North Bay economic sailing mostly clear into 2020, but some waves are growing, experts say

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Conference takeaways

The lingering impacts of the wildfires will continue to be seen in North Bay economies, which mostly remain headed in a positive direction, but the disaster likely won’t be as devastating as it’s projected to be for the burned areas around Paradise. (Read Robert Eyler's presentation: nbbj.news/materials)

Permit Sonoma statistics show the agency issued 9,978 permits in 2018 versus 8,543 in 2017, and 8,241 in 2016 and has cut certain fees.

Sonoma County Winegrowers report 30 percent of farmers already provide employee housing, some giving each permanent worker the opportunity of a place to live. The group added about 150 units in the last 18 months, planning another 37 by this summer

Construction costs are rising and the wide swath of fire ravaged areas in California has set up a competition for some materials though technology advancements in materials as well as process of constructions is accelerating as a result.

The North Bay’s housing market is making steady progress, but at a slower pace than ideal after two years of wildfires. That was the overall takeaway from the 26th Annual Sonoma State University Economic Outlook Conference & Housing Summit, hosted by the Business Journal Tuesday at Santa Rosa’s Hyatt Regency Sonoma Wine Country Hotel.

Generally, the six-county North Bay region looks healthy economically for the next 12 to 24 months, tracking with national and statewide trends, said Robert Eyler, director of the university’s Center for Regional Economic Analysis.

Similar to consensus of economists on the U.S. and California outlook, indicators point to the beginning of a slowdown for North Bay economies, with rural areas of the region having a tougher go, Eyler said. He and other economists are watching for the warning signs, particularly for noticeable slowing in San Francisco Bay Area technology employment. And another early sign of trouble that has emerged is a dwindling North Bay population.

Leading indicators show where an economy is headed, based on factors such as notices of default, building permits, new unemployment claims, help-wanted advertisements, the Federal Reserve’s U.S. leading indicator and an agricultural price index. Coincident indicators — what’s happening now — include nonfarm employment, retail sales and personal income.

When one group of indicators or the other is headed up or down, there might not be a problem, but when both head south, slowdown or recession could be in the wind, Eyler said. Leading and coincident indicators for North Bay counties have been mostly trending upward along with the national trends.

And the future and current indicators for Lake County have headed downward lately, Eyler said. Weighing on Lake’s economy are multiple years of massive wildfires, especially in 2015 and last year, he said.

“Our rural folks in the North Bay still suffer from recession-like qualities,” he said. “We’re not out of this yet.”

A standout in the region is Napa County, which over the past decade has enjoyed an economic surge, Eyler said.

“Before the recession, Napa was kind of rolling around, quasi-agricultural, had not really put a flag in the ground in terms of tourism, and then in 2010 it just took off like a rocket,” Eyler said. “If you think of where Napa was in 2008 and where it was in 2015-16, it’s like two different worlds.”

Recent California Department of Finance population estimates have created a stir in the North Bay, because they suggest that the number of residents in Napa and Sonoma counties has been declining since mid-2014, turning to negative growth in 2017-2018. Meanwhile, the estimated populations of San Francisco and California as a whole increased.

While the full picture of this shift won’t be known or confirmed until the results of the 2020 census are released, Eyler said. But some of that decline for Sonoma and Napa could be fire-related, yet the downward trend began before the disaster, he said.

“It wasn’t like we weren’t already on a path toward seeing relatively slow population growth,” Eyler said. “The fires just seemed to hammer that change through, all the way home.”

One troubling sign for North Bay economies is inflation-adjusted home values haven’t bounced back to the 2005-2006 peak, despite median values being higher, Eyler said, citing Zillow Research figures. For example, a median-priced home in Marin was $1.13 million in mid-2018, while the median value in 2009 dollars was $890,448, down from $962,900 in 2006. And in Napa, the recorded median last year was $672,400, compared with inflation-adjusted medians of $548,865 last year and $708,000 in 2006.

Conference takeaways

The lingering impacts of the wildfires will continue to be seen in North Bay economies, which mostly remain headed in a positive direction, but the disaster likely won’t be as devastating as it’s projected to be for the burned areas around Paradise. (Read Robert Eyler's presentation: nbbj.news/materials)

Permit Sonoma statistics show the agency issued 9,978 permits in 2018 versus 8,543 in 2017, and 8,241 in 2016 and has cut certain fees.

Sonoma County Winegrowers report 30 percent of farmers already provide employee housing, some giving each permanent worker the opportunity of a place to live. The group added about 150 units in the last 18 months, planning another 37 by this summer

Construction costs are rising and the wide swath of fire ravaged areas in California has set up a competition for some materials though technology advancements in materials as well as process of constructions is accelerating as a result.

Eyler noted that the downward curve in Sonoma County home values in the second half of last year likely is related to the surge in the housing market just after the October 2017 wildfires destroyed over 6,000 North Bay homes, mostly in and around Santa Rosa.

HOUSING CHALLENGES & SOLUTIONS

Participants in the panel discussion on housing challenges and solutions included Larry Florin, CEO and president of Burbank Housing; Karissa Kruse, president of Sonoma County Winegrowers; David Bouquillon, president of Laulima Development; Jeff Schween, a Compass Real Estate agent; David Guhin, Santa Rosa assistant city manager and director of planning and economic development; and Tennis Wick, director of Permit Sonoma.

SONOMA COUNTY

“It’s been a banner year,” said Wick, who oversees Sonoma County's planning, building and permitting department. His agency has issued more building permits overall in 2018 than in any past year. Permit Sonoma statistics show it issued 9,978 permits in 2018, versus 8,543 in 2017 and 8,241 in 2016.

Wick said efforts to more efficiently complete environmental reviews to comply with the California Environmental Quality Act had been instrumental in avoiding delays.

“We’re trying to take the CEQA equation out,” Wick said, noting his agency was working on environmental reviews of proposed building sites to ensure projects would not hit environmental protection snags after building had already begun.

Also, permits for constructing accessory dwelling units or “granny units” built on existing home properties had become an “over-the-counter,” process, Wick said

According to Sonoma County, it has reduced development-impact fees for the units on a graduated scale, effective June 7; waived traffic and parks mitigation fees for units smaller than 750 square feet; and reduced them for units between 751 square feet to 1,000 square feet by half. Units over 1,000 square feet would still have to pay the full cost of the fees.

There are challenges ahead, like the rising price of construction materials, including soft woods, much of which are supplied from British Columbia – noting that California has been hit with two years of devastating fires.

“I don’t think costs are going to come down any time soon and return to the levels that we saw before the (2017) fire,” Wick said.

Adopting new building materials, like hybrid core and panelized walls, could help offset those costs, Wick added.

“The market is responding but I think whatever cost savings we see will come from innovation and technology,” he said.

SANTA ROSA

Guhin said the city of Santa Rosa is in the process of gathering information in order to update its plan to re-envision what downtown Santa Rosa looks like.

“We need people like our younger generation at Sonoma State who want to move downtown,” Guhin said. “We need people who want to retire from their single-family homes to free up those homes for larger families to move downtown.”

Employers also are getting involved in the discussions, he said, noting that Peter Rumble, CEO of the Santa Rosa Metro Chamber, has formed a housing council made up of employers to discuss how they can work with developers to build housing and see it come to fruition.

OTHER PANELISTS

Florin provided an update on Burbank Housing’s latest projects, including Journey’s End, the Santa Rosa mobile home park destroyed in the 2017 wildfires.

“Our plan is to reposition it, which will involve a complex set of local government approvals, but ultimately 160 units of permanent affordable housing on the site will replace 161 mobile homes that were destroyed,” Florin said. “It’s an iconic symbol for what rebuilding looks like in the real world.”

Karissa Kruse, president of Sonoma County Winegrowers, focused on the intersection of the local wine industry with creating temporary housing for agricultural workers.

“About 30 percent of our farmers already provide employee housing,” Kruse said of Sonoma vintners, adding some farmers provided 100 percent housing for employees on their agricultural land.

About 1,100 of these units already existed in the county and Kruse noted roughly 150 more have been built in the last 18 months, with another 37 set to be complete by this summer. Many of the units housed temporary agricultural laborers on H-2A guest-worker visas, which allow farmers to fill vacant positions with foreign workers she added.

The new units were also built in collaboration with Permit Sonoma’s director Tennis Wick and used many of the same designers and plans.

Laulima’s Bouquillon provided an update on Station Avenue, a mixed-use development on 32 acres in Rohnert Park consisting of homes, office space, retail, restaurants and a hotel. Station Avenue is scheduled for completion in fall 2020, with the residential units opening about a year later, he said.

Bouquillon said during the conference that government needs to do more about housing affordability and provide incentives for developers to invest.

“We’re a developer and we have the fiduciary responsibility with investors. I just can’t put in a dollar and get zero out,” he said. “So I don’t think government can do the housing alone. … They have to make those incentives there.”

Schween said he’d like to see the housing process sped up.

“I would really like to see us get to the point where we have with the new resource departments from the fires pushing permits through at the record rate that they’re happening, but to see that through on the entitlement side,” Schween said, “where you can take a project from concept to approval in like six months and then be able to start. Otherwise we’re talking about two, three, four or five-year windows to build 1,000 units and I don’t think anyone has time to wait for that.”

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