As California Drought Drags On Home Builders Vie For A Voice

As California Drought Drags On Home Builders Vie For A Voice

As California Drought Drags On, Home Builders Vie for a Voice

Real Estate News   |  Apr 24, 2015 |  By: Kris Hudson       |  


 Water restrictions born of a fourth year of record drought conditions in California stand to slow home building in the industry's biggest state just as construction has regained momentum. Here, Rafael Hernandez, of Gothic Landscaping Division, buries an automatic drip irrigation system at a KB Homes development in Santa Clarita, Calif., on a recent day. Credit: David McNew for The Wall Street Journal

As California takes steps to conserve public water amid a historic drought, the state’s home-building industry is trying to position itself as part of the solution.

Home builders, which are hoping to fend off calls for restrictions or moratoriums on new construction, are pushing the idea that newly built homes conserve far more water than older homes. They argue that any building moratoriums resulting from the state’s heightened efforts to save water will do more harm than good.

“We feel that we’ve got a heck of a case to make that moratoriums, no matter where you are in the state, would be the wrong thing to do,” said David Cogdill, president and chief executive of the California Building Industry Association. “You’re not going to conserve the water that you’d hope to. And the downside that you’d bring for the economy outweighs any gains.”

California’s home builders and much of the rest of the state are girding for the implementation of Gov. Jerry Brown’s April 1 mandate that, by June, users of state water cut their consumption by an average of 25% from 2013 levels. The State Water Resources Control Board is scheduled to review and adopt the water-conservation plan on May 5 or 6.

Home builders are concerned that persistent drought conditions and the state’s latest push for more water conservation could result in additional local water districts and municipalities opting on their own to enact moratoriums on new connections to their systems, severely curtailing new construction in those places. Meanwhile, California water-management officials say, the state’s separate program for curtailing water use on severely depleted watersheds could result in the state asking more water districts to stop adding water taps until they find additional sources of water, as happened with 22 mostly rural districts last year.

california drought graphic

California’s drought, now in its fourth year, is one of the worst on record in the nation’s most populous state, costing billions of dollars in losses in its giant agricultural sector and prompting mandatory urban water-use cutbacks statewide for the first time ever.

The cutbacks come as the home-building industry, both nationally and in California, has started to regain momentum this year in its recovery from the housing crisis and last year’s stall in home-buying activity. California is the second largest home-construction market in the U.S. after Texas, traditionally accounting for 9.7% of all residential building permits in the nation. That construction activity yields jobs and reverberates through the entire economy. The National Association of Home Builders estimates that constructing a single-family home generates three full-time jobs for a year.

Of economists surveyed this month by The Wall Street Journal, 51% said the drag from the 25% water-use cuts mandated by Gov. Brown will be too small to show up in economic data such as the state’s income growth, employment and retail activity. Another 44% predicted the impact would be small, but measurable.

Even so, additional moratoriums on issuing new water taps in certain areas loom as a possibility. A water tap generally is a connection of a building, most often a home, to a water system. In October, the state’s water board barred 22 mostly rural districts serving 5,063 water-rights holders from granting additional water taps until they find alternative, supplemental water sources.

Meanwhile, some municipalities and water districts with their own water sources have taken extreme measures. The Montecito Water District, serving nearly 4,400 customers in affluent neighborhoods near Santa Barbara, opted in February 2014 to stop connecting additional users to its water system until it finds new water sources. While the moratorium has resulted in dried up lawns, it hasn’t hobbled the small district financially because it doesn’t often grow much, adding just 10 new taps in 2013.

In Ventura, home to roughly 106,000 people, water managers say it is likely that a persistence of the drought will trigger stage 4 of the city’s drought plan within a year. That will result in a requirement for a 30% reduction in water use from 2013 levels and enactment of a de facto moratorium prohibiting approval of developments that use more city water than their site historically used.

Alex Martinez, a senior analyst at housing research and consulting firm John Burns Real Estate Consulting Inc., analyzed California’s home-building activity in previous droughts of 1976 to 1977 and 1987 to 1988. He found “no attributable impact” of those droughts on the state’s new-home output. However, the current drought has no precedent in recorded history.

“Since we are entering uncharted territory, I fear that we will see more moratoriums placed on new-home construction,” Mr. Martinez said.

Some of California’s big water districts have significant work to do to comply with the state’s conservation mandate by June. Anaheim cut its water use by 2% from 2013 levels in recent months, but the state has directed it to get to 20% by June. The Cucamonga Valley Water District recently cut its use by 1%, but it the state wants a 32% cutback from it.

California’s home builders point to data on the industry’s water-conservation track record in arguing that new homes aren’t water hogs. Due to building codes revised and upgraded in recent decades, three-bedroom homes built in California in 2013 used an average of 46,521 gallons of water a year. That’s down 21% from homes built in 2009 and down 37% from those built in 1990.

Much of that increased efficiency comes from installing low-flow fixtures such as toilets that average 1.28 gallons per flush in comparison to 1.6 gallons in 1992, and appliances such as clothes washers that use six gallons per cubic foot as compared with 15 gallons in 1992.

The greater strides that builders can make now are in new homes’ yards. Gov. Brown’s order seeks for new lawns to use underground irrigation systems and other methods that don’t lose water to evaporation by spraying it high in the air. Some builders, such as KB Home, are installing minimal, if any, turf in front of their newly built homes, instead opting for rock, mulch and drought-tolerant vegetation.

“We want to improve and become more efficient” as an industry, said Lawrence Webb, chairman and CEO of The New Home Co., an Aliso Viejo, Calif.-based builder that controls roughly 6,000 home lots in the state. “But we’re the solution, not the problem. We really need to look at older homes and the agriculture industry if you want to … have a bigger impact on water conservation.”

The state has proposed programs to entice homeowners to replace their grass lawns with drought-tolerant materials and to upgrade their appliances to versions that better conserve water. However, funding for those programs isn’t yet determined.

—Jim Carlton and Kathleen Madigan contributed to this article.

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Dated: April 27th 2015
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