential permit level in 2009 were around 220,000, the state would see an economic impact of $72.9 billion and the creation of 404,000 jobs, the report says. A state analysis had projected that the state would need to create 220,000 units every year between 1997 and 2020 to keep up with demand.

The slowdown hit Los Angeles, San Diego and Orange counties especially hard. In Los Angeles County, total economic impact fell from $3.8 billion in 2008 to $2.1 billion in 2009, a 45% drop. In San Diego County, the economic impact fell 35% in that time period; in Orange County, it fell 27%.

"With a drop in residential permit activity of close to 83% between 2005 and 2009, the economic benefits of new housing construction in California have decreased considerably," the report said.

-- Alana Semuels

Photo: The housing slowdown in Northern California has slowed the economy there. Credit: Alana Semuels