SAN DIEGO—Housing affordability will worsen, San Diego will fall short of becoming a world-class city and the region's ability to grow in many ways will be stifled if we don't build to meet residential demand, said speakers at the “17th Annual Residential Real Estate Conference: Outlook 2018,” hosted by the Burnham-Moores Center for Real Estate at the University of San Diego School of Business. Speakers emphasized the dire housing situation we are in and said that density and a shorter path to development will help lessen the problem of housing unaffordability that is especially serious in San Diego.
Norm Miller, Hahn Chair of Real Estate Finance at USD's School of Business, said homeownership rates are falling and predicted to continue to do so, creating a greater need for apartment units. Drivers for this trend include a higher age at first marriage and delayed children. Legal immigration, which is a large part of our population rise, is bringing more people into the market, also increasing the demand for housing.
Legislation is also not helping, although some of it is intended to do so, said Miller. While federal tax reform will help business, it is unfavorable to the large percentage of California homeowners who owe more than $500,000 on their mortgages. If homeowners continue to be so burdened, an exodus from the market is a possibility. Miller pointed out that for most US metros, hosing is highly affordable, but the median home price in San Diego is $830,000—well above the national average. And the multitude of affordable-housing bills in the state legislature may make living in California too complicated for most.
Tim Sullivan, managing principal of Meyers Research, said we're in the third-longest economic expansion in history, and the job picture is good. In the last six years, we've added 15 million jobs, and jobless claims continue to trend downward, boosting consumer confidence. Still, there is creeping doubt about home prices, and the ration of income versus home prices is “out of whack.”
The L.A. market's answer to lack of housing is pure infill and density, but San Diego has been notably slow to accept either, said Meyers. The market has the lowest supply of homes in the country—less than two months' worth—and the military, which represents 22% of our job base and GRP, is only growing. Rear Admiral Yancy Lindsey, commander of the Navy Region Southwest, said we're in the midst of a military balance to the Pacific, which is bringing ships and personnel to the area. The challenge will be housing all of the people coming into the region.
So what's the solution? “We need to talk about the consequences of not providing more housing,” said Miller. Deborah Ruane, EVP and chief strategy officer for San Diego Housing Commission, agreed, saying, “We need to reeducate people who don't want density in their neighborhood.” The consequences will be that the children of those objecting to density won't be able to afford to live here. But, even more significantly, San Diego will not be able to become an energy-efficient, world-class city without density, and David Graham, deputy chief operating officer of neighborhood services for the City of San Diego, said this is the argument we need to be making.
Ian Gill, managing partner with Silvergate Development, responded to a direct question from Sullivan about what it's like for developers to get projects done in this market. “It's impossible to get projects underwritten,” said Gill. He added that his firm tries to get areas rezoned, build in secondary communities and propose redeveloped mixed-use projects in order to gain approval and shorten development timelines.
Graham added that it can take nine years to get community plans completed, so his organization is trying a Lean Six Sigma approach to tis planning process, promoting micro-units and a middle-income density bonus to help provide for those in the 30%-to-80%-of-AMI range.
Ruane pointed out that this mid-level demographic is key because those in the lowest levels of AMI have nowhere to move up to that they can afford, so they overstay their tenure in those homes, creating a backlog. She said her organization is in the midst of a pilot project on middle-income housing to help alleviate this problem.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
