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Checks & Balances

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1992: It’s the Economy, Stupid
2003: More Housing, Stupid

By Timothy L. Coyle
CBIA Senior Vice President/Governmental Affairs

“It’s the economy, stupid!”

Popularized by the Bill Clinton’s presidential campaign team in 1992, this term conveyed to the electorate at the time two key political messages: 1) that (in those recessionary times) people were hurting; and 2) that the campaign need only be about one thing – the economy. Political pundits believed then and now that the failure of George H.W. Bush (Bush I) to address a stubborn recession in 1992 was the single-biggest factor in his defeat for re-election that year – the first time an elected Republican incumbent lost the presidency since Herbert Hoover in 1932.

In 2002, a decade later, similar conditions surrounded the gubernatorial campaign and legislative races in California as a slumping economy depressed state revenues, dragged down consumer confidence and replaced six years of steady job creation with rising unemployment in vital job centers like Silicon Valley.

Yet missing from the 2002 campaign was the “human impact” story of the state’s down economy, that proved to be so successful for Clinton at the national level during the 1992 campaign. Why it wasn’t more a part of the gubernatorial contest is anybody’s guess. Maybe it was because job loss was mainly impacting affluent white-collar workers. Perhaps it was because corporate scandals such as those involving Enron and Global Crossing left voters unsympathetic to the trauma that California businesses were experiencing. Or, could it have been that the critical focus of the media during the campaign was on fund-raising scandals and little else?

In the shadow of the state’s economic turmoil, however, voters did show on November 5 that they were aware of a human drama in California about which there is little debate or confusion: the struggle of working families to find affordable housing. Indeed, California voters defied the odds, the deficit and the sagging economy and said “yes” by a huge margin to Proposition 46, the $2.1 billion affordable housing bond. Were the voters telling us something? Were they affected by the media drumbeat about the state’s worsening housing condition? Were they reacting to ever-increasing housing costs, low affordability and the state’s abysmal homeownership rate?

Was it the housing crisis, stupid?

Now, as attention in Sacramento shifts to the economy – and how the Governor and the Legislature deal with a $30 billion fiscal calamity – is it possible that housing is or can be part of the solution? It should be.

According to a recently released study, a strong housing sector is vital to California’s economy. Every year, home construction alone contributes $40 billion in economic benefit to the state and creates nearly 360,000 jobs, says Robert Fountain of the California State University’s Sacramento Regional Research Institute following his completion of a research project commissioned by CBIA.

Fountain’s study reminds us that while the direct economic benefits of building new homes – the job-site activities involving labor, land and materials – is sizeable ($20 billion per year), it’s the indirect benefits – what happens off the job site – that almost doubles the value of homebuilding to the state’s economy.

Fountain says in Silicon Valley alone, housing production generates over $1.5 billion. In addition to the economic benefits, it’s estimated that every newly built home generates $19,000 in tax revenues to the State treasury – nearly $3 billion in 2001.

Clearly, a healthy housing industry is good for California’s economy and improving the State’s fiscal condition.

But, Dr. Fountain’s findings are only part of the story, since they’re based on annual housing production levels of 132,000 new homes. The California Department of Finance reports that the state needs to produce 230,000 housing units per year – roughly 70 percent more than the state’s recent average. If California was meeting its annual housing need, it would be generating $28 billion more in economic activity, more than 250,000 additional jobs and $1.9 billion in additional state revenues.

At the State Capitol, the economy is coming back into focus and even media skeptics like the Sacramento Bee’s political pundit Dan Walters say that the only way out of the state’s fiscal mess is to restore a growing economy.

Well, now we have the answer: More housing, stupid!

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