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As the economy bounces back, many economists and urban planners warn that business expansion in Los Angeles and Orange Counties is being dampened by traffic congestion, pollution and housing prices.

Though the state added 34,800 payroll jobs in October – the largest single-month increase since before the economy fell in March 2001 – regional economists say Los Angeles needs to become more business friendly if it hopes to bring back the jobs that have been lost over the past two years.

One of the biggest concerns for businesses is the cost of living in Southern California, especially the cost of housing, economists say.

UCLA students know well the cumbersome costs of living in West L.A., but housing is high-priced across much of the state. In Orange County – a popular place for people working in Los Angeles to live and raise a family – the average price for a single family home is $502,600, 15 percent more than it was two years ago. And income, increasing at about the same rate as inflation, is not keeping pace.

The Anderson Forecast said Thursday that affordability of housing in southern Orange County, including Laguna Beach and Mission Viejo, is an even bigger problem than in the rest of the county and the Los Angeles area. The forecast predicted costs would increase almost 13 percent throughout Orange County in the next two years.

In Los Angeles, the problems of high housing costs are compounded by freeway traffic that comes to a standstill during rush hour.

“Congestion, commuting times, housing prices all disrupt economic activity and discourage workers,” said Ross DeVol, director of regional economics for The Milken Institute.

Many people who work in downtown Los Angeles are forced to live on the fringes of the greater Los Angeles area – areas like Riverside, San Bernardino and Kern County – and commute into the city.

In addition to the difficulties of supplying incomes adequate for Southern California’s high cost of living, businesses are also resisting adding employees because of state legislation costs to businesses of all sizes.

Health care and workers’ compensation costs have mushroomed in the last decade. In 1995, workers’ compensation was a nine-billion-dollar state enterprise; this year it is costing businesses more than $29 billion.

A lot of the tension between business owners and the state Legislature comes from the fact that many legislators perceive business as bad, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corporation.

“The most critical barrier to expansion is the cost of doing business,” Kyser said.

A recent survey by the National Center for Business and Economic Research found that 60 percent of business owners in Los Angeles thought that state and federal regulations and taxes were the impediments limiting business profitability and expansion.

Though Kyser said the vision for the Los Angeles economy needs to come from local businesses and not Sacramento, Gov. Arnold Schwarzenegger said Tuesday that he wants to reform workers’ compensation, significantly reducing its costs.

As for business stability, something essential for new hirings, DeVol said businesses are “confident” this recovery is “real.”

Kyser added that there has already been a surge in the temporary employee market – a telltale indicator of a time when businesses are ready to build up their payroll.

But even as the recovery loses its “jobless” title, and lowers the state unemployment rate that has floated above 6 percent since the recovery began in November 2001, it is important that Southern California looks to the future and develops a plan and a strategy for fostering its economy, Kyser said.

Sitting on a panel with Kyser, DeVol and other urban planners and environmental regulators at UCLA on Thursday, Cecilia Conrad, Stedman-Sumner professor of economics at Pomona College, said Southern California highlighted three criteria for luring businesses to the region: high workers’ wages, an excellent education system and a comfortable and enjoyable quality of life.

In 2000, Los Angeles had the second lowest per capita income of the 17 major metropolitan cities nationwide, down 13 spots from 1970. All public schools and universities sustained significant funding cuts last year that resulted in cut classes and displaced students. And Los Angeles is worldwide known for having hazardous smog.

One of the panel’s speakers told the audience about the prevalence of travel Web sites that recommend tourists consult a physician before visiting Los Angeles.

“You can imagine how that affects the business climate,” said Barry Wallerstein, executive officer for the South Coast Air Quality Management District.