1992 residential builder survey.

Housing starts have long been viewed by economists as a leading indicator of future economic performance of the general economy. Los Angeles Business Journal and Lam, Robinson & Company, a Century City accounting firm with broad real estate industry experience, recently surveyed southern California residential builders and developers to determine their expectations for production of housing in 1992. The following summarizes our findings.

The surveyed builders expect to increase the number of residential non-apartment units they build in 1992 by about 24% over 1992, which was a depressed year in the housing industry. Most of the increase is expected to be in single family detached housing (27% increase) with a more modest 17% increase in townhomes and only a 3% increase in condominium units.

About the same number of builders expect to decrease production in Los Angeles County in 1992 as expect to increase production here. But the magnitude of expected increase was much higher than the decrease, resulting in a 37% net expected increase in units produced over 1991. Expected production from responding builders was flat for Orange County compared to 1992.

As would be expected because of land availability and price, most of the residential development by southern California builders is occurring in the neighboring counties to Los Angeles and Orange Counties. Responding Los Angeles based builders reported building 4 to 5 units in California outside of L.A. county for every unit built within L.A. county. These same builders build 1.5 units out of state for every unit built within L.A. county. Interestingly, these builders expect to cut back out-of-state building in 1992 while at the same time increasing production in California, both in Los Angeles and outside of L.A. county.

Pricing at the lower end of the product line for single family detached housing, is expected to be mixed- with 75% of those responding indicating no change or lower prices than in 1991 and 25% indicating modestly higher prices. The average of builder low-end prices for a single family detached housing unit in the survey is about $250,000 in 1992, down 5% from 1991. The range in 1992 starts as low as $70,000 with builders striving to provide affordable housing for first time buyers. Many builders are offering homes at under $150,000. At the upper-end of the product line, a larger percentage of builders reported expecting higher prices although there was an indication they would be building less of the higher-end product.

The survey revealed that about one-fifth of the growth in building of single family detached housing was provided by re-entry or new companies. These were companies that were not in the market in 1991 but are coming in 1992. All of the growth in townhomes and condo development are provided by this group. Without this new group of developers there would have been a net drop in anticipated production in these two areas.

Approximately 67% of the responses from builders building single family detached homes indicated increased production in 1992 over 1991. This type of response pattern could be an indication of firming in the residential market.

Responses were sorted from builders according to the size of the builder to see if there were significant differences in the expectations of the different groups. Those builders who were building less than 100 units were classified as smaller builders. Medium sized builders were those building between 100 and 500 units and large builders were those expecting to build more than 500 units in 1992. The smaller builders, as a group, expected to build about 4% more units in 1992 than they did in 1991. These builders expect to reduce production in the townhome and condo areas, with a net gain expected in single family detached homes.

The medium sized builder had the strongest expectations for growth in 1992, an overall 40% increase in units to be built. These builders expect increased production in single family detached, townhouse and condo areas. The large builder, who in our survey accounts for about 60% of the total units built, expects a growth of 21% in 1992. This expected growth is spread across product lines, but most of it is in single family detached housing.

There was also much more variation among the smaller builders as to pricing, with wider fluctuations. Medium and large builders tended to hold or reduce prices in 1992. According to Dave Robinson, partner at Lam, Robinson & Company, "These larger builders are competing in a very price sensitive market whereas many of the small developers are building custom homes or a home they are willing to hold in inventory longer. In addition, the larger builders may be marketing homes that are built on larger land parcels which offer economies of scale and on land recently purchased at a cheaper price".

685 surveys were mailed out, of which about 100 were returned but not usable for various reasons, including; moved with no forwarding address, and replies from non-residential builders. Of the remaining 585 surveys, an excellent response rate of 31% was received, and approximately 90% of those received, equivalent to 27,000 residential units, was usable in the survey. Robin Borough, survey manager for Lam, Robinson & Company, attributes the high response rate to "a rigorous phone follow-up program and the general interest of the developers in receiving the survey results".