During his daily Covid-19 briefing in Sacramento, California, Governor Gavin Newsom announced on 28 April a four-phase plan to reopen the Californian economy within weeks, including reopening some retail and manufacturing businesses and other ‘lower-risk workplaces’ as testing and tracing improves. The governor, who is facing mounting pressure from local officials to reopen the state, especially in some counties and cities where the virus appears to be of a lessening threat, said that schools may begin their 2020-year as early as July or August to compensate for the lost learning time from closures.
California was the first state in the US to issue a stay-at-home order, forcing its 40 million residents to stay at home except for essential activities. The order, which took effect on 19 March, exempted ‘Essential Critical Infrastructure Workers’ from the order, including construction workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects, including housing construction. Mr Newsom has not set an end date for the order but said he would be evaluating progress on six criteria before allowing the economy to fully reopen, including more testing, more contact-tracing, and physical distancing at companies and schools.
Given the acute shortage of affordable houses in California, Newsom’s statewide order explicitly acknowledges housing construction as an essential activity that needs to continue during the pandemic. Housing availability remains a big challenge in California. Before the coronavirus erupted, California’s most pressing issue was how to address the housing crisis that has plagued the state for many years.
However, amid the pandemic and concerns that construction workers are being exposed to the disease, public officials in many counties and cities in California issued their own stay-at-home orders, adopting more restrictive regulations that require ‘nonessential construction’ activities to stop, including commercial buildings, and residential buildings that do not have at least 10% affordable units. In general, local health officials in California are allowed to issue their own safety guidelines, providing they are stricter, but not more lenient, than the state’s.
In the greater San Francisco Bay Area, for instance, public health officials in seven counties (Santa Clara, San Mateo, Marin, San Francisco, Contra Costa, Alameda and Santa Cruz, and also the city of Berkeley) announced their own stay-at-home measures on 31 March, ordering most construction projects to stop, including commercial, residential and institutional buildings. Exceptions were made, however, in a number of sectors: affordable housing; homelessness shelters; healthcare facility construction directly related to the Covid-19 response; and transports projects, among others.
In Los Angeles County, meanwhile, most construction projects appear to be moving forward, including commercial, residential and institutional buildings. The city’s mayor, Eric Garcetti, announced new safety guidelines on 31 March, outlining that all construction sites can carry on work as long as they follow the latest regulations, including ensuring six feet of physical distance between people and making sure that workers wear protective equipment like gloves, goggles, face shields and face masks ‘as appropriate for the activity being performed’.
Among the major projects that are still on in Los Angeles County are the SoFi Stadium in Inglewood, the Los Angeles County Museum of Art, the 35-story Shoreline Gateway development in Long Beach, and the 2900 Wilshire apartment tower in the Koreatown-MacArthur Park area.
Webcor Builders, the second largest construction company in Los Angeles County based on total project square footage, behind AECOM Construction, is keeping its projects open, but are making revisions as necessary in line with new developments. Other major LA construction companies, including Hathaway Dinwiddie and Swinerton, have publicly declared that their LA construction sites will continue to carry out work. In the meantime, other counties and cities, including those in northern, central and southern California, have not issued any construction-specific rules or guidelines, and thus conform to the state order. For further reference, the Associated General Contractors of California has summarised county and city specific construction restrictions, which can be found here.
Nonetheless, many developers across the state of California, regardless of whether construction is allowed to continue or not in their localities, are postponing and terminating business agreements, as some claim that meeting the contract’s deadline would ‘pose a danger to human life’ and expose their companies to criminal prosecution. Pacific Collective LLC, a commercial developer in Los Angeles, announced it is suspending its purchase of a 120-acre tract of land in Culver City from Exxon Mobil Corp., citing ‘force majeure’ clause to delay the purchase of the land.
As the full scale of the economic impacts of the coronavirus pandemic is still unknown, construction companies across the state will continue to struggle to understand what will the new measures and safety guidelines imposed by local governments mean for their operations especially when it comes to allocate their capital expenditure for their various projects and programs.
Even if all construction sites are allowed to carry on work, it is very likely that at some point projects may need to stop due to health and safety issues and concerns. Contractors and home developers will also have to deal with project delays due to supply chain issues, difficulty in obtaining permits, loss of efficiency, and other costs effects related to the pandemic and regulatory responses.
According to the US Bureau of Labor Statistics, California registered the largest job declines in the US in March. Nonfarm payroll employment fell by 99,500 over the month. In construction alone, the state, which has nearly 900,000 construction workers, lost 11,600 jobs over the month.
April figures, however, are expected to be much worse as it will account for the construction restrictions imposed by the Bay Area counties in late March, including ordering nonessential construction to stop. California has also registered the largest number of jobless claims in the US, thus far. For the week ending on 18 April, California reported 533,568 of new jobless claims, bringing the total of claims to nearly 3.4 million people since 15 March.