California Construction Outlook

By Dr. Shirley A. Stephenson Vice President Security'Pacific Bank Los Angeles, Ca.

A S 1980 draws hto a close. it becomes instructive to analyze those trends that dictated market directions with an eye toward the probable combined impact of current forces as well as new influences that will shape California's construction volume in 1981. Despite the nationwide economic recession, California accounted for approximately 46Vo of the 13 Western State's homebuilding activity in 1980, and 26Vo of the region's nonresidential construction volume.

In response to tight credit and high interest rates, the state's homebuilding indusby in the second quarter of 1980 fell to its lowest production level since the fust quarter of 1975, another recession trough.

Housing production accelerated following the second quarter trough, although homebuilding levels were kept in check by the tumultuous financial markets. For the entire year of 1980, approximately 140,000 new northwestern California. There. a $33 million modernization program remained on schedule and neared completion. It will enable us to efficiently manufacture young growth timber being harvested in increasing volumes from the 300.000 acres we own and manage for permanent forest crops. the economic recovery. dwelling units were included in the state's building permits-33Vo below the 1979 level.

Another example of positioning ourselves for the future is the plan to spend $1.5 million this winter on reforestation in California and Washington. There won't be a return on that investment for decades, but we are committed to keeping our forests fully productive.

Summing it all up, we see l98l as a year of transition. Better than '80, but marked by caution and with the promise that the best is yet to come.

On the supply side of California's construction equation, the supply and cost of credit will remain the primary determinants of homebuilding volume. The supply of funds from such internal sources as savings accounts at banks and savings and loan associations will remain inadequate to finance the real estate activitv taking place in California.

California's nonresidential construction sector was somewhat sheltered from the effects of tight credit in 1980 -especially in the instance of extremely large projects with financial commitments allocated over several years of construction. Consequently, the second quarter slowdown in permit valuations was considerablv less severe than that experienced in the homebuilding sector.

Commercial construction dominated the state's 1980 nonresidential building scene, followed by industrial and institutional building. For all of 1980, California's nonresidential building permits are estimated to have topped $7 billion-little changed from 1979's $7.3 billion total.

The outlook for California construction in 1981 will continue to reflect an economy where demand outpaces supply and production is regulated by those supply constaints. On the demand side of the construction equation, employment will continue to expand, although not at pre-recession levels.

Vacancies in housing and office buildings will continue at low levels as production over the past few years has been unable to keep pace with the strong demand. While most analysts expect inflation to be less severe inl98l than in 1980, the upside risk in food and energy prices may temper the anticipated improvement. Finally, California home prices, which appreciated an average of 2OVo in 1980, are poised to move still higher than their present $115,000 average as pent-up demand enters the marketplace during

New sources of funds from out of state and from institutions such as pension funds and credit unions will likely be explored. Moreover, secondary markets capable of absorbing the emerging new mortgage instruments will have to be developed so that the proceeds from sales to this market can be re-loaned for new mortgages again and again. Finally, the housing product itself is poised for significant change designed to restrain costs. Smaller homes on smaller lots. more condominiums and townhouses. more manufactured housing and mobile homes, and a trend toward inclusionary housing and government-subsidized housing for low and moderate-income persons are all in store.

Story at a Glance

Cafifornia accounts lor 460/o of building in 13 Western states . demand will outpace supply. . . 200,000 home starts in California in '81, up 43"/" trom '80s anticipated level, non-residential construction also should expand.

Approximately 200,000 new dwelling units are expected to be built throughout California during 1981. This figure is 43Vo above the 1980 (Please turn to page 28) t=s-2s44,

A gov. sponsored panel has warned that the U.S. laces a severe housing shortage unless regulations at all levels, along with current tax laws, are altered. the bi-partisan group also expressed concern that a shortage of rental housing could trigger serious sacial problems. .

Building permits.for .luture construction have nose dived reflecling mortgage rates as high as 1506 and a prime lending rate that has soared to l8'l' and maY be l8t/zoh by the time you read this. permits plunged 14.8ol, in Oct. (latest data) from Sept... for the lst l0 mos. of '80, permits were off 21.80/o from the year earlier.

Housing starts in Oct. were up l.60/o above the previous mo.. to 1.569.000 units on a seasonally-adjusted an n ual basis; housing's best performance since last Oct.'s 1.7 million pace. the home bldrs. assn. economist called the nos. "misleading because they don't reflect how bad things really are out there. ."

McFarland Cascade has consolidated all its buying & selling for its L.D. McFarland Div.. Eugene, Or.; Idaho Pole Div., Bozeman, Mt.; and the Cascade Pole Div., Tacoma, Wa., at its bldg. products div., Tacoma, under mgr. Bob McBride.

The Burlington Northenu RR is still fighting in court to make its proposed merger with the St. Louis-San Francisco RR (Katy) stick; BN is also adding 300 new wood chip cars to its rolling stock. . Flathead Lumber Co.. Polson, Mt., has purchased J&D Lumber.

The western lr.rmber inclustry worked at 8l.2oh of its practical operating capacity in Sept. (latest figs); it was the 5th suc'cessive mo. o.f improvement in operating performance. asphalt shingle sales are expected to be level in '81 says the Asphalt Roofing Manufacturers Assn., tho long term gains are forecast.

Potlatch Corp. is purchasing about 93,000 acres of north Idaho timberland from rhe Milwuukee Land Co., a Milwaukee RR subsidiary, tor $134.8 million. . Union Pacilic' received approval to buy $19 million worth ol'track from the bankrupt railroad in Washington State.

Weyerhaeuser Co. is closing its Raymond, Wa., sawnrill in anticipation of opening a new $20 million small-log mill there in April. Weyerhaeuser also has agreed in principle to buy Fisher Lumber Co., Santa Monica, Ca., and Malibu Lumber and Hordware Co.. Malibu, Ca., to augment rheir Dixieline holdings in San Diego, Ca.

Japan, China, Gernnny, and Taiwan willbe among lhe 1800 exhibitors assigned space at the January NHMA National Housewares Exposition in Chicago. ..Pay 'n Save Corp.'s new 500,000 sq. ft. warehouse in Auburn, Wa., utilizingover 2 million sq. ft. of construction plywood, is the largest in the Northwest.

84 Lumber Co. has oPened store No. 326, the first in Washington State, at the Richland Y near Pasco.

Bill Weber, new co-owner of Forest Prorlucls Transportation with Gary Hartmann, is ntatnaging the new Dublin, Ca. offlce of the llrnt.. Brad.v [Iardn'ootls, /rrr'., headquarterecl in Tacoma. Wa., has a new offlce in La Mirada, Ca... d. W. A. Enterprises Co. is a new La llabra. Ca. harclwood f'irm, starled by Wally Atkinson. .

Tltriliw,ay Building Materials has broken ground for a new retail facility in Boise, ld. Snohomish Lumber Inc., located between Port Angeles, and Sequim, Wa., has added retail to its wholesale sales. . . Redwood Empire Ltd. is a new retail yard in Central Point, Or... Norton Lumber Yard and Phoenix Hardv,are are protesting a location vanance sought by 84 Lunber Co. in Phoenix. Or.

Larry and Dennice Fountain are the new owners of the Odessa Lumber Co., Odessa, Wa. Dttvall C'ash and Carrlt Lumber. Snoqualmie, Wa., is expanding. . Moss Lumber Co., Redding, Ca., has been selected by the Chamber of Commerce as the area's outstanding business of the month. . Diamond International Corp. has acquired Hardy Boy's Building Materials center at Three Mile Junction. in Id...

Charles Burd has opened Southgate lumber and building supplies outlet in Battle Mountain, Nv. "Skip" and Linda Swyers have completed purchase of Bolinger's Building Supply, Hood River, Or., from Jim and Gloria Graves.

The Minimum hourly wage will jump to $3.35 per hour effective Jan. 1...

Mendocino County, Ca., agricultural department's 1979 report says timber generated $l-28.5 million in revenue for the county followed bY mari' juanawith $90 million. For all of Ca., marijuana threatens to catch up with the $1 billion-ayear grape industry.

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