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California's Power Shortage Could Threaten New Homebuilding Projects

May 4, 2001

SANTA BARBARA, Calif. (Business Wire) -- A growing shortage of electric power and soaring energy costs could force California builders to postpone or kill some new housing projects -- a problem that would further aggravate the state's severe housing shortage. That was the concern of senior real estate executives who met with business and political leaders in a wide-ranging discussion of economic, business, real estate and environmental issues at a just-concluded, two-day annual retreat hosted by the University of Southern California's Lusk Center for Real Estate.

"The ability of a builder or developer to supply electricity to a new subdivision or commercial project is becoming as important an issue as providing roads, water, schools and other infrastructure," said Stan Ross, the Lusk Center's chairman of the board and former vice chairman of Ernst & Young--Kenneth Leventhal Real Estate Group.

"The availability of electricity could be a deal breaker in some projects," he commented.

The availability and cost of electric power also is influencing decisions about where to invest in real estate. It was noted at the conference that some investors are interested in acquiring multifamily properties in Los Angeles partly because the city has its own utility, the Department of Water & Power, which has a surplus of power.

A survey of real estate executives attending the conference found that the prospect of energy shortages and blackouts is among the most severe problems facing their businesses. Those in attendance offered many solutions for resolving the state?s power crisis from state takeover of California's power plants to energy conservation programs to a free market for the buying and selling of electricity.

"Troublesome as it is, the state's energy shortage is only a part of a much larger issue -- California's steep decline in infrastructure spending," according to Stuart Gabriel, Ph.D., executive director of the Lusk Center. Gabriel noted that such spending has fallen from about 20% of the state's gross domestic product in the 1960s to about 2% currently. "California currently ranks last among the 50 states in per-capita spending on infrastructure," he pointed out. "Yet the state is experiencing explosive population growth, with a projected increase of 15 million people -- the equivalent of Florida's current population -- over the next 20 years."

"We need to address our pressing infrastructure problems -- not only power but water -- if California is to maintain its economic competitiveness," Gabriel noted. The state's economic health is important to the national economy: California accounted for about 25% of the nation's job growth in the year 2000.

Gabriel said the Lusk Center plans to bring together the state's top real estate decision-makers as well as business and community leaders, public officials and academics to determine specific ways in which stakeholders can collaboratively resolve development and growth issues in Southern California. The Center will host a one-day forum on September 13, 2001, on the USC campus. Titled "Resources and Regulatory Constraints to Growth: Strategies for Solutions," it will be sponsored by USC and the Urban Land Institute?s Los Angeles District Council. It will be open to invitation-only guests and the media.