In early 2014, The San Diego Union-Tribune reported that the high cost of living here was forcing young families to move away.
However, it was the online comments section that revealed the true emotional cost of this exodus.
One person wrote: “I was devastated when we had to leave . . . We just could not afford to live in San Diego after [my husband] returned from Iraq and retired from the Navy. We live in Las Vegas, and it sucks. Our son and I dream about returning to San Diego someday.”
Said another: “San Diego is the most wonderful place to visit now for me, since [my] wages never rose with the cost of living. So now I live in [Oklahoma City] and root for the Bolts on [Direct TV]. Sure do miss the weather.”
And still another: “I was born and raised in San Diego. I left for Texas in 2006 after graduating [from California State University San Marcos]. It was a smart move financially for the quality of life I wanted. My mom and sister followed a couple of years later, and their quality of life has increased two-fold. I miss San Diego, don’t get me wrong, but it’s just a nice place to visit now.”
Fast-forward to present day, and the flight continues.
A recent U.S. Census update — for July 2014 to July 2015 — shows more people are leaving San Diego than coming here from other parts of the nation. In that 12-month period, the region lost 9,370 in population, the highest number this decade.
Why? Working families can’t afford homes.
“The primary reason San Diego residents are leaving is the high cost of housing,” said Kelly Cunningham, an economist with the National University System Institute for Policy Research. “This happens even as job growth occurs.”
The median home price in the county is $460, 000, and an estimated 21 percent of residents are priced out of the market. The economic recovery has helped people who own homes, giving them the equity to move if they wish. Some decide to leave because middle-class incomes don’t stretch that far in San Diego.
San Diego’s economy has a propensity to create two types of jobs: high-paying high-tech jobs and low-paying tourism and service-oriented jobs. Those in the upper bracket are fine. The rest are not. Households earning $50,000 per year or less are disproportionately migrating out of San Diego and California to other states.
“It is the Santa Barbara-ization of San Diego,” Cunningham said in 2014, when he issued the first report expressing concern with housing prices. “We could end up with high-end and low-end residents and no one in the middle.”
Cunningham’s earlier study was something of a shocker in that he noted San Diego was losing a key demographic: young families. Since the end of the recession, the number of people ages 35 to 39 dropped by 5 percent. The number of young people ages 10 to 19 fell by the same percentage.
That’s likely still happening.
“As we reported in our previous study, it is mostly young families moving away, people in their 30s and early 40s with young children, who cannot afford a home for their growing families,” he said. “So, yes, undoubtedly this will continue, even as the economy recovers, and may actually accelerate as home prices continue rising (faster than income levels) and the region does not build enough to meet demand.”
San Diego’s population is still growing. That’s because of births and immigration. However, the concern is that the negative migration is causing us to lose a key segment of the population. These adults are in their prime earning years and make up an important part of a healthy, well-rounded work force.
“It’s likely that it’s not the welfare kings and queens departing,” said Richard Rider, chairman of San Diego Tax Fighters. “They are primarily the young, the educated, the productive, the entrepreneurial, the ambitious.”
Why families are leaving
It’s hard to fault many of the families leaving San Diego. It makes financial sense to move out of the county, even if one has a job and has to commute from nearby Riverside County, according to another recent study by the National University System Institute for Policy Research.
If you buy a house in Temecula instead of San Diego, you save nearly $200 a month, even when the price of the commute is factored in, the study found.
The report took into account median home prices and the cost of commuting that Riverside residents have to endure. That includes both gas and wear and tear on the car.
That $200 estimate is based on San Diego’s median housing price, which might be low-balling the situation. It’s not easy to find a house in the $500,000 range because they’re in low supply and snapped up quickly.
If one looks at houses in pricier San Diego neighborhoods, the difference becomes more extreme.
The report looked at Rancho Bernardo, for instance. The median price there is $636,500. Since the median price in Temecula is $393,200, the monthly cost savings was estimated to be $768.88.
It might be why another 13,000 San Diegans recently moved to southern Riverside County, according to the U.S. Census, adding to the 42,000 who live in Riverside County but work in San Diego.
Might this pattern change if gas prices, which have fallen, rise again?
Not likely, according to Erik Bruvold, president of the National University System Institute for Policy Research. He said fuel costs would need to more than double to close the gap.
“The wider and more persistent this gap gets, the more we would expect San Diego workers to consider housing options in southern Riverside County,” he said in the report. “That migration puts additional strain on the region’s transportation system.”
While Murrieta and Temecula home developments flourished because housing costs in San Diego pushed lower-wage residents to the area, many believe the same factors will spur growth in Tijuana, which has a shorter commute.
“Each day I see more and more people from San Diego turning to Tijuana,” said César Leal Partida, director of business development for Seica, a Tijuana construction company, according to a KPBS story. “When they see what they can get — the quality of construction they can get, the quality of their building, the quality of life — they’re like, ‘Wow, and still I’m a 20-minute drive from downtown San Diego.’ ”
Unless something changes, San Diego will continue to lose middle-class residents. Cunningham predicts 7,600 more will leave than arrive in 2016.
This loss has been happening in California for years, both Cunningham and Rider noted. Rider said that from 1992 through July 2014, California had a net domestic out-migration of more than 3.7 million people.
“San Diego is now resembling the state and Los Angeles,” Cunningham said, noting that L.A. has seen significant migration losses.
Indeed, the only thing that was slowing it was the recession. People’s homes lost value, and they couldn’t afford to move. The recovery has changed that dynamic.
“The housing bust dramatically slowed out-migration, as people lost a lot (or all) of the equity in their homes, so selling was not deemed a good idea,” Rider said. “Home prices are now recovering, and the more the housing prices recover, the more people will likely choose to sell and leave.”
Supply and demand problems
San Diego is the nation’s fifth most expensive housing market, according to the National Association of Realtors. Only an estimated 25 percent of the households can afford the median home price.
That puts us in a pretty difficult position.
Affordable housing is needed, but it’s difficult to create new housing in San Diego because of a lack of buildable space. And the land that is available is not cheap. It’s going up in price because of its scarcity.
“It’s all supply and demand,” said Mike McSweeney, senior public policy adviser for the Building Industry Association of San Diego, in 2014. “We need 10,000 to 12,000 new units added a year to keep pace with [population] growth. We are building 8,500. If you have a 30 to 50 percent deficit every year, prices go up because there is not enough supply to meet the demand.”
San Diego had been on a housing boom. From 1997 until 2005, developers built an average of 9,181 single-family units and 6,000 multi-units per year. Most agree that builders overdid it, especially in 2003, when they added 18,314 units, and in 2004, when they added 17,306 units.
But the numbers started to fall in 2005 and plummeted during the next four years, reaching a low of 2,990 in 2009.
The numbers have rebounded, up to 10,048 in 2015. But SANDAG projects the region needs 11,000 units a year just to maintain pace with population growth.
Plus, while multi-units have rebounded, with 6,915 in 2015, the county has averaged only 2,431 single-family units per year since 2009.
No one expects single-family homes to rebound.
“We will most likely not see your typical suburban development that most of us grew up in again,” McSweeney said. “We don’t have the land available.”
Less than 16 percent of San Diego County is developed. But, most of the non-developed land is undevelopable — as it is either mountain terrain or lacks appropriate infrastructure. Some of the geographically suitable land is designated as protected open space.
The California Legislature is pushing developers to build within existing cities, instead of on the outskirts where land is more available. That means most new units will be higher-density infill projects — condos and apartments.
“I don’t see a lot of new single-family homes being built,” said John Altman, a Realtor with JT Altman & Associates, who closely watches regional trends. “Certainly not starter homes. New homes will have to be in the higher price range.”
Altman said new families will be forced into condos in order to stay in San Diego. But many of the newer condos, especially those in downtown and East Village, are not in family-friendly neighborhoods, and they are also very expensive.
Experts say few developers are planning moderately priced housing because the regulatory costs are so high that it is much riskier than high-end condos or apartment buildings.
Government’s role in the crisis
Developers bemoan the fact that the regulatory process takes too much time and costs too much money.
McSweeney said state regulations lengthen the average timeline for a developer to get approvals for a new development from two years to 8 to 10 years. That additional time adds significantly to the cost of new homes.
“We’ve been living in a market constrained by government-related factors that cause scarcity,” he said. “We would not get 20 percent jumps in home values if there were enough houses to go around.”
McSweeney said states such as Texas streamline the entitlement process and have ample land to keep growing. Those factors mean homebuilders can sell a new home in Texas for half the price of a similar home in California.
A new study pinpoints the exact cost of government regulations, showing that they add 40 percent to the cost of construction.
The Fermanian Business and Economic Institute at Point Loma Nazarene University issued a report in April that shows regulatory costs range from $125,000 per unit in Santee to about $282,000, or 44 percent, in Carlsbad.
The report, written by chief economist Lynn Reaser, concludes that a modest 3 percent reduction in regulatory costs could open housing options to 6,750 additional households in one year. This would push total new units from about 10,000 a year to 16,750, raising it above the threshold needed to keep pace with population growth.
This would reverse the out-migration trend from a net loss of 11,000 residents to a net gain of 7,000.
“Reducing the number of households priced out of the market by various regulations by about 3 percent clearly makes only a small dent,” the report states. “Nevertheless, an annual increase of about 6,700 households into the market over the course of 15 years would close over 40 percent of the current gap.”
The report makes several recommendations, including changes to affordable housing requirements. Local governments have focused on inclusionary zoning, which requires developers to build a set percentage of units that are affordable to low-income families. The city of San Diego requires that 10 percent of units be affordable, while San Marcos and Carlsbad require 15 percent. In Carlsbad, this adds 9 percent to the cost of the market-rate units, according to the study.
The report recommends that jurisdictions offer in-lieu fees as an alternative to building affordable units. It also recommends that municipalities allow affordable units to be built off site, and to be aggregated with other affordable units to achieve better economies of scale for developers.
The time it takes to get approvals is typically the biggest driver of costs for homebuilders, especially when the community lacks a master plan.
“The high level of uncertainty and risk associated with the entitlement phase in areas where no master plan exists leads to the inability of developers to tap into financial markets until after a tentative map is completed, resulting in a cost of capital in this phase of approximately 18 percent,” the report states.
Fees also make up a big part of costs, averaging $54,000 per unit. These include parking, school, water, sewage, drainage, transportation and city service fees. Developers are also charged fees for building permits, inspections and plan checks.
The report also determined the cost of eliminated units, that is, units that are eradicated during the entitlement phase to meet various demands for open space. In the city of San Diego, as much as a third of potential units are often cut out of a project’s potential.
Local candidates have not ignored the report.
San Diego mayoral spokesman Craig Gustafson told The Union-Tribune that city staff was reviewing the report’s accuracy and recommendations and would identify potential streamlining initiatives.
“Any future efficiency measures would join a series of reforms Mayor (Kevin) Faulconer has already enacted to help reduce the overall cost of housing so more San Diegans have the opportunity to achieve their housing goals,” Gustafson said.
Ray Ellis, who is running for the District 1 San Diego City Council seat, noted the seriousness of the problem on his campaign website: “Housing affordability is an issue that impacts everyone in our city. If we don’t develop and implement solutions now, future generations of San Diegans will suffer.”
He proposed a number of solutions, including updating community plans, cutting regulatory costs by 3 percent and offering builders incentives to create middle-class housing.
His main opponent, Barbara Bry, has said she believes increased density — as long as public transportation is available in the locations where it’s concentrated — could help. As does Ellis, she calls for streamlining the regulatory process and offering builders incentives.
They hope to represent District 1, which includes La Jolla. The median home price there? It’s $1.67 million, according to Zillow.
They’re hardly the only San Diego politicians to address the issue over the years. Yet the problem persists.
Indeed, it’s been growing gloomier. A report by The London Group called “Facts & Implications of Not Meeting Regional Housing Demand” is not exactly happy reading.
“Our region’s substantial housing shortage is only getting worse as post-housing-bubble development (since 2008) has produced only a fraction of the housing units required. Our region’s current supply trajectory is not adequate.”
So what’s the answer? Myriad solutions, it says. “We need urban infill, but there is also a place for well-planned green field development. Millennials may be delayed in raising their families and moving to suburban places. But it is highly likely that most will eventually seek to buy a traditional single-family home, and we have to be ready to accommodate this demand within suburban areas. Many baby boomers may ‘move down’ from the suburbs to the city. We have to plan for them, also.”
What’s the solution for Catarina Pupillo? She’s one of the people who commented on the Union-Tribune story, noting how she had to move after her husband retired from the Navy.
“I always joke that San Diego is God’s practical joke,” she said. “Fantastic place to be, but too much traffic, and expensive to live there.”
For a time they lived at Camp Pendleton, but after her husband retired that was no longer an option. She said they could not have afforded the taxes on any house they would have purchased. She said there’s no way she can come back, not with rents as high as $2,000 a month.
“It was hard to move to Vegas,” she said. “I cried all the way to Nevada.”
Jack Crittenden contributed to this story.