California housing forecast includes fewer McMansions, depressed construction industry

Several researchers from UCLA suggest California housing industry will experience some changes in the next few years including a construction industry that will need years to recover:

UCLA forecasters have seen the future of California’s housing market, and it looks like this: more apartments near the coast, fewer McMansions in the desert…

That’s bad news for the state economy, however, for two reasons. One is that construction of multifamily homes requires less labor than construction of single-family homes. Second, areas such as the Inland Empire and Central Valley that were hit hardest by the housing bust won’t get a construction boom to help pull them out of the economic doldrums.

This means “there is an even larger structural unemployment problem in California than we originally thought,” Nickelsburg wrote in the forecast. “Not only do we have excess construction, real estate and support skills, but some of those that will be demanded will be in the wrong geography.”

California won’t start adding a significant number of building permits until 2013, forecasters say, which is one of the reasons the state’s unemployment rate will stay above 10% until the middle of that year. Nonfarm employment in the state won’t return to pre-recession levels until 2014, and construction employment won’t reach those levels until at least 2021.

The demographic shifts and move away from McMansions have been predicted elsewhere but the longer-term impact of a troubled construction industry has sort of flown under the radar. I wonder how much of the current unemployment troubles in the US are the result of the lack of home construction, i.e., what percent of the unemployed are construction workers? Where do construction workers end up working in a prolonged housing industry slump?

All of this is a reminder that the housing crisis which helped lead to the economic crisis is a longer-term issue. Lower housing prices don’t just influence homeowners who wish they could sell or get a return on their home or large lending institutions who lost a lot of money – millions of construction workers are under- or unemployed and communities can no longer rely on quick single-family home construction to help revive their economies.

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