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The California and Ventura County economies have effectively recovered from the pandemic recession of 2020. A faster return to normalcy has been evident from the economic reports that monitor business activity in the region, including the labor markets, spending by consumers, hotel utilization, and new development.
The evidence shows that the California economy is anything but weak. Through August, there is very little trauma visible to date in the state. But the impending recession now haunting the nation threatens to slow down California in 2023.
Amid pressing economic problems that have emerged in the form of product shortages, higher energy and food prices (and broader inflation in general), labor and capital resources are still being utilized near capacity. Real estate asset valuations remain at or near record levels, and don’t yet appear to be materially impacted by the higher interest rate environment (yet).
New development of commercial, industrial, and residential structures has always been a key sector of growth for many regions of California. Though the pandemic interrupted much of this flow in 2020, development activity was fully restored by mid-2021. This year, the development momentum has surged in California with much of it is due to the insatiable demand for rental housing and industrial facilities.
This same demand is also indicative of the real estate environment in Ventura County, but due to much slower economic growth as a result of SOAR, there is far less incentive to develop.
Residential development in California this year is occurring at a pace that will generate the largest volume of homes started since 2006. The value of commercial and industrial structures started in 2022 is the highest on record.
The surge in private and public sector development will persist into next year, and help minimize the trauma of recession. If we are lucky, there’s a chance that the state might entirely elude recession, but the odds of that scenario are shrinking.
Development Update for Ventura County:
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Cheerleading for FIRE industries (and county tax collectors) and the myth of “affordable” housing. Ventura County is building so much housing it is turning into a suburb of Los Angeles. And not one homeless person will be housed. Very few homes, if any, will be “affordable”. Average rent in Ventura is over $3,000. Population growth is declining, birth rates and fertility are low. Previous reports have shown that outmigration is greater than in-migration. And if you check HUD reports, you will learn that there are 17 million vacant homes in the US (1.8MM in California). New development is bought as investment or 2nd and 3rd “vacation” homes. Nearly half of Florida homes sit vacant most of the year.
Development brings new infrastructure needs. When the costs of new water and wastewater infrastructure are known, costs will escalate. A wastewater plant with all the levels needed to recycle water for potable use could easily cost $45-$50 million for a community of 25,000 to 30,000 people. Utilities are building battery storage facilities which will add $$ to the average electric bill. Desal is a dirty word. And of course, more city employees are needed with each growth spurt (fire, police, schools, etc), whose costs increase faster than taxes, so cities are always in a catch up mode. CA has historically “solved” these problems with taxation. So how vibrant is more taxation? And remember, Limoneira’s Harvest was built on the most prime farmland in the state. We will import all food eventually as the housing frenzy accelerates. Food costs will continue to escalate as we import more. Furthermore when cities such as Santa Paula get hooked on the development fees in the budget, where do they look for revenue when the development is finished?