Housing Starts Drop to New Low in Sonoma County

The Great Recession may have officially ended five years ago, but you wouldn’t know it by looking at construction activity in Sonoma County.

City and country building officials issued just 251 permits for new single-family homes here last year, according to the California Homebuilding Foundation. That was the lowest total in at least 45 years and a far cry from the average of 1,900 single-family homes built in Sonoma County annually in the two decades before residential construction took a nosedive in 2008.

The paltry construction numbers have contributed to a tight housing market and some of the biggest apartment rent hikes in the nation.

In response, both business and civic leaders this year have begun calling for action. Without more housing, they warn, local companies will have trouble hiring new employees, the economy will suffer and lower-income workers will find it increasingly difficult to remain here.

When families have two incomes and still can’t afford to live in the region, “we have big problems,” said Cynthia L. Murray, president and CEO of the North Bay Leadership Council, a group of private and nonprofit employers. She called the situation “a crisis” and said the council will host a housing summit in Petaluma in May.

Sonoma County Supervisor Shirlee Zane and the mayors of Santa Rosa and Rohnert Park will jointly host a workshop next month with local builders to examine ways to increase the stock of affordable housing.

“We simply cannot afford to not address this problem,” said Zane, whose district includes Santa Rosa.

Building industry officials expressed support for such efforts but also cautioned that it will take years to reverse the current shortage.

“For the housing market, this is going to be a long, slow recovery,” said Keith Woods, CEO of the North Coast Builders Exchange, a Santa Rosa trade group.

The dilemma comes down to “pure economics,” said Woods. “It’s a limited supply and increased demand.”

It also will take time to build new affordable housing units, said Chuck Cornell, executive director of Burbank Housing, a Santa Rosa nonprofit that has built nearly 3,700 housing units here over the past three decades.

“We have a fairly long pipeline to produce housing, and there’s been a giant gap in that pipeline since the financial crisis,” Cornell said.

A ‘need for millions’

The main reason for the slowdown is that state and local governments suffered severely in the downturn and had to cut back the financial aid needed for such housing projects. And the price tag to build more housing will be large, he said. A typical apartment can cost $350,000 or more per unit, a significant amount considering that the county’s median price for an existing single-family home in December was $515,000.

“There’s a need for millions (of dollars),” Cornell said.

For decades, home building was a major engine of economic growth in the county, employing thousands of construction workers and providing business for scores of home furnishing, appliance and landscaping companies.

But the construction industry was battered by a world financial crisis sparked by risky residential lending in the United States. In the past seven years, county builders have obtained permits for just 2,441 single-family homes, fewer than were built here in 1990 alone. And the county’s construction sector now employs 4,400 fewer workers than it did a decade ago, a decline of 30 percent.

Since the recession ended in 2009, the county has added 22,000 jobs across all industries. As employment has increased, so have rents.

Leading in rent increases

Apartment rents climbed nearly 30 percent in three years to $1,567 in December, according to Real Answers, a Novato-based rent research firm. Last year Santa Rosa ranked fifth for the nation’s biggest rent hikes.

At year’s end, 97.2 percent of the county’s apartments were occupied, a level that property managers consider essentially the same as full occupancy.

Apartment-building down, too

In 2013, home builders briefly saw a bump in apartment and condominium construction. That year builders received permits to construct more than 700 multi-family housing units — mostly for two apartment projects in Rohnert Park and Santa Rosa that are expected to open in the coming months.

But a year later the numbers fell. In 2014, the county and its cities issued just 214 multi-family permits, the lowest level in three years, according to the state homebuilding foundation’s CIRB Construction Data Report.

For 2014, Mendocino County reported permits for 72 single-family homes, a decline from 92 in 2013. For Lake County, the single-family permits totaled 42 last year, compared to 50 the year before. Neither county had any multi-family construction.

Sweat equity difficulty

In today’s housing environment, even when a solution seems in hand, difficulties can still arise. At its 60-unit Catalina Townhomes ownership project, Burbank Housing has been able to qualify only two families for the 28 available units in the second phase. The families must not only be willing to help build their homes, but they also must have an annual income of between $48,000 and $65,000 for a family of four.

To date, many of the otherwise eligible applicants can’t qualify for loans because they already have too much debt, said Pascal Sisich, Burbank’s director of housing development.

Looking ahead, Rohnert Park is anticipating new home construction this year, said Marilyn Ponton, the city’s development services director. Two developers have long been preparing projects in the east and southeast portions of the city that are slated to one day hold 2,000 new homes.

However, Ponton referred questions on the timing and scale of the construction this year to the developers. And spokesmen for both companies, Brookfield Homes and Redwood Equities, this week either declined or didn’t respond to requests for comment.

This year, two new rental complexes will open for their first tenants. Both are characterized as “luxury” apartments and will charge rents above the county’s current average.

The 244-unit Fiori Estates complex in Rohnert Park is advertising rents starting at $1,730 for a one-bedroom unit and $2,255 for a two-bedroom place, according to the project’s website. A spokesman for the 270-unit Annadel complex in Santa Rosa said rent will start at $1,700 for a one-bedroom unit and $2,100 for a two-bedroom. The first Annadel units are expected to be available by the end of April, if not earlier.

Proposals in Santa Rosa

In the effort to build more housing, both builders and local officials already are discussing possible approaches. In Santa Rosa, the City Council last month directed planners to consider a request by developer Hugh Futrell to defer approximately $2.2 million in development fees on a 141-unit building for low-income seniors. Futrell is seeking up to 16 years to repay the principal, plus interest at an annual rate of 3 percent.

Another effort involves possible joint funding by the city of Santa Rosa and the county for a 79-unit rental project by Burbank Housing in southwest Santa Rosa.

The local governments that get housing built in the future will be those that are “willing to partner” with developers, pointing them to areas of town where projects can get more easily approved, said Greg Owen, CEO of Blue Mountain Enterprises. His company is building 12 single-family homes at its Spring Brook subdivision off Fulton Road in northwest Santa Rosa and next hopes to build a 110 townhome project in the southwest section of the city.

Before the downturn, builders could afford to spend five years bringing a project to fruition, but “you can’t do those anymore,” said Owen, whose company first made headlines here three years ago when it bought and flipped scores of foreclosures and other existing homes. Projects don’t make financial sense now unless work can start after eight months in the regulatory process, he said.

Bob Glover, executive officer with the Building Industry Association of the Bay Area, said tighter lending criteria and increased regulations are making all building projects difficult today.

“Even the quote ‘easy ones,’ what used to be called easy ones, they’re not easy,” he said.