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Power Problems Impact Homebuilding

May 4, 2001

A 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, according to speakers at a real estate forum this week sponsored 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," says Stan Ross, the Lusk Center's chairman of the board and former vice chairman of Ernst and Young's Leventhal Real Estate Group.

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

The availability and cost of electric power also is influencing decisions about where to invest in real estate, according to the university's summary of the comments made at the conference. It was noted 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, the report says.

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, it adds.

"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," says Stuart Gabriel, Director of the Lusk Center. Mr. Gabriel says such spending has fallen from about 20 percent of the state's gross domestic product in the 1960s to about 2 percent currently.