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Will Housing Shortage Send S.D.’s Middle Class Packing?

San Diego County’s housing market, one of the least affordable in the country, is in danger of falling even further behind, a San Diego Regional Chamber of Commerce-backed study said last week, with housing shortfalls potentially leading to economic stagnation.

Economist Gary London, president of real estate consulting firm The London Group which conducted the study, predicted there will be a shortage of between 43,000 and 118,000 single-family homes here by 2050. Based on the San Diego Association of Governments’ population growth predictions, London said that since the end of the recession, San Diego has built roughly half the homes it needs to keep up.

If enough housing isn’t added to meet demand, London said prices would continue to increase and workers would get pushed out of the market. Businesses would be pressured to increase wages or compete over a shrinking pool of employees. San Diego hasn’t reached a tipping point yet, he added, in part because many workers commute from south Riverside County and Tijuana. They’ve been priced out of San Diego, but are still part of the workforce.

“There’s always been some level of unaffordability, but we’re reaching such levels that we may not have a sustainable situation,” London said.

Crowding Out the Middle

San Diego is at risk of becoming a “boutique” region, London warned, where only the wealthy can afford to live and the lack of a middle class leads to economic decline.

Based on SANDAG’s population projections, the county needs 3,574 new single-family and 7,138 new multifamily homes per year through 2020. But since 2008, the region’s added only 64 percent of the needed single family homes and 44 percent of the multifamily homes, according to the report. While San Diego has enough land for the required housing, and cities have factored in the additional homes in their general plans, London said many projects are getting scaled back.

“On paper we can accommodate the housing,” he said. “But the on-the-ground experience is very different. In urban areas, projects aren’t getting approved or they get downsized.”

The low construction rate is mostly due to regulatory burdens that make houses too expensive, London said, citing a study by Lynn Reaser, chief economist at Point Loma

Nazarene University’s Fermanian Business & Economic Institute. Reaser found about 40 percent of a new home’s cost was due to regulation and that one-fifth of households in the county are priced out of owning or renting, based purely on their income. Developers are increasingly building homes only for very wealthy families or subsidized housing developments, she said.

“Housing availability and costs represent an enormous short-term and long-run constraint on San Diego’s growth, challenged only perhaps by water,” Reaser said. “The large middle segment is, unfortunately, being forgotten.”

A Statistical Difference

SANDAG officials took issue with some of London’s figures. While overall annual housing permits fell to below 3,000 in 2009, permits in the county are trending up and may cross 8,000 this year. London’s claim about post-2008 additions being only half of what was required include the very low 2009 and 2010 permit numbers, SANDAG said, so the housing situation is not as dire as it appears in the report.

“The recession included some very unusual years, which brings down the average,” Muggs Stoll, SANDAG’s director of land use and transportation planning, said. “We’re climbing out of the recession. We seem to be heading in the right direction.”

Marney Cox, SANDAG’s special projects director, stressed the county had enough land to meet its housing needs through 2050. SANDAG predicts more than 80 percent of future additions will be high-density, multifamily housing, opposed to the current makeup of 40 percent multifamily. London argued municipalities zoning for multifamily housing were depressing building because most San Diegans still wanted single-family homes. Cox countered that if residents are more interested in single-family homes, there will be consumer pressure to convert land set aside for multifamily housing, providing more opportunities for desired homes.

“The marketplace will take care of that,” Cox said.

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