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Housing permits up almost 40% in first 6 months of 2011

Developers are increasingly turning to multifamily projects to meet the county's housing needs, as demand for new single-family homes remains low.

Through the first six months of the year, developers have pulled permits for the construction of 2,977 housing units, up 38 percent from the corresponding period last year, according to data provided by the Construction Industry Research Board (CIRB).

The number of permits pulled during the first half of the year is 150 percent more than in the previous six-month period.

"Numbers are modestly better over last year's first six months, but whoop dee doo," said Borre Winckel, president and chief executive officer of the San Diego Building Industry Association (SD-BIA). "We're talking about minute changes. Percentage-wise it's a great improvement, but 15,000 dwelling units is the permit number we believe is appropriate to meet the county's housing needs for a year."

Permits for the construction of multifamily units have increased 115 percent over the first six months of 2010, when only 764 such allowances had been issued.

Single-family unit permits, meanwhile, have remained virtually unchanged from last year. Developers have pulled 1,334 single-family permits so far this year, a 3 percent decrease from the 1,385 in last year's first half.

The increase in multifamily permits is driving the discussion of this year's housing construction trends in the county, according to Winckel.

"There's a greater uptick in construction of multifamily, most particularly in the city of San Diego, where multifamily belongs," he said. "We're seeing multifamily permits taken out where we'd expect it. There's a sense that the apartment market is going to be stronger even in 2012 than in 2011, which is why you pull permits."

His association has also seen an increase in membership from apartment builders, Winckel said, supporting the observation that multifamily production is on the rise.

Alan Nevin, director of economic research at MarketPointe Realty Advisors, said 90 percent of the multifamily permits are reserved for the construction of apartment units.

He's aware of multifamily projects nearing the permit-pulling stage that would result in roughly 1,500 units at some point in the next six months. The projects include a Garden Communities development in Mira Mesa and the Ariel Suites development in Little Italy.

"There are several other projects in the permit-stage around the county," he said. "I don't know if they all have financing, but most of them do. You've got your numbers through June; it'll double before the end of the year."

The coming wave of multifamily construction is a result of the lack of delivery in the previous two years, Nevin said.

In June, county municipalities issued 384 total building permits, up 70 percent from 225 in May, but down 31 percent from 559 in the year-ago month.

The multifamily permit total, which fell from 562 in April to zero in May, rose to 102 last month. It was 52 percent lower than the 213 pulled in June of last year.

Last month's single-family permit total of 282 was a 25 percent increase from the May total of 225, but an 18 percent decrease from the 346 of last June.

Single-family permit totals are hovering near their year-ago levels because demand for new housing remains low. Mortgage qualification standards are tight, despite low rates, and relatively expensive new homes are forced to compete with distressed properties -- foreclosures sold at auction, in a short sale, or after being repossessed by a bank -- that come at severe discounts.

Multifamily projects are therefore seen as a safer investment, since the overwhelming majority of those units will eventually be available for rental, rather than sale, along with a lack of inventory from poor production in recent years.

SD-BIA has also complained that the impact fees municipalities charge when permits are pulled are based on boom-era price projections, making it difficult for developers to pencil-out the cost of construction.

"If you have to add $40,000 to $60,000 permit fees to your costs, you really can't pass those on to the buyer, and you can't afford to eat them either," Nevin said.

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1 UserComments
ok 1:15am July 26, 2011

San Diego needs more apartments like we need a plague. There are thousands of empty apartments and almost as many foreclosed homes. This is just the greedy getting greedier. It helps no one to build new unaffordable $2k p/month rentals except for the city coffers and real estate lurkers.