Nearly 550,000 new jobs were added to the Pacific region's economy during the 12 months ending in November, a 3.3-percent gain. During the same period, employment increased 4.5 percent in Arizona and 4.9 percent in Nevada. Approximately 60 percent of California's 2.7-percent (360,900) job growth during that period occurred in Southern California. San Francisco, Oakland, San Diego, and Orange County have tight labor markets, with unemployment rates less than 4 percent. Reduced exports of high-technology products and an overcapacity in the semiconductor industry have greatly weakened employment growth in the San Jose area, while the Central Valley has been affected by $634 million in crop losses in December.
Nevada's population was the Nation's fastest growing for the 13th consecutive year, though the 4.1-percent growth rate during the 12 months ending July 1998 was down compared with the same period in 1997. Arizona was next in the region, with 2.5-percent growth. California recorded a 1.5-percent population gain, the largest since 1992, reflecting a decline in out-migration to nearby States. Hawaii's population grew only 0.1 percent as a result of continued net out-migration.
Single-family building permit activity for 1998 in California was up 11 percent to 92,933 homes. Activity in the Los Angeles-Riverside-Orange County region was up 7 percent to 32,476 homes. In the San Francisco Bay Area, activity was up only 2 percent, due in large part to a shortage of available lots. Fifteen Bay Area communities have adopted urban growth boundaries (UGBs) within the past 2 years. For example, last November, in the fast-growing San Jose suburb of Milpitas, voters passed Measure Z, which restricts service extensions to new development within city limits. The UGB movement spread to Southern California, where four of five cities in Ventura County passed measures freezing existing development boundaries for 20 to 30 years unless specific voter approval is obtained.
Arizona and Nevada set records for new home-building in 1998, with 50,178 single-family permits (up 14 percent) and 24,643 permits (a 6-percent gain), respectively. These records are attributable to the strong and consistent growth in demand in Phoenix and Las Vegas. Local sources estimate that both States will experience lower but still strong production levels in 1999.
The annual rate of existing home sales reached 821,900 in 1998 in the Pacific region. Sales of existing single-family homes in California totaled 628,300 through December, a 13-percent rise over 1997 and a new record, according to the California Association of REALTORS® (CAR). The median sales price through November was $201,410, up approximately 8 percent over the comparable period in 1997, according to CAR. Sales were up 21 percent in Orange County, 15 percent in the Riverside area, 14 percent in the Sacramento area, and 9 percent in the Bay Area. But activity in high-technology-centered Santa Clara lagged, with sales up only 4 percent. Strong demand and rising new home prices supported record resale rates for the year in Arizona, up 16 percent to 156,700 homes, and in Nevada, up 21 percent to more than 35,800.
Multifamily building permit activity in the Pacific region for 1998 was up 8 percent to 56,509 units. The major driving force was California, where balanced and tight market conditions fueled a 17-percent increase in activity to 30,720 units. Most parts of the San Francisco Bay Area remain extremely tight, with vacancy rates of less than 3 percent and rent increases of 5 percent or more. Builders have responded to the favorable Bay Area market with a 25-percent increase in 1998 multifamily permit activity, totaling 11,941 units. Concessions have begun to appear in Santa Clara County's upscale rental market, affected by reduced Silicon Valley job growth. In the Sacramento area, with vacancy rates of less than 4 percent, multifamily activity in 1998 was more than double 1997's low volume.
In Southern California, multifamily building permits increased 4 percent, as large-scale builders have again started to show interest in the market. However, market conditions remain soft in many areas. Vacancy rates of approximately 9 percent during the fourth quarter were common in the Riverside-San Bernardino market, as many renters switched to the affordable sales market. In Los Angeles County, the overall rental vacancy rate remained close to 8 percent, with some areas of the San Fernando Valley exceeding 10 percent. Conditions in Orange and San Diego Counties are tighter than the other markets, with vacancy rates near 5 percent.
Permits in Arizona were issued for 13,388 multifamily units in 1998. Phoenix's 11,243 units, 2 percent above 1997, were the highest level of the 1990s. The overall rental vacancy rate is approximately 6 percent, with rates of 8 to 9 percent common in the metropolitan area's more active submarkets. A slower winter visitor market, due in part to the weaker Canadian dollar, is helping hold down rent increases, and concessions are starting to appear.
Las Vegas multifamily activity in 1998 (10,382 units) was essentially unchanged from 1997. Rental vacancies have dropped to less than 7 percent. Since 1995, more than 9,000 rental units have been absorbed annually, but deep concessions in many submarkets are keeping rents relatively flat. Apartment absorption is expected to peak this year as three major hotel casinos come online.
Spotlight on Honolulu, Hawaii
The Honolulu metropolitan area, consisting of the island of Oahu, had a population of 870,000 as of July 1997, compared with 836,000 in 1990, representing 0.5-percent annual growth. The metropolitan area accounts for about three-fourths of the State's total population. Honolulu is the State's capital and financial center in addition to being a world-renowned tourist destination. The University of Hawaii is a major research center, with an enrollment of nearly 18,000 and 5,000 employees. DoD has a major impact on the area's economy. In 1997, there were 35,000 military and 17,000 civilian personnel employed in the area. DoD expenditures for payroll, contracts, and grants totaled $3.2 billion.
As of November 1998, nonagricultural wage and salary employment was 398,100, off 1.8 percent or 7,200 jobs compared with November 1997. While government jobs held steady at 91,100 and services increased by 300, the other sectors suffered as a result of the slow overall recovery process. The unemployment rate stood at 5.1 percent as of November 1998, up from 4.9 percent 12 months earlier.
Honolulu's economic performance has lagged behind that of the rest of the Nation, reflecting the local economy's sensitivity to changes in the economies of the Pacific Rim, particularly Hong Kong, Japan, and South Korea. The mid-fourth-quarter tourist arrivals in Oahu posted an overall decline. In the 12 months ending in November 1998, tourism from the mainland increased by 3 percent but tourism from Asia fell by 13 percent. Improving conditions in Asia are expected to boost tourism in 1999.
Major commercial real estate developments are Phase V-A of the Ala Moana Center (valued at $66.7 million), the Kapolei State Office Building (valued at $33 million), and a Neiman-Marcus store (valued at $27 million). Honolulu received $73.6 million in U.S. Department of Transportation funds for airport improvements in 1998, with $190 million targeted for this year. This represents the highest level of infrastructure expenditure since the early 1990s and is expected to boost airline service and tourist-related activities in the near term.
Single-family and condominium residential resales during 1998 increased by 23 and 26 percent, respectively, from 1997 rates. However, prices generally have continued to fall from their 1990 peak. The median sales price in 1998 for single-family homes fell 3.3 percent to $297,000 and for condominiums by 10 percent to $135,000, according to the Honolulu Board of REALTORS®. Single-family building permits increased by 11 percent to 1,271 units in 1998. In the past year, the Honolulu area saw the start of some large developments including the $110 million Hawaiki Tower condominiums project, which is expected to be completed in June 1999. The project will have 425 units, half of which are already sold. Construction on the 200-unit, 1450 Young Street condominiums project will also be completed by June 1999. The project is restricted to buyers who earn 80 percent of the median income or less, and is almost completely presold.
The rental housing market in the Honolulu area has been relatively soft for some time. Vacancy rates increased steadily from 1994 to 1998, and the overall rental vacancy rate was estimated to be approximately 9 percent as of the fourth quarter. There are some signs of improvement, and some developments are getting nominal rent increases.
Multifamily building permit activity continues at very low levels, with permits in 1998 down to 331 units. Affordability remains a problem. According to the Honolulu Housing Authority, which maintains a long waiting list, the demand for rental assistance is very strong. A $150 million development that would include 913 rental units in 2, 37-story towers is being proposed under the State's tax-credit and bond finance programs.
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