The year 2014, by many measures, brought a sunnier economic outlook, with lower unemployment and an increase in consumer confidence in San Diego.
Yet, new housing construction fell. And it fell a lot.
Through November, 5,855 permits for single-family and multi-family units were issued, according to the Building Industry Association of San Diego. It estimates the final number will be around 6,200. In 2013, that number was 8,447. In 2003, that number was more than 18,000.
Dropping supply can lead to spikes in home prices, which happened in 2012 and 2013, and to a lesser degree last year.
“If housing starts don't increase, prices will remain higher because supply can never reach demand,” said Michael McSweeney, senior public policy advisor for the Building Industry Association. “Simply put, our market is out of whack.”
The drop in housing starts follows five years of slow but steady growth. The year 2009 was the low point, when less than 3,000 permits were issued.
McSweeney figures San Diego County is seeing only 50 to 75 percent of the housing starts needed to accommodate population growth.
This has caused San Diego's homes to be overvalued, at least according to one industry observer. Trulia reported this week that San Diego is one of 21 markets out of 100 that are overvalued. It reports that San Diego is overvalued by 6 percent and rising. Putting it in perspective, it was 66 percent overvalued in 2006, just before the housing bubble burst.
The median home price has now climbed to $495,000, according to the Greater Association of San Diego Realtors.
Tulia looked at price-to-income ratio, price-to-rent ratio, and prices relative to long-term trends. San Diego’s problem is that housing prices are outpacing income.
“We can create more higher- or better paying jobs, but I'm not sure that will keep up with rising housing costs,” said Kelly Cunningham, an economist with National University System Institute for Policy Research. “Although San Diego is creating high-wage jobs, we are also adding a lot of low-wage, part-time jobs and not much, if any, in the middle.”
To make matters worse, most new housing is multi-family, high-end and targeted toward the millennial population who don't want to be saddled with a mortgage, McSweeney said.
“The new apartment projects, for the most part, have high rents and mucho amenities to offer to the demographic renting there,” McSweeney said.
Cunningham said this has led to an exodus of families from San Diego.
“The way out of the downward spiral is to lessen the barriers and costs to build housing, which San Diego and coastal California seem quite unwilling to allow to happen,” he said.
McSweeney agreed that government regulations drive up home-building costs. But scarcity of land is also an issue.
There are only a few pockets where new single-family homes are getting built — mainly to the far north in Vista and to the far south in Chula Vista.
Thirty-one percent of the permits for single-family homes in the county were in the city of San Diego, with construction mostly in Carmel Valley and Downtown/Little Italy, McSweeney said.
The state wants most new development to be infill. But efforts to increase density in established communities have been hit with pushback, he said.
“The state mandates infill and that's what makes sense, but residents are opposed to change,” he said.
Residents in Clairemont and Bay Park protested when talk surfaced about increasing density near future trolley stations.
Graeme Gabriel, co-president and chief operating officer of Colrich Multifamily, a real estate development and investment firm, said infall "has to be the answer."
"It addresses all needs — additional product, less of a strain on our roads and highways, environmental improvement as old inefficient homes are replaced with more efficient homes thereby reducing a homeowner's carbon footprint."
However, he's also not optimistic about housing starts improving anytime soon. Housing starts are likely to increase in 2015 because there were a lot of land transactions last year. (But only how it relates to previous years, not the 30-year trend, he noted).
After 2015, housing starts will drop again, he said.