California’s housing production is expected to drop slightly in 2006, the California Building Industry Association reported today.

The 2006 Housing Forecast, authored by the association’s chief economist, Alan Nevin, projects that between 185,000 and 205,000 homes, condominiums and apartments will be built in 2006 – down from about 212,000 in each of the previous two years.

“The annual demand for new homes in California continues to be in the 240,000 range, but the home-building industry is able to provide only 80 percent of the total need,” Nevin said.

Land constraints and local government policies are contributors to the high cost of housing, he added.

Single-family production statewide should be between 135,000 and 145,000 units, compared to about 156,000 single-family housing starts in 2005 and 151,000 in 2004, according to the forecast. Nevin said most of the decline would be in the high-end segment in coastal areas, while more-affordable areas, such as the San Joaquin Valley, should see construction continue at higher levels.

Multifamily construction, particularly condominiums, may actually increase, with starts expected at between 50,000 and 60,000, compared to 55,000 in 2005.

Nevin said the increase in condo construction and condo conversions in the major urban areas is the main source of homes for first-time buyers in the expensive coastal markets.

He also forecast that housing price increases would flatten out in some markets, and overall would be in the 5 percent to 8 percent range – well below the 25 percent to 30 percent increases seen in the past couple of years.

“California cannot continue to sustain skyrocketing housing prices that have ballooned over the last few years,” Nevin said. “The industry has been moving at a torrid pace to keep up with demand, but we expect prices will finally level off to a manageable level. Unfortunately, home builders are still not able to meet the needs of many home buyers.”

The forecast also notes that although the economy is expected to increase by 3 percent to 3.5 percent and the housing industry will continue to play a major role in 2006, there will be a modest pull back in construction employment in the new year. In 2004 and 2005, the construction industry provided one in every seven new jobs and accounted for 13 percent of all new jobs in the state.

CBIA Chairman Layne Marceau said the construction entitlement process can take five to 10 years to complete, making it difficult for home builders to keep up with demand, and this “drives up the cost of a new home dramatically.”

CBIA represents about 6,500 businesses, among them homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. Home-building generates an estimated $60 billion a year to the California economy and creates an estimated 526,000 jobs statewide, the association reported.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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