Thursday, January 19, 2006 |
It has become almost universally accepted over the past few years that San Diego is experiencing a severe housing shortage. The presumed housing shortage – or when the occasion calls for slightly more drama, “housing crisis” – has served as the a priori basis for untold articles, analyses and conversations regarding San Diego real estate.
Even your mother’s folksy platitude that “they’re not making any more land” has made a rousing comeback.
But the fact is that there is no housing shortage in San Diego, and there never was.
According to the San Diego Association of Governments, or SANDAG, San Diego’s population grew by 5.5 percent from 2001-2005. Over the same period, the supply of San Diego homes grew by 5.1 percent. The overall ratio of people to housing units increased by a mere 0.4 percent.
Moreover, the prior trend has reversed itself: San Diego’s housing supply has actually been growing faster than its population since 2003.
I’m just not seeing the big crisis.
There are three reasons that people continue to believe in a housing shortage when the evidence shows that there is no such thing. The first is in the home prices themselves.
During the 2001-2005 period, when the population grew 0.4 percent faster than the housing supply, the median San Diego home price increased by 88 percent. Prices rose 42 percent from 2003-2005 alone, even as growth in the home supply was outpacing that of population. When people saw prices rising so fast, they assumed that there was a cause, and the most obvious cause was a shortage of housing relative to population. It’s understandable – but the obvious answer was, in this case, incorrect.
A second reason for the widespread belief in a housing shortage was a persistently low level of for-sale inventory. During 2003 and 2004, it was fairly difficult for homebuyers to find available houses, because people hoping to buy homes during that time outnumbered those trying to sell homes.
Many confused this temporary run on inventory with a longer-term structural housing shortage, but as the numbers above show, it was not. It was a short-term inventory drain caused by a temporary imbalance between buyers and sellers, which was in turn caused by a period of extreme homebuyer optimism, and it has already passed. The inventory of homes for sale, after reaching a low of around 2,000 in early 2004, is now back up to 15,000 and rising.
The third factor reinforcing the belief in a housing shortage involves a misinterpretation of fallout from the prior housing bubble. San Diego enjoyed a housing boom in the late 1980s that led to a period of overbuilding and then a housing downturn in the early 1990s. This combination of oversupply and low demand encouraged a slowdown in the building of new housing units through much of the 1990s.
By the time home prices accelerated again, analysts looked back at San Diego’s comparatively low rate of homebuilding in the 1990s and concluded that San Diego just hadn’t been building homes fast enough to accommodate population growth. In fact, the low building rate in the late 1990s was simply balancing out the extremely high building rate that took place prior. This period of slower building allowed San Diego’s housing inventory overhang to be absorbed before building could ramp up to a more normal rate, which it did by 2001.
It’s easy to understand, given the above, how people would initially conclude that San Diego has an undersupply of housing. But the data speaks loud and clear: there is no housing shortage in San Diego. There never was. And take a drive around downtown sometime – given the amount of building taking place, there certainly won’t be a San Diego housing shortage any time soon.
Rich Toscano is an independent real estate analyst residing in Hillcrest and working in La Jolla. He writes extensively about San Diego housing at Piggington’s Econo-Almanac.