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How Property Developers are Impacted by California’s Housing Crisis

The state of California has had issues over the last several years with the inventory, availability and affordability of its housing market. With many residents pushed out of the market for these three factors, the solution has been to focus on building out housing developments and doing it fast. A local official even described a plan towards building 3+ million new units over the next 6 years to help solve California’s housing shortage. However, indicators are showing supply alone is not the only issue the state’s residents face.

Developers are building quickly and to do so, especially in a high-tax and priced areas like California, they are experiencing challenges along the way. Working these financial burdens into the end cost of each unit is one-way property developers are continuing development, but reports show these properties aren’t always being purchased. In recently released statistics shown on the large network of newly-built homes in top California locations such as Orange, Los Angeles, Riverside and San Bernardino counties, over 3,500 were left unsold during the first quarter of 2019. This means that housing inventory is now up 37 percent above the state’s five-year average which is causing a slowdown in construction. And although the housing crisis still remains, new home development is now down nearly 20% from 2018 with many residents still left without options.

“The issue with state’s like California’s approach to building out housing is they are forgetting about who is driving the market demand and need for more options as well as what they can afford. Introducing new homes is not the only issue to be addressed, it is developing them in a way where it is cost effective for both the property builder to sustain investing in future projects as well as the buyer to purchase in the end.” shares 30-year veteran in the property development industry, Marcus Hiles.

Reports show that for developers it costs more than $400,000 to build an average apartment or condo in a large complex in top California locations. This means in order to reap back their investment, these housing units must be sold upwards of $600,000 a piece – far more than most residents can afford or what can be deemed as “affordable”. This creates an imbalance that is being seen in the California housing market with more properties left unsold making it impossible for developers to profit and eventually continue to invest in new projects.

The long-term housing plan for California remains uncertain as more residents come to the state and affordability continues to become a growing issue. Plans to build out fast, dense and at low costs are necessary but how that is achieved will be shown only as the market continues to adapt in the years to come.

Marcus Hiles Author

The Chairman and CEO of Western Rim Property Services and Newport Classic Homes, Marcus Hiles is a renowned Texas real estate investor and developer who has spent more than three decades creating properties that embody his vision of luxury living.