California Housing Trend: Smaller, More Energy Efficient Homes
December 16, 2014 | 12:22 pm CST

Former California State Sen. Dave Cogdill joined the California Building Industry Association (CBIA) in the fall of 2013 as its CEO and President. Most recently Cogdill served as Stanislaus County assessor from 2011 to 2013. Since leaving the legislature, Cogdill has also served as a commissioner on the California Water Commission and as the Chairman of the Maddy Institute at Fresno State University. Timber Products Company recently caught up with him to discuss building trends in California, the recent recession and where the industry is headed.

Timber Products: What residential building trends are you seeing in California?

Cogdill: In recent years there has been a trend toward more multi-family development as a percentage of total residential development. This accounts for a larger portion of occupants choosing to rent rather than own. It is believed this is due more to the economic realities relating to the difficulty of potential new homebuyers to qualify for financing than a preference to rent rather than own. This inability to obtain financing is due to a number of factors including a less than robust economy, high unemployment rates, lower or stagnant wages and more stringent underwriting policies. Although recent studies indicate a tendency among millennials to prefer this form of housing over the detached single family home or condominium, other studies support the conclusion that this preference represents short-term rather than long-term goals. It is expected that although this demographic will wait until later in life to marry and start families, when they do, their preferences in housing will become more traditional.

Economic realities and increased environmental awareness have resulted in a trend in many markets toward smaller, more energy efficient homes on smaller lots. Also, in more two-story product often designed to accommodate multi-generational families.

Production continues to lag and fall short of expectations. CIRB (Construction Industry Research Board) originally projected 100,000 residential building permits would be issued in California in 2014, in comparison to 85,310 in 2013. These numbers have recently been revised downward to 85,000 for 2014. At the peak in 2005, 208,972 permits were issued.

The state of California indicates a need for 200,000 to 250,000 new units per year to keep pace with anticipated annual growth.

TP: How has commercial building held up over the past five years?

Cogdill: New commercial building has been off considerably over previous highs for a number of reasons, the continuing lackluster economy chief among them. Additionally, much of the previous development was done in anticipation of continued growth in surrounding residential development needed to support the businesses and industries that occupy this kind of space. As this demand failed to materialize many existing projects experienced increased vacancy rates and were forced to negotiate rental concessions in order to keep tenants, many of whom were becoming more marginal by the day. In recent years the trend away from conventional brick-and-mortar establishments toward more and more Internet/mail-order providers has lowered the demand for new commercial construction. This trend is also being seen in the demand for professional office space and light industrial users.

TP: For architects and builders in California, how important are green, sustainable products?

Cogdill: California prides itself on being one of the most, if not the most environmentally friendly places on earth. Green building standards in California are arguably the most stringent in the country—the enactment of which, although adding substantially to the cost of housing, are generally well accepted and in more and more cases preferred by the market.

Both the state and federal governments have used a blend of regulations and incentives to entice builders to use more sustainable products in the manufacture of new homes and to make those homes more efficient in water and energy use. Recently the FEC has recognized California’s energy efficient regulations as meeting or exceeding federal standards, resulting in a retroactive tax credit to participating California builders of $2,000 per home.

TP: California is often a leader in new building regulations. How has CARB impacted the use of wood products in building over the past few years?

Cogdill: CARB’s influence on the use of wood products has primarily been in the area of formaldehyde reduction. This has substantially increased the cost of both particleboard and cabinetry, but it also impacts a myriad of other wood products used by builders.

TP: Where do you think the California building market will be in three years?

Cogdill: Obviously, this is an extremely hard question to answer with any degree of certainty. So much will depend on the overall strength of the economy at the time and people’s financial ability to satisfy their housing needs. It is expected that the demand for affordable housing will only increase in coming years, especially in the more populated urban areas where affordability has historically proven elusive.

The challenge will be finding those solutions that allow the builder to provide an affordable product and at the same time remain profitable.

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