HOMES — Homebuilding On the Rise in Los Angeles

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After years of sluggish growth, the Los Angeles housing construction industry is suddenly abuzz with activity.

Builders received permits to construct 4,710 new homes in L.A. County, valued at $943.1 million, during the first quarter ended March 31, 2000. That’s a 60.3 percent jump in the number of such permits, and a 40.2 percent jump in value, compared with the year-earlier quarter.

But that surge may be short-lived because the Federal Reserve’s ongoing push to raise interest rates will likely slow home sales.

The Fed’s five consecutive 25-basis-point increases over the past 11 months are already affecting the national home construction industry, which saw its permit volume decline 3 percent in the first quarter vs. the year-earlier period. And the Fed is expected to institute another rate hike this week.

“This (increase in L.A. new-home permits) is not necessarily indicative of a long-term trend,” said Richard Gollis, principal with real estate consulting firm The Concord Group. “Most of the stuff we’re seeing now has been in the pipeline for some time, and I think that we’ll have a tremendous year if we see as many as 18,000 new units.”

Currently, L.A. County is on track to add more than 20,000 new homes this year still a far cry from the 50,000-plus new homes that were built annually in the mid-1980s. But this year’s pace is a notably faster than last year, when 14,142 new housing units were built.

The most active area in L.A. County is Valencia, the Santa Clarita Valley community being developed by Newhall Land & Farming Co.

Newhall Land which subdivides the land, installs infrastructure and then sells the lots to builders currently has three new housing projects under construction in Valencia totaling 1,400 homes, according to Marlee Lauffer, a Newhall Land spokeswoman.

Other hot spots

Aside from numerous smaller infill projects throughout the county, two larger multifamily projects are also adding to the pick-up in L.A. residential construction activity. Several developers are building a total of 3,000 new apartment units in Long Beach, and after 20 years of legal wrangling, the Playa Vista project near Marina del Rey is at last getting off the ground.

In February, Playa Capital LLC, the developer of Playa Vista, announced $420 million worth of deals with residential developers for the first 1,600 homes of the project’s first phase, which is designed to ultimately contain 3,200 new homes, and construction has started on the 409-unit Fountain Park Apartments.

“We have already 7,500 people signed up on our interest list so far,” said David Herbst, Playa Vista spokesman. “This is a very strong market to be in, because the Westside is rich in jobs but poor in housing.”

But the delayed recovery of the L.A. homebuilding market could be over as quickly as it got started.

“There’s a real risk of a short-lived recovery,” said Greg Lubushkin, a partner with the real estate group of PricewaterhouseCoopers LLP. “The Fed has made it clear that they’ll do what they have to in order to squeeze out inflation, and every time rates go up, you lose a market segment (of potential homebuyers).”

Numerous Fed watchers have speculated that, with the consumer price index going up faster than it has in years, the time of 25-basis-point hikes is over. Some are anticipating that, by year end, rates will be 2 percent higher than they are now.

That could push 30-year fixed mortgage rates into the 10 percent range, which would surely cool off the housing market.

“It may never get up that high, but it’s an important benchmark to look for because, once rates start to get close to that level, building activity will slow down,” said Lubushkin.

For the time being, though, the L.A. market is surging, consumer confidence remains high and builders are bullish.

Robust demand

“Sales have been outstanding, even if rates are ticking up,” said Jay Moss, president of the Greater Los Angeles division of Kaufman & Broad Home Corp. “People are buying now because they expect rates to go up even more. At the same time, there are fewer resale homes on the market at this point than there have been in the last couple of years. That means new homes are the only alternative for many new buyers and people moving into the area.”

Fueling the housing activity is job growth, and this year L.A. County may finally recover the jobs it lost during the recession of the early 1990s. However, because many residential builders were hammered during that recession as demand for new homes evaporated along with local jobs, and home prices took a dive there is little chance they will go on a speculative building binge.

Another damper is the growing community resistance to new development. It took Newhall Land 10 years to get final approval for its 1,700-home Westridge Golf Course community in Santa Clarita.

Kaufman & Broad was less fortunate. It acquired a proposed 1,600-home project that Lewis Homes planned to develop on the Monrovia Nursery site in Azusa. But that approved project was rejected in a referendum by local residents.

“Given the scarcity of land and the continuing restrictions on new development, I don’t see a return of the entitlement infrastructure that would support the kind of growth we had in the mid-’80s,” said John Franklin, regional manager with Shea Homes. “It’s as difficult in Los Angeles as it is elsewhere in Southern California, and it will affect the availability and the affordability of housing in the near future.”

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