As the national economy continues to accelerate, California is turning in a sub-par performance with the faltering tri-county economy lagging further behind.
With the declining economic performance facing more headwinds from the biggest wildfire in California history, the Central Coast will have to radically transform its approach to housing to grow significantly in 2018.
Those two factors — fires and faltering economics — are sure to combine in a way that will be quite challenging, especially for housing in Ventura County in 2018.
California’s unemployment rate is currently below 5 percent, according to the annual Beacon Economics report, and the last time the state saw unemployment numbers this low was during the tech bubble of the late 1990s.
Historically, the difference between the performance of California’s economy and the national economy has been positive.
“While economic activity accelerated across the nation in 2017, California’s economy slowed,” said Matthew Fienup, executive director of the center for economic research and forecasting at California Lutheran University. “The state’s growth premium is shrinking. By the beginning of 2019, California’s growth premium may be negligible. High taxes and a crushing regulatory burden are among the primary causes.”
Data from the federal Bureau of Economic Analysis indicates that San Luis Obispo’s annual GDP growth was about one half of a percent last year and both Santa Barbara County’s and Ventura County’s economies registered negative GDP growth numbers.
In their weakened state, the two counties were not ready to deal with the impact of a major natural disaster like the Thomas fire. The region’s economic weakness will only magnify the effects of the conflagration, and the destruction of homes will only serve to further constrict the Central Coast’s already limited housing stock, which will drive affordability even lower, experts said. As a result of the fire, the probability of an economic recovery in Ventura County has been reduced.
Chris Thornberg of Beacon Economics recently observed that the fastest-growing regional economies in California are landlocked areas like Sacramento and the Inland Empire and that labor force growth in the state has averaged less than 1 percent per year over the last 10 years.
This worker shortage can be attributed to the state’s lack of housing construction, driven by anti-growth sentiments and high construction costs.
California will have to bring its average of about 100,000 new housing units per year up to about 200,000 per year to allow the labor force to expand and keep job growth at a healthy 2 percent or above per year. Even more housing units would be required to reduce California’s existing housing shortage.
“Without question, affordable housing is raised as an issue and a concern in most discussions about the state of the economy in California,” said Simone Lagomarsino, president and CEO of the California Bankers Association. “Commercial construction appears to be picking up, primarily in large cities but also in other areas, including the Central Coast.”
In banking, an all-important engine for the regional economy, mergers and acquisitions are also becoming more common on the Central Coast as businesses are seizing opportunities to grow, scale up and become more efficient.
Mergers provide entry into new product lines or markets. Lagomarsino said this also appears to be happening with greater frequency in the banking industry as compliance costs continue to rise due to the number of regulations banks must grapple with.
With regard to Ventura County’s rebound, spirits in the banking community seem to be a little bit higher.
“There are expectations that contractors will fare well in Ventura County as will the companies that provide clean-up services and other construction-related services, as the many people who lost their homes work to rebuild after the recent Thomas fire,” Lagomarsino said.
The near-term picture for California and the long-term problems have converged around a single issue that requires immediate attention.
The high cost of housing in the state is driving workers out and rents have increased steadily in many parts of California.
“Each of these long-term problems can be addressed so as to stave off the worst consequences. But in each case, elected officials and other stakeholders need to act now, while the economy is doing well, to tackle these challenges and ensure the long-run growth of California,” Thornberg said.
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