The Morning Report
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Friday, June 03, 2005 | During the holiday weekend, steadily inflating housing prices pushed San Diego into prominent recognition on a news map published by The New York Times. Like the City Hall mess, it did not carry the kind of national fame San Diegans crave. It cited San Diego housing costs among the half-dozen highest in the nation. It is a fact that has been painfully obvious to, among many others, institutions and employers that seek to attract people to live and work in San Diego.
Yet as affordable housing has virtually disappeared, multimillion-dollar San Diego homes have become hot collectibles for those of wealth across the United States and abroad. Real estate agents and property assessment records confirm the market. As the Times map appeared, Coldwell Banker advertised million-dollar-plus building lots adjacent to the former hillside home of Helen Alvarez Smith, widow of the banker C. Arnholt Smith. From the southern slopes of Mount Soledad, the lots afford views of Mission Beach and Point Loma.
The world’s rich are buying homes and condos in San Diego in unprecedented numbers, many of them speculating on their increasing value. In La Jolla, almost one in three current homeowners does not respond to the County of San Diego inquiry for homeowner’s property tax exemptions. It is a revealing statistic, implying that the home is not a primary residence.
As you walk along the beaches of La Jolla, you can look upward at a mile-long sweep of hillside mansions. Within many of them, one eventually notices, there is seldom any movement. Lights on timers click on and off behind the same draped and undraped windows each night, triggering security systems. Gardeners, guards and servants attend the properties daily, providing a fleeting air of a secure, lived-in look. A spare car or two may stand in the driveway to enhance the illusion of occupancy. A bonded overseer checks the property from time to time and even moves cars into fresh and highly visible positions. These are second or third, even fourth homes owned by wealthy investors and speculators from across the nation and the world. They are inhabited, at random, by the wealthy, the leisured, and, in more recent months, by a flurry of home speculators.
La Jolla Farms is among the elite newer neighborhoods. It is an isolated enclave bordering the ocean cliffs west of the University of California, San Diego campus, home to some of the first oceanfront homes to sell in San Diego at prices high in the eight digits. David Dunn, a legendary venture capitalist, has his home here. Real estate agents vie as discreetly as their straight faces allow for the newest, biggest La Jolla sale; some have exceeded $20 million. One agent currently offers a multimillion-dollar residence that “needs work.” Sales of homes at astronomical levels are said to have composed about half of the total real estate sales volume in the La Jolla market last year.
The New York Times map offers contrasts and numbers that by now many San Diegans have come to understand – some with glee, some with despair. As usual, your mood depends on whether you are buying, renting or selling. In an era of wide prosperity, hundreds of thousands of wealthy Americans are buying homes in more moderate climates and in cities they find desirable. Many live, for at least a few weeks each year, in such homes at posh enclaves or coastal resorts. Busy executives skip vacations and ship their families off to such houses. San Diego stands near the top in that desirability category.
Such buyers push the home price curve upward as they invest. In San Diego, that adds to the desperate perplexity of first-time home shoppers. Just as stock prices rise when buyers rush to queue up, home prices soar when luxury properties appear to be both shrewd and prestigious investments. There is a lap-over effect on lower-priced housing costs.
This market aberration comes as no surprise to those in Rancho Santa Fe, where the phenomenon has existed for years in modest numbers and with multi-acre estates. In La Jolla, the shock value seems more startling and the incidence of buyers far more widespread.
In these two communities, as in others, particularly on the West Coast and in Florida, large empty houses have become a familiar part of the urban scene. They are second or third, even fourth homes owned by wealthy investors and speculators from across the nation and the world. They are inhabited, at random, by the wealthy, the leisured, and, in more recent months, by the flurry of home speculators.
Curious questions arise: What proportion of such high-value homes in San Diego are sold to wealthy out-of-city investors and speculators? What proportion serves as second- or third-rank residences?
Not even the statistics-crazed real estate industry seems eager to seek such answers. This phenomenon of runaway prosperity has grown so rapidly that agents tend to know more about its effect than neighbors or government. Two who are familiar with it are Susana Corrigan of Prudential and Bonnie Adams, whose La Jolla real estate firm bears her name.
I asked both women what fraction of La Jolla mansions serve as second- or third-homes, and are thus standing empty for long periods. The number could serve as a new statistical insight into residential multiplicity. Corrigan offered an instinctive guess that the number is about 30 percent. Adams was not astonished at that guess; she admitted to her own curiosity and referred me to the county Tax Assessor’s Office. Their records and computers, they concluded, are not programmed to provide that answer. But they do identify homeowners who do not seek property tax exemption.
To pursue that odd statistical hunch might be to learn that such multiple homeowners are taking their exemptions on even more expensive properties in higher-tax districts in other cities and regions.