Western Drought Begins To Affect Housing Starts

by April 17, 2015

The drought in the western United States has led to water restrictions in California and an increased awareness about the water usage by almonds and other kinds of crops.

Earlier this month, our Rian Bosse reported on all the ways the drought is hurting the California economy.

Now, Bloomberg says the economic impact is beginning to affect the housing market. It reports that the construction of new homes in the West fell for a third straight month in Monday. It dropped by 19 percent, year over year, to an annual rate of 201,000 for the month.

That is the weakest annual rate since last May. By contrast, construction rebounded in other parts of the country, particularly the Northeast, where housing starts jumped a record 115 percent from 2014.

Chart via Bloomberg

Chart via Bloomberg

David Crowe, the chief economist at the National Association of Home Builders in Washington, told Bloomberg that uncertainty surrounding local water policy and the ability to obtain water connections for new homes or apartment buildings could be holding some builders back.

Crowe says builders are seeing the situation in the West as something more than temporary. “This is a new regime that says it’s going to be harder to obtain additional water usage,” he says.

Builders need water for all kinds of things, from dampening down the dust from the construction process, to mixing concrete, and general clean up. They also need to water in new lawns and landscaping, and send water through the plumbing once a home is complete.

Gov. Jerry Brown of California recently ordered a sweeping series of moves aimed at reducing California’s water use by 25 percent. He also wants new homes to use low-water irrigation, if they install sprinkler systems.

Bloomberg says there also could be other factors involved in the weak housing data. For one thing, supplies of viable land for construction are tight in some parts of the country. And, some economists believe that housing could be headed for a rebound, given the strength in the job market.

For story ideas, check on housing starts in your city, state or region. See if your municipalities and states have implemented new restrictions on water use.

STORY IDEAS

U.S. Census — New Residential Construction

United States Drought Map

The California Economy