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Great article on the San Diego housing market.

San Diego Is Still Behind In Building Housing, Keeping Rents And Home Prices Too High

Tuesday, January 8, 2019


Above: A house for lease in San Diego, Oct. 29, 2018.

Aired 1/8/19 on KPBS Midday Edition

GUEST: Borre Winckel, president and CEO, Building Industry Association of San Diego

Subscribe to the Midday Edition podcast on iTunes, Google Play or your favorite podcatcher.

There are many theories about why home prices are so extraordinarily high in San Diego, and why home buyers and renters are struggling to pay the cost of housing, which seems to just keep increasing.

Developers are blamed for making huge profits on houses for the high-end buyer and not building anything the average middle-class family can afford.

Borre Winckel, president and CEO of San Diego’s Building Industry Association joins Midday Edition Tuesday with the developers perspective on housing in San Diego County.

Below is a transcript of the interview, lightly edited for clarity.

Q: What did 2018 look like in terms of the number of new homes built in San Diego County?

A: The year mirrored the year prior to 2018, though the December numbers aren't out yet, will likely finish just a tad under 10,000 units put under a building permit for the entire region. So that includes the city of San Diego and all of its county and all of its cities.

Q: So 10,000 sounds OK. Why is 10,000 not enough?

A: When we were a smaller population we used to build 15,000 housing units for 31 years straight through the year 2011 and then fell back to about 7,500 units on average from 2011 forward. So what's the upshot of that is that we are building one-half of the houses that we used to build while the population has certainly increased in the opposite direction.

Q: I noticed that your calculations suggest that we have a cumulative deficit. In other words, we are 55,000 homes behind where we should be in terms of new development. Is that right?

A: That's a number that we calculate, it doesn't really calculate the supported housing we need for the homeless and for the folks who don't make enough money to qualify for market-rate housing.

Q: The state has set targets for San Diego and the target for the next housing cycle which starts in 2021 goes to 2028 is that we build 170,000 new houses in that seven-year period. Do you think that setting high state targets is going to help?

A: If we don't abide by these targets the 'Misery Index,' 'I'm paying too much for housing in general;' whether it's through your rent or your monthly rent or whether it's through your mortgage will only continue. We have to solve our housing cost crisis by increasing the volume of new units across the board.

Q: So, the reason why there are, according to your perspective, not enough houses being built is that people are worried about traffic and they don't want extra density. Do you really feel that this region is making a connection between their resistance to new development and the cost of new houses or the cost of housing in general?

A: No, they don't. I believe it was the LA Times and the University of Southern California that did a poll not long ago. The outcome of that poll was that whereas people were very concerned about the cost of housing whether it was to purchase or to lease they didn't want to solve it by having access to more housing. Meaning the translation of the poll was, 'we want a better housing deal but we want less housing.' Well those two findings don't add up.

Q: There is this point that most of the new housing that's being built is being called in some cases attainable but none of it's affordable being built by the Building Industry Association. Why are builders not building for the middle class? It seems like it's mainly for the high end.

A: You may recall that Lynn Reaser from Point Loma Nazarene University tried to answer that question a few years ago when she calculated that the average cost to produce a house held for lease or for rent includes a 40 percent factor devoted to red tape, fees and regulatory load. And those were all local impositions. So there was an average taken over I believe seven jurisdictions all located within the county of San Diego. So in actuality, that was an average that was in place for the year 2013. Meanwhile, we're five years further and you won't be surprised to know that probably the actual cost average goes to nothing to do with building an actual house is closer to 50 percent. So this explains why there is such a lack of housing to produce.

The premise of your question is why are we not building middle-income housing. It doesn't cost that much more to produce a high-income unit versus a middle-income unit. The same regulations, the same fees, the same land and location are often in play. Therefore the only product that makes any sense, or as we say that pencils out, is the higher end of the market. We're often accused as an industry that we are a callous business, that we choose not to build or therefore we are ignoring middle-income housing. We would love to build middle-income housing again because that's where the volume of construction is. But it cost as much to build the upper end. Therefore you have fewer people, fewer businesses involved in building the high end and not building to the middle because we can't touch the market.

Q: But I know that for example, the city of San Diego has attempted to reduce the number of regulations to cut the costs of regulations to building houses and people say well yes but the developers are then just going to increase their profits and take the reduction in regulations and build the same price of housing.

A: So instead everybody paid attention to that 40 percent factor. What happened was since then the Regional Water Quality Control Board adopted stringent new stormwater runoff regulations which added about $20,000 per house. Then the state added a solar mandate which added another $20,000 per house and we are living in the new area of the Climate Action Plan. Environmental Planning with a strong propensity to favor infill housing in transitory locations at high density. That's where we run into massive neighborhood opposition. So you take all of that together that 40 percent is close to 50 percent to construct its units, there goes your market. That is why we are producing sub 10,000 housing units. I really came here to tell your audience that we're in for much of the same bad weather.

Q: Let's just talk a bit about the effect the attempts by the county to build more housing out in the unincorporated areas, sort of the rural-urban interface, and they wanted to pass it like 10,000 new homes. And now we've seen that both Lilac Hills went to the ballot and the voters rejected it. And now Newland Sierra was approved by the supervisors but will probably go to the ballot now in 2020. Are you concerned that the new housing developments out in the outer edge of the county will also face opposition just like they do in the inner city areas?

A: Well yes, they do. You'll recall that both the Sierra Club and the Golden Door have funded a number of referenda which successfully got on the ballot of 2020. The consequence of failure to pass or failure of these projects to go forward is that the demand of the county which is as strong as it is in the city will be pushed into the cities where it will further increase the political unwill, strengthen the NIMBY resolve to not to have those housing units built. So it's a bad news story for housing costs because as we as we fight against having housing built along the I-15 corridor, which connects one population area to another, all we're doing is transferring those folks who need a house into the cities. The city of Santee is already grappling with a no-growth initiative of their own, Oceanside tried through the Save Our Agricultural Resources last November it was fortunately defeated because the farmers didn't didn't want it. So you take all of these developments collectively and it paints a picture of further constricting the amount of land that is available to build the housing we need to house the population.

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