REAL ESTATE : Consultants Criticize Easterners’ Put-Down of California Market

For years they have individually hired out their talents as advisers to the development industry.

But hoping to speak louder as a chorus at a time of industry turmoil, eight of the Southland’s leading real estate consultants and economists have banded together to periodically publish their thoughts on issues affecting the industry.

The first of the California Real Estate Round Table’s white papers, titled “California Under Siege: A Call for Perspective,” has just been issued and, perhaps not surprisingly, contains a rousing defense of California as a unique environment for real estate development. But it also contains a warning that the industry is headed for a repeat of the boom-bust cycle if builders don’t learn from recent mistakes.

To support their case for the local market, the authors argue that it is “people who don’t understand the California real estate market and how it differs from others in some very fundamental ways (who) constantly pass along misinformation” that makes the market look bad.

The big culprit? “The analysis of the current downturn by the eastern media is a prime example of how an unnecessary negative and inaccurate bill of goods has created an unwarranted reaction within the investment community.” It is a reaction, the paper goes on to say, that has cut off funding to California’s builders despite a continuing and unmet demand for housing.

And what is it those Easterners--and the West’s own bankers--don’t understand?

“California is not Texas, Arizona or New England, and causes of the current real estate dislocation are different from those experienced in other parts of the United States,” the authors argue. The California crunch, they say, “is a result of supply outdistancing consumer purchasing capacity.”

In other words, sales have plummeted because developers saturated the market with homes that were too expensive. It is not a case, the paper argues, of people having no money, but of buyers rebelling against soaring prices.

So as soon as builders start bringing lower-priced homes onto the market, sales will take off again.

But the authors warn that a rise in demand could produce a shortage in supply caused by government regulation and a lack of construction funds as lenders shy from the market that burned them badly in recent years.

The shortage will cause prices to climb and could result in builders repeating the same mistakes they made in the late ‘80s, saturating the market with mid- to upper-priced homes until buyers once again revolt, the group says.