Wine country housing construction builds out of wildfire backlog post-coronavirus

New residential construction was up 4.3% in May across the U.S., following March and April declines due to shutdowns caused by the COVID-19 pandemic, according to a Commerce Department report. Almost 70% (68.9%) of this building activity took place in the West, as the South and Midwest saw a decrease in housing starts with only a small gain in the Northeast.

Nationwide, building permits for privately owned housing units in May totaled 1.22 million, 14.4% above the revised April figure but 8.8% below the May 2019 rate, according to the June 17 report.

Across the country, there were 974,000 housing starts including 745,000 single family units and 1.12 million housing completions shown in the data compiled by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The May total for units in buildings with five units or more was 291,000.

In the North Bay, a similar pattern has emerged that includes a backlog of building activity involving wildfire-related home reconstruction dating back to 2017. Local construction and real estate professionals note that the uptick is also due to more funds becoming available for affordable housing and also as a result of very low mortgage rates. They fear that this rebound could be offset if future waves of coronavirus cases cause buyers to suspend new home searches.

“When the economy was plunging, the message back from a survey of civil engineering firms (among the first tradespeople to touch a project) was fairly consistent,” said Tennis Wick, director of Permit Sonoma. ”They were seeing a 70% backlog and 30% new-business ratio when it comes to new construction of housing in Sonoma County. That proportional relationship spells danger for consulting design firms because they need an 18-month backlog of signed — but not started — contracts to remain healthy commercially.

“Today I am happy to report that business has flipped to 30% backlog and 70% new business — a positive trend I hope will continue.”

Wick said as long as the employment rate recovers, and the cost of money remains low, people will have incentives to purchase and rent new homes.

Last December, there was a marked spike in Sonoma County permit applications, resulting in fewer applications being submitted in January and February. However, with the coming of the COVID-19 pandemic shutdown in March, combined with restrictions on non-essential construction, many projects were delayed until this order was relaxed in April, and a month later when a significant increase in permit applications was reported in May by the US Commerce Department that included several hot spots in the western region of the country.

“Significant permit submittal numbers were seen in November and December of 2019 due to a triennial building code change going into effect on Jan. 1, 2020,” said Jesse Oswald, chief building official for the city of Santa Rosa. “We had applications in the range of 1,600 to 1,700 units worth of submittals in that two-month timeframe — the largest number seen in 15 years.”

Oswald said the majority of permits in 2019 were for single family dwellings whereas in 2020 the emphasis has been on multifamily units. Growth also has been fueled by the loosening of funds available for below market-rate housing units.

“Looking back, we experienced a pretty incredible surge in permit applications from October 19 to December 31, 2019. In that timeframe, we had over 700 applications for approximately 1,000 new units with a mixture of new single-family dwellings, apartments and ADUs,” Oswald said.

Since Jan. 1, Permit Sonoma received 55 permit applications for fire rebuilds; 404 units of below market rate apartments; 14 units of market rate apartments; 21 market rate single family dwellings along with 10 applications for accessory dwelling units (ADUs).

“In the April-May time period we had applications submitted for two important affordable projects with a total of 308 units. This is significant for Santa Rosa, since we have not been able to attract affordable projects with these numbers historically. In addition, several other affordable projects started the building permit process late last year and early in 2020.”

Compass Real Estate principal Jeff Schween, said the current home building picture in Sonoma County includes spec home construction and custom builds with more wildfire rebuilds than have been seen in the past decade and a half.

Throughout the North Bay there continues to be a flurry of home-replacement construction activity following these fires: Tubbs (with 5,643 structures destroyed), Nuns (1,355), Atlas (781), Redwood Valley Complex (544) and Kincade (374) fires. Other major California structure and home losses to wildfire in the past two years have been from the Camp Fire (18,804 structures) around Paradise, Carr (1,614) in near Redding, and Southern California blazes in the Malibu and San Diego areas.

In Santa Rosa, the former Fountaingrove Inn site and the nearby Journey’s End mobile home park destroyed by fire will now become housing developments for 228 luxury apartments and 160 affordable housing units, respectively. The former LaMancha Apartments will be expanded to 118 units along with 190 new dwellings in the Hooper Avenue area.

Here’s the story for Marin County: “Remodeling and home-refurbishing activity has been up, but there has not been a tremendous amount of new home construction activity,” according to Rick Wells, CEO of the Marin Builders Association, and former San Rafael Chamber CEO.

While many builders had to put the brakes on during the coronavirus lockdown, he said a lot of projects previously approved, already in the hopper or on hold are now starting up. The traditional March-through-April start of the construction season has shifted forward to May and beyond this year due to public health orders and a suspension of nonessential construction activity.

In Napa County, Bob Massaro, co-founder and CEO of Healthy Building Corporation and a member of the Housing Coalition of Napa, said home construction activity in the county has been slow.

“We’re not having a boom and both labor and materials shortages have been limiting factors,” Massaro said. “While construction activity as a whole has been down, it is now correcting itself. With all restrictions have been lifted, and with required health and safety protocols in place, both home and commercial building activity can resume.”

Permit activity has fallen by about 60% in the past 12 months, according to David Morrison, Napa County director of planning, building and environmental services. In May 2019, 680 new construction permit applications were submitted for all types of structures, compared with 313 applications last month. New permit applications for residential housing accounted for only five submittals during April and May 2020, including one main dwelling, guest quarters and three secondary units.

Morrison said “housing is not a significant portion of what we do.” Nonetheless, Napa County is working with its cities on affordable housing projects. But due to restricted development policies he does not see a lot of residential housing growth, but rather applications for commercial and industrial permits — such as Redwood Credit Union’s plan to establish a secondary call center at the Napa County Airport industrial area while keeping its headquarters in Santa Rosa.

The Commerce Department report also showed that new single-family home construction was up 5.4% while apartment construction for projects with five units or more went up 16.9% in May.

The National Association of Homebuilders/Wells Fargo builder confidence survey showed a record jump of 21 points in June to a level of 58. (Any reading above 50 indicates a positive market.)

“We look for strong demand, improving homebuilder confidence and an ongoing shortage of supply to support growth in housing starts over the rest of the year, but we still expect starts to be down on average across 2020 overall,” said Nancy Vanden Houten, lead U.S. financial economist at Oxford Economics, in an Associated Press article published June 17.

—Associated Press contributed to this report.

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