Rebuilding Building : Analysts Say Return to Glory Days of Industry Will Probably Take Years

Like an aging boxer felled by a fearsome punch, California’s construction industry is on the canvas and can’t seem to get up.

Among the state’s key industries bloodied by the recession, few have been hit harder than the construction business, which has always played a driving role in California’s prosperity.

When construction booms, as it did through most of the 1980s, it ripples through virtually every corner of the economy. New offices, after all, need carpets and new homes need refrigerators and washing machines.

Only $7.7 billion worth of office towers and other types of non-residential structures will be built or remodeled in 1993--half the amount spent a few years ago and the lowest level of activity in nearly two decades, forecasters say.

Just 99,000 homes are expected to be built in the state this year--a mere 1% above last year’s anemic levels and barely one-third the number of homes built in 1988 or 1989.

While the estimated 130,000 aerospace employees who have lost their jobs since 1990 have attracted the most attention, more than 100,000 construction workers have been furloughed since hiring peaked a few years ago, according to the Construction Industry Research Board.

The industry-funded board estimates that the ripple effect of those layoffs has cost an additional 434,000 jobs, from loggers to waiters.

Although most analysts believe the worst is over and expect employment to increase later this year, they also warn that a full recovery for construction will come slowly. Any return to boom times is likely to be many years off, they say.

“It doesn’t matter whether you’re talking about new homes, office buildings or new retail projects,” said Ben Bartolotto, the research board’s economist.

“Construction activity might get back to (normal) in about five years, but there’s just nothing to suggest that we’ll return to the way things were in the late ‘80s anytime before the turn of the century.”

The forecasts are particularly bad news for laid-off carpenters, roofers, drywallers and other construction workers.

“I probably had four months of work last year, and even less this year,” said Jim Brown, a 42-year-old carpenter who was earning $24 an hour, not counting overtime, when business was booming.

With a wife and three children, Brown is now worried that his bank will foreclose on the Los Angeles home he bought in 1989, shortly before real estate values headed south. Another creditor recently repossessed Brown’s boat.

Peter Gutierrez in La Crescenta has a similar tale. He has been unemployed for much of the last two years but is reluctant to pick up low-paid, part-time work in another field because he usually needs to be available quickly if a contractor or the union comes up with a better job.

“I’ve been picking up some odd jobs, like hanging doors and fixing windows,” Gutierrez said. “If it weren’t for my wife’s (secretarial) job, we’d probably be living out of my van.”

Once pillars of California’s prosperity, building companies have been forced into massive layoffs. Hundreds of small and mid-size builders have disappeared or merged with bigger, better capitalized competitors to survive.

The building slowdown has reduced revenues to local governments and forced municipalities to cut public services. “Everybody’s suffering from the industry’s problems,” said Nelson Pedrozo, an economist at the UCLA Business Forecasting Project.

With this year’s construction barely ahead of dismal 1992 levels and with permits for future projects continuing to head down, Pedrozo said he has “virtually given up all hope” for a bona fide rebound until next year at the earliest.

To be sure, some home builders have weathered the economic storms better than others. Those in specialized markets, building for first-time buyers or retirees, have generally fared well. So have builders in smaller projects on empty lots in urban areas.

But larger companies that cater to first-time buyers seeking low-cost homes have done the best.

Those builders, including Kaufman & Broad Home Corp. and Inco Homes, have prospered as low mortgage rates have allowed many longtime renters to purchase a house.

“I think that first-time buyers are going to keep driving the market for at least the next few years,” said Bruce Karatz, president of Los Angeles-based Kaufman & Broad.

Builders who once focused on well-heeled consumers have increasingly jumped into the first-time buyers market. The added competition could narrow profit margins even more, and buyers could evaporate if mortgage rates suddenly rise.

“I just hope the economy picks up and rates stay down,” said Ted Cox, president of Beazer Homes, a big builder from Atlanta that recently expanded into California.

The future of the state’s construction industry wouldn’t be so bleak if the problems were related only to an economic downturn. In fact, while the recession has taken a huge toll, structural changes could prevent the building business from ever returning to its glory days.

One key factor involves California’s changing demographics. High-paying manufacturing jobs continue to dwindle, only to be replaced by low-paying jobs in the service sector.

“There’s a growing number of people who simply won’t earn enough to buy a home, and that’s bad news for the future of the industry,” said UCLA’s Pedrozo.

Commercial construction in the state is already at a 20-year low, and the glut of office space in most California cities should limit new projects in the near future. Still, advancements in the telecommunications industry could put an even bigger damper on construction in the long run.

Ten years ago, not even 500 Southern California workers used computers and phone lines to work from home an average of once a week.

That number has since swelled to about 600,000 today and could double within five years, according to JALA International, a telecommunications consulting firm in Brentwood.

A study by Arthur Andersen & Co. said recent telecommuting trends could cut demand for office space nationwide by 1.7 billion square feet over the next two years--about 40 times the amount of office space in downtown Los Angeles.

“More and more people don’t need to go into their office every day, so companies don’t need to rent as much space as they used to,” said JALA President Jack Nilles.

“That reduces demand for new office buildings, and commercial developers are going to feel the pinch as the trend gets stronger.”

Plunging Construction

Construction of homes, offices and most other buildings in California has plunged since real estate’s halcyon days of the late 1980s The downturn has cost ore than 100,000 on-site construction jobs and hundreds of thousands of other jobs in related businesses.

New Housing Units

Number of single-family houses built, in thousands:

1993: 78.0

Residential Construction

Value of residential construction, including apartments and remodeling projects, in billions of dollars:

1993: 14.6

Commercial Construction

Value of commercial construction, including remodeling but not heavy construction, in billions of dollars:

1993: 7.7

Total Construction

Value of all construction, including heavy construction projects, in billions of dollars:

1993: 28.0

Construction Employment

Total construction industry employment, in thousands:

1993: 458.8

Note: 1993 and 1994 figures are projections

Sources: Construction Industry Research Board; California Employment Development Department

Researched by ADAM S. BAUMAN / Los Angeles Times