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Nov. 30, 2017

Ten years on, home building hasn't yet recovered

Meaningless additions to California's housing stock resulted in a net increase in our accumulated statewide housing deficit by yet another 100,000 units.

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By Mick Pattinson

When I came to San Diego in 1984, our countywide new home production stood at almost 40,000 new homes each year, which kept our house prices in line with the national average. But times have changed. This year we are unlikely to achieve last year's total of a meager 10,000 new homes including rentals as well as for-sale new homes.

At the same time, our population has increased from 2.1 million in 1984 to 3.3 million today. So while our annual housing production has declined by 75 percent our population is up by 50 percent - a supply and demand imbalance if ever I saw one!

No wonder San Diego's new home price increases are among the highest in the nation at over 7 percent this year and our median new home price is more than $535,000. Worse still has been the headlines San Diego has been making nearly all year for the severe homelessness that has embarrassed our fine city.

Many reasons are put forward for our failure to keep pace with population increase and the demand for new homes. Government regulations at every level - federal, state and local - are a prime culprit together with fees and infrastructure burdens placed upon property owners, developers and consumers. So too is the time and cost involved in taking raw land through our cumbersome approval process to reach development.

With these problems in mind, our local Building Industry Association held its first annual "Political Leaders Reception" just before Thanksgiving giving builders and political figures an opportunity to rub shoulders and discuss ways to break housing roadblocks. Builders and developers have long been viewed as political heavyweights in San Diego, but the supply of housing tells a different story.

The BIA web site describes a successful event with awards presented to deserving civic leaders interested in reviving home building, but my eye went to the attendance figure of just 40 building companies represented. Not all local builders are BIA members but the association provides a good benchmark of the industry's strength and just 40 builders from our county tells me that we lack the strength in numbers to bring back housing volume.

Ten years have passed since housing was crushed in San Diego with the collapse of "too big to fail banks" and their subsequent bailout. Sadly, bailout funds went to car manufacturers, foreign-owned banks, politically correct green energy providers but not builders.

The billions of dollars (yes billions) of carefully accumulated builder equity that was washed away in the bankruptcies has never been replaced and the void in the builder market never filled. While a few new faces have turned up in San Diego to build downtown high rises, most of our lost companies have not been replaced. Perhaps San Diego is viewed as hostile territory for home builders?

For decades it was San Diego builder equity that paid for the raw land and ever-increasing entitlement costs that eventually brought development land to market. It was builder equity that paid for the government fees and public infrastructure surrounding new developments and it was builder equity that put up the initial dollars that got projects off the ground. Today the recovery of that equity comes at snail's pace as reflected in the housing permit and completion statistics.

Likewise banks must contend with arcane Dodd Frank lending laws which were designed to close the barn door after the horse had bolted. Having observed one housing catastrophe, our senators were not about to sanction another so they introduced regulations (there's that word again) to make reasonable construction lending a thing of the past. Only if you don't need a loan can you get one in today's world.

So we limp along with one appalling year's output followed by another; meaningless additions to California's housing stock resulted in a net increase in our accumulated statewide housing deficit by yet another 100,000 units.

To those local elected officials and their staff members who genuinely support housing and do all they can to support free market solutions, well done. To the majority of elected officials who have been fighting builders and developers for years the day of reckoning is coming.

If the tax deduction benefits are neutered in the tax bill going through Congress we will have another big nail in our housing coffin. If interest rate rises reverse a decade of extraordinary low mortgage rates and if banking regulations remain as restrictive as they currently are we are going to see more damage to housing supply. Eventually someone will have to turn out the lights.

Mick Pattinson is past President of the San Diego Building Industry Association and the California Building Industry Association. The opinions expressed here are his own.


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