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Reforms, Revived Housing Market May Help State Economy

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(credit: CBS)

(credit: CBS)

Election Returns

LOS ANGELES (AP) — New state government reforms and a revived housing market along the coast could put California’s economy on a strong footing when it finishes its long, slow slog through a sluggish recovery, according to an economic forecast released Tuesday.

Report: California Economy To Sputter Along: KNX 1070’s Ed Mertz reports.

November’s successful ballot measure allowing budgets to be passed with a simple majority and other changes could make the state more attractive to businesses and improve its borrowing costs, according to the quarterly Anderson Forecast from the University of California, Los Angeles.

Meanwhile, pent-up demand among home buyers could explode in the state’s coastal communities where inventory has been limited, resulting in rebounding home prices and renewed construction in those areas, the study said.

“There are changes that are occurring in some fundamental problem areas such as residential construction and state government that are laying the groundwork for more rapid growth in the medium term,” said the forecast’s author, Jerry Nickelsburg.

The report noted that the state will still be in for some pain before it realizes these longer-term gains.

Employment was forecast to grow at a rate of 1.6 percent in 2011, keeping joblessness at 11.4 percent through the year. The state was unlikely to generate enough jobs to tug unemployment down to the single digits until the end of 2012.

The state’s most recent tally put unemployment at 12.4 percent in October, down from a modern record of 12.6 percent reached in March. The national rate is 9.8 percent.

Real personal income was forecast to grow at 1.6 percent in 2011 and 3.6 percent in 2012.

The economic growth that does occur will be driven by education, health care, exports and technology — all sectors that are most prevalent along the coast, where the expansion will arrive fastest and be most pronounced.

In inland parts of the state, little growth will occur until that region’s housing market rebounds, which will not occur in the near term because of the massive overbuilding that occurred during the previous years’ homebuilding frenzy.

Nickelsburg said it could be years until those who worked in that region’s once-booming construction sector find new jobs in other industries.

But construction could be a driver of growth in coastal parts of the state, which saw less construction during the boom.

The report cited state and federal data showing increases in household sizes since 2007, when the downturn took hold, implying that cash-strapped twentysomethings were moving in with their parents instead of buying homes for themselves, and that older people were moving in with their adult children.

When the general economic expansion gives a boost to employment, job security and salaries, demand will quickly outstrip supply along the coast, resulting in a quickly rebounding construction industry there.

“In terms of housing stock, it turns out we’re about a year behind if the potential demand turns into effective demand, which it ultimately will,” Nickelsburg said.

Nickelsburg said he was also encouraged by the state-level reforms that allow budgets to be passed by the legislature with a simple majority, rather than the previous two-thirds majority that has been blamed for legislative gridlock.

The state’s economy may also benefit from a reform that places the drawing of legislative and congressional districts in the hands of a bipartisan citizens commission, rather than lawmakers.

The new system could make legislators more apt to quickly approve budgets so as not to incur voters’ anger in what will become more competitive districts, Nickelsburg said.

The resulting budgetary stability could make California businesses more willing to expand and could make out-of-state businesses more likely to move here, he said.

It would also improve the state’s bond rating so it could borrow money at lower interest rates, Nickelsburg said.

“If California shows a record of passing budgets on time, then there’s going to be more certainty about the California government. It will be perceived as a government that functions,” he said.

(© Copyright 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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