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Let’s pick up where we left off in our effort to figure out whether San Diego rents are at fundamentally justifiable levels.

The first two articles on the topic (here and here) compared aggregate San Diego incomes and rents using a couple different approaches and data sources. The conclusion in both instances was that rents, while having occasionally been cheaper in the past, were pretty well in line with their historical relationship to incomes. (The usual disclaimers about the heavy-handedness of averaging together the entire county apply).

That the rent-to-income ratio is within a normal range is a good first step, but it is not conclusive. We also have to figure out whether it should be within a normal range — or whether market conditions warrant a rent-to-income ratio that is substantially different from the norm. Candidates for two such conditions include changes in incomes and changes in the relationship between population and housing supply.

This article puts the supply of available housing in the crosshairs. That big old housing bubble spawned quite a boom in the homebuilding industry. If the supply of available San Diego homes were to grow substantially in excess of population, the oversupply could put downward pressure on rents and justify a lower-than-normal ratio of rents to incomes.

But the following chart of San Diegans per housing unit — San Diego population divided by housing supply, per SANDAG’s data— indicates that this is not what’s going on at all. As of 2008, in fact, the number of people per home hit its highest level in three decades:

The prior chart’s Y axis ranges all the way down to zero in order to show the magnitude of the changes that have taken place in ratio over time. This next chart zooms in a bit to make it easier to see the zigs and zags:

That jog upward in 2008 may seem a bit strange given San Diego’s economic travails, but it actually makes sense. Things may be bad in San Diego, but they are even worse in many nearby regions, so it’s reasonable to believe that San Diego might experience an influx of people. This is corroborated by a recent California Department of Finance estimate that San Diego’s population grew at the fastest pace in five years in 2008. Moreover, that population increase took place against a post-bubble slowdown in home building activity, leading to the upward move seen in the final data point on the graph.

This next graph displays the people-per-house ratio against the expensiveness of rent, with the latter measured by rent prices as a percentage of per capita income as in recent articles. While these two lines tend to trend together directionally on an occasional shorter term basis, there is less of a long-term relationship than I would have thought:

Back in the bubble days, I really pushed back against the ever-popular “housing shortage” meme. While the people-per-home ratio had indeed increased since the mid-1990s, almost the entirety of the increase had already taken place by 2001. So citing the limited housing supply as the reason for the frantic home price increases from 2002 to 2005, a period when population and housing supply were growing at a more or less identical pace, simply didn’t hold any water. (A contemporary sample of my table-pounding can be found here, for those curious).

But while the people-per-house ratio hasn’t risen much since 2001, it is substantially higher than the average level that prevailed over the past three decades or so. At the same time, rental costs as a percent of per capita income are slightly below their average over the same time period. To the extent that the population and housing supply influence rental expensiveness, it looks like rents may even have some room to grow.

— RICH TOSCANO

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