R.I.P. entry-level housing

The local papers are responding to their readers who are asking the question, “Why allow homebuilding to continue during the drought?”

It’s a good question if raised in the context of a jobs-to-housing balancing act which any jurisdiction should weigh responsibly. It’s a dubious question if the motivation behind raising it is rooted in no-growth or NIMBY-type politics.

Yes, building should be allowed because San Diego’s water districts have nearly all of their water supply in hand, thanks to prudent and “already paid-for” resource planning.

Not to allow any building to take place would have a dramatic and immediate jobs loss impact. Nor would it have meaningful conservation benefits because new housing is very water-use efficient and amounts to less than one-half percent annually of existing housing stock.

Besides, the proper legal finding (i.e. public health, safety and welfare based) that would place restriction on building permits could not be made in any event.

We think that the more important question to ask these days, is housing properly supplied? The facts show it isn’t.

Moreover, our region’s very high housing costs are indicative of a jobs-to-housing imbalance worsened annually by the never-ending drumbeat of new cost-adding regulations from the feds, state and local government. It's the politics of careless indifference to the consequences, whether intended or not.

For the 10th year in a row, the housing industry has not been able to pull anywhere near the amount of building permits necessary to keep up with natural growth. The San Diego region is short 50,000 housing units, a demand-based number which explains why housing prices (including rental) are through the roof.

Most of these “lost” units won’t be built because the very market segment that needs these units the most cannot be served by the building industry, due to infeasible construction costs.

New production entry-level housing sales figures for San Diego’s first quarter 2015 show how demand for this biggest market segment is unmet by new construction. Is it any wonder?

As we now know, the average cost to produce entry-level housing, be it for sale or for lease carries a 40 percent local government regulation cost component. Ergo, new entry-level housing cannot simply be produced at a cost to fit the wallet of housing consumers looking for their first home.

MarketPointe Realty Advisors’ Russ Valone, our go-to guy for market data, shared the dismal reality. All of 109 new for-sale units, attached and detached units combined, were sold throughout San Diego County through March of this year. That’s 20 percent of all new homes sold, not including new apartment units released to the market.

These 109 units were all sold in the under-$500,000 sales price category. So 80 percent of the new-unit market activity was for homes sold for more than $500,000. This is stunning.

Consider the fact that the San Diego region median sales price, which includes the much bigger resale market, is close to $530,000. Not much house can be built, if fully $200,000 (i.e. 40 percent of $500,000) goes toward regulations and pays absolutely nothing toward tangible sticks and bricks.

This screaming lack of new entry-level housing is, of course, partially offset in the resale and leasing markets. But not really, given that the dearth of new housing supply causes both of these markets to skyrocket.

Alternatively, people look for their $500,000-and-under house in Riverside. And that is exactly what is going on once more. The worrisome fact, though, is that we may never see proper entry-level housing production figures again.

That 40 percent local regulatory cost component (the main finding made by Dr. Lynn Reaser of Point Loma Nazarene University in her study) was based on the average cost of housing governance in 2013.

Last year’s and today’s regulatory culture have only added more cost, not to mention the costly consequences of the recent California Supreme Court’s ruling in CBIA v. City of San Jose. The court dismissed any notion that a nexus is required to justify ever-higher affordable housing “in-lieu” fees paid by new residential construction to subsidize housing for low- to moderate-income families.

That housing costs are getting out of control due to excessive regulations and housing barriers gained zero ink. Poof went our hopes for judicial wisdom through a call for regulatory restraint and housing policy reform. Poof went the restraint by the San Diego Housing Commission, which immediately raised its inclusionary housing in-lieu fee to $9.51 per square foot, about an average of $20,000 per house.

To further illustrate the housing shortage in the making, consider this next set of numbers. Through April this year, the housing industry pulled roughly 3,500 building permits.

First the good news; that’s more than the 2,300 permits issued last year and the 2,400 units in 2013. These 3,500 permits are 2-to-1 in favor of multifamily production. We are not opining whether that is a good or bad ratio. We are concerned, though, that of these 3,500 units, two-thirds were issued by the city of San Diego.

The bad news is that the rest of San Diego County, the other 17 jurisdictions with plenty of buildable land, issued only 1,200 building permits so far this year! That’s hardly a water-wasting scenario.

BIA is calling attention to this housing production challenge by forming a broad-based coalition around the Point Loma Nazarene study, its findings and its recommendations. Go to to learn more.

This story of infeasible high governance costs and the evaporation of the entry-level housing market should trump the drought and the political cover that this gives to some. Everyone knows that San Diego has 99 percent of its water need in hand today and that tomorrow’s water can come from potable reuse.

If San Diego cannot house its work force through entry-level housing opportunities, it sends a very tough-love message that people can work here, just as long as they don’t expect to live here. That’s an unacceptable condition or attitude, don’t you agree?

Winckel is president and CEO of the Building Industry Association of San Diego.

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