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High Cost of Housing Continues to Plague County: 1

One leader of San Diego’s real estate industry says the most critical issue facing the county in 2005 will be the mismatch between housing supply and housing demand and the dearth of affordable homes created by this imbalance. A recently released research report from the Washington, D.C.-based National Association of Home Builders lends credence to his claim.

San Diego County ranked 161 out of 162 markets surveyed, according to the NAHB/Wells Fargo Housing Opportunity Index report, avoiding dead-last status only because in Santa Barbara, less than 5 percent of the population can afford to own a home. The next four least-affordable areas above San Diego County were the city of Salinas and Los Angeles and Orange counties.

Housing market fundamentals in San Diego do not look set to change significantly in 2005, and housing affordability , or the lack thereof , will remain a serious challenge here, according to Michael Pattinson, former head of the Building Industry Association of San Diego County and the president of Barratt American Inc., a San Diego-based home builder.

The research report drove home, with hard-hitting statistical evidence, the idea that housing affordability in San Diego County is reaching frighteningly low levels. The information came on the heels of a report issued by the California Association of Realtors last month that found that just 12 percent of families in San Diego County could afford to buy a $566,740 median-priced home in October — the latest figures that are available.

The NAHB/Wells Fargo Housing Opportunity Index report said that for families with the median family income in San Diego, $63,400, only 5.4 percent of the county’s homes are affordable. The figure was based on a median home price of $470,000 for 23,006 new and existing homes purchased for the July to September period, according to the report.

According to the report, all 10 least-affordable housing markets , and 19 of the 25 least affordable , are in California, among the most highly regulated states in the country.

On Jan. 7, the day after the NAHB report was distributed, the California Building Industry Association issued a separate press release, urging lawmakers “to heed the governor’s call for eliminating hurdles to affordable housing.”

In the release, Robert Rivinius, the chief executive officer of the CBIA, said “in cities around the country where housing production keeps up with demand, affordability is far greater than it is in California, where a web of restrictions, regulatory hurdles, and the highest building fees in the country have caused far too few homes to be built and (have) driven up prices for those that have been built.”

According to many local home builders, the housing affordability crisis in San Diego County has worsened because local governments have failed to take sufficient action to confront affordable housing shortages.

According to Pattinson, in San Diego, “It is the entitlement process and the stonewalling that takes place in local government that has created the estimated 65,000 shortfall in homes across the county.”

The city of San Diego pays lip service to the housing crisis, but has not done enough to resolve it, he said. Building genuine affordable housing around the county requires real policy changes, as opposed to inclusionary housing, through policies that require all new residential development projects to provide affordable housing units or pay in-lieu fees, but result in higher prices for the rest of the development, he said. In-lieu fees give builders the option of either complying with a requirement to set aside 10 percent of the dwellings in their projects for low- or moderate-income households, or pay a fee, in lieu of building the housing.

Pattinson also says the entitlement process is too slow and must be streamlined so projects can be completed in a reasonable amount of time.

The BIA has proposed specific measures to address the housing supply problems, including enacting legislation that will eliminate legal hurdles that increase the cost of new homes by delaying construction, and will allow higher density condominiums and single-family homes near the region’s job centers.

In last week’s NAHB/Wells Fargo report, Bobby Rayburn, the president of the NAHB and a home and apartment builder from Jackson, Miss., helped place San Diego’s housing affordability problem into the context of a more pervasive nationwide issue.

Rayburn said in a press statement that higher home prices are ultimately a matter of stronger buyer demand. But, echoing Pattinson’s frustrations, he said a big contributor to the affordability problem has been the shortage of land for development because of growth controls and the high cost of regulations in general.


‘Wake-Up Call’

“This includes everything from excessive impact and utility hookup fees to the price of long delays for subdivision approvals. Local jurisdictions that have curtailed production of affordable and work force housing through excessive regulations should consider this a wake-up call,” Rayburn said.

The NAHB/Wells Fargo findings suggest that nationally, the housing affordability level stands at 50.5 percent, based on a median national price of $225,000 and $57,500 household income.

Economists who calculate the Housing Opportunity Index base their predictions on the assumption of a 10 percent down payment, a 30-year fixed rate loan at 5.83 percent and 28 percent of gross household income spent on housing.

San Diego’s income ranked 55th, at $63,400, while its housing price was tied with Oakland’s, in eighth place. Oakland’s much higher median income of $82,000 gave it an affordability index rating of 26.5 percent.

The report found that the most affordable market, nationally, was Lima, Ohio, where 90.5 percent of the sales were affordable to households earning the median income of $52,500, and paying the median price of $82,000.

In addition, the California Association of Realtors’ affordability index, which measures the percentage of households that can afford a median-priced home, showed that in October, just 12 percent of families in San Diego could afford to buy a home, vs. 16 percent a year ago. It’s below the state average, which is 19 percent, and well below the nationwide average, which is 55 percent, according to the association’s data. The report showed that San Diego, which in October was tied with Orange County, slipped below it in the affordability index in 2004.

Home prices in San Diego will continue to appreciate in 2005, said Leslie Appleton-Young, the chief economist for the California Association of Realtors.

This fact, combined with an increase in mortgage rates , Appleton-Young predicts 50 to 75 basis points will be added , means that there is little prospect of relief for San Diego’s home buyers in sight.

“There’s certainly no quick fix for this problem,” she said.

On the supply side, Pattinson predicts that shortages will persist.

With such a shortage of housing, it is difficult to imagine how the affordability problem will be resolved in 2005, he said.

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