Report: Building collapse, not water shortages, drive region’s unemployment

STOCKTON
August 11, 2009 11:06am

The foreclosure crisis and the resulting home building collapse has cost far more jobs in the San Joaquin Valley than the drought and restrictions on irrigation water, says a new report Tuesday from the Business Forecasting Center at the University of the Pacific in Stockton.

Construction job losses caused by the foreclosure crisis exceed job losses from Delta water pumping reductions by a ratio of 8 to 1, the report says.

“The foreclosure crisis is by far the main force driving the Valley’s economic crisis,” says the report, the principal author of which is Jeffrey Michael, director of the Business Forecasting Center.

The construction collapse alone has destroyed 47,000 jobs and $1.8 billion in employee compensation across the eight counties of the San Joaquin Valley, compared to a loss of 6,000 jobs and $170 million in employee compensation from reduced water supplies caused by both drought and environmental needs, the report says.

Estimates from those pushing for more water storage have claimed between 30,000 and 90,000 lost jobs due to water shortages.

“If the job impacts were actually that large, water shortages would indeed be driving unemployment, and the current unemployment rate would be near 20 percent,” says the new research. “However, there is ample evidence that the drought impacts on employment are grossly overstated.”

Reductions in water deliveries due to environmental regulations have increased the Valley unemployment rate by 0.1 percentage point, and the drought 0.2 percentage points for a total water shortage impact of a 0.3 percentage point increase in the unemployment rate, according to the report.

The construction collapse has increased unemployment by at least 2.5 percentage points, and is only one component of the foreclosure and housing crisis that continues to drive the majority of job loss in the San Joaquin Valley, it says.

“Because of overlap between the construction and agricultural labor pools, the construction collapse has flooded the agricultural labor market with thousands of additional workers and further increased the difficulty of finding farm work this season,” it says.

Construction impacts are only part of the effect of the real estate meltdown, the report notes.

“The over 50 percent decline in real estate values across the San Joaquin Valley has greatly reduced household wealth and consumer spending. According to U.S. Census data, the total value of owner-occupied residential real estate was near $50 billion in 2007, and large increases in real estate prices were fueling consumer spending,” says the report.

“Since 2007, at least $25 billion in San Joaquin Valley household wealth has evaporated.”

The report says the sharp declines in consumer spending are estimated to have cost another 5,000 to 10,000 jobs across the Valley.

“Finally, the decline in property values has devastated government revenues through declining property taxes, sales taxes, and development impact fees. Employment losses from state and local government cuts are only now beginning to be felt,” the report says.