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Power Shortage Could Threaten New Homebuilding Projects

May 7, 2001

Los Angeles -- 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 at a two-day retreat last week 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," says Stan Ross, the Lusk Center's chairman. "The availability of electricity could be a deal breaker in some projects."

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," says Stuart Gabriel, Ph.D., executive director of the Lusk Center. Gabriel notes that such spending has fallen from about 20 percent of the state's gross domestic product in the 1960s to about 2 percent currently. California ranks last among the 50 states in per-capita spending on infrastructure, he points out, yet the state is projecting an 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 says. Last year, California accounted for about 25 percent of the nation's job growth.

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