The Morning Report
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You might have noticed: San Diego is expensive.
Rents in most urban neighborhoods are affordable only to the upper middle class and rich, with prices now at a post-bubble high. The working class is increasingly being displaced to exurbs, not just within the county but also in Riverside County. A full 57 percent of the region’s renters are rent-burdend, meaning they spend at least 30 percent of their income on rent. That’s the 10th highest figure of the 100 largest metro areas in the United States. Famously expensive New York and San Francisco are at only 54 percent and 48 percent, respectively.
San Diego’s expensive housing is a direct consequence of its housing supply shortage. This pattern repeats itself across expensive cities, with development restrictions making it difficult to build more housing, and people who wish to move into an area bidding up rents and housing prices as a result.
Publications for real estate investors, such as Metrostudy, even look for this pattern when forecasting markets: During construction booms they forecast flat or falling prices, and when housing construction lags population growth they forecast price increases.
It’s this trend that’s given birth to an incipient movement calling for laxer zoning and more housing construction, dubbed YIMBY, for Yes in My Backyard. The biggest and most notorious YIMBY movements are in the richest and most expensive cities: In San Francisco, Sonja Trauss runs the Bay Area Renters’ Federation, and in New York there’s an online magazine called New York YIMBY. San Diego’s YIMBY group – a mix of developers, urbanists, bike advocates and environmentalists, even got a write-up in the New York Times.
San Diego is not like New York or San Francisco in its history or development pattern, but like those two cities, it is expensive. And while it is not as wealthy as San Francisco, it is still richer than the country as a whole.
Meanwhile, the region’s housing production numbers speak for themselves.
The best way to measure development is with housing starts, which measure the rate at which developers are building new units. Here’s how San Diego’s housing starts in 2016, per 1,000 people, compared to other major California metro areas and New York City:
San Francisco: 5.2
Orange County: 3.8
Santa Clara County: 3.1
New York City: 2.4 (in 2015)
Outside California and New York City, it is hard to find data on housing starts. Data is easier to come by, however, for housing permits. Permits are a more volatile number because they are subject to more swings based on regulatory changes and the local economy.
In any case, San Diego County permitted a little more than three units per 1,000 people in 2016. That’s dwarfed by the level of new housing permits in other fast-growing Sun Belt cities.
Metro Atlanta, for instance, permitted 6.3 units per 1,000 people in 2016. Metro Houston permitted 6.6 units per 1,000 people the same year – even though the region’s economy was in a slump due to low oil prices; in 2014, it permitted 9.8 homes per 1,000 people. The Dallas-Fort Worth region permitted 7.7 units per 1,000 people, nearly half of which were in multifamily buildings, despite Texas’s reputation for suburban sprawl. Among the biggest Sun Belt cities outside California, only Miami has slow housing growth, with 3.1 permits per 1,000 people, as it still has not recovered from the collapse of the housing bubble last decade.
The good news is that even though San Diego is lagging behind its Sun Belt peers, its construction rate is accelerating.
All over California, the housing starts rate in 2016 was higher than in both 2014 and 2015. The housing permitting rate is accelerating as well, though not by much. At the current rate, it’s likely that in 2017, San Diego will build only slightly more housing than it did last year.
San Diego is comfortably part of the Sun Belt – cities and states in the South and West, spanning from Florida to California – in its history, urban typology and climate. It underwent explosive growth during and after World War II; San Diego County’s growth rate since 1950 has actually been faster than that of Harris County, Texas, home to famously fast-growing Houston and most of its suburbs. San Diego grew around the automobile, like the rest of the Sun Belt, and unlike older cities in the Northeast, Midwest and even San Francisco.
But its housing construction numbers are more like those of the Rust Belt – the U.S. region spanning from the Great Lakes to the upper Midwest states.
The Rust Belt-versus-Sun Belt distinction that dominated the last half of the 20th century is becoming less relevant today. Instead, the economic trajectory of Southern California in the last 25 years has helped create a new distinction, between the coasts and the interior of the country.
This distinction has grown into a political cliché in the age of President Donald Trump, but it is true that economically and demographically, San Diego now behaves a lot like New York, and not much like Houston or Dallas.
The rest of the developed world has richer and poorer cities, too, but housing construction numbers in richer cities are higher in some countries than they are in the U.S. Tokyo, for instance, has very lax zoning, and to a lesser extent so do major cities in Canada. As a result, Tokyo’s annual housing starts rate is 10.7 per 1,000 people, Toronto’s is 6.6, and Vancouver’s is 11.3. In Australia, there is only data at the state level, but the metro areas of Sydney and Melbourne both comprise large majorities of their states’ populations. According to analysis by insurance group QBE, Sydney’s state, New South Wales, built about 8.9 units in fiscal year 2015-16, and Melbourne’s state, Victoria, built about 11.5. All of these cities are in countries with high population growth rates, except Tokyo, which is itself growing even as the rest of Japan is shrinking.
In Japan, zoning is a national law. In Canada, there is extensive regional control: In Ontario, home to Toronto, there was until earlier this year a provincial body that could overrule local decisions. Vancouver did not have such a body, but has regional cooperation and a city council elected at-large. Recognizing these structural differences, some have asked whether there is a correlation between building more housing and making decisions at a higher level than the local municipality. In San Diego, SANDAG has growth targets for every municipality, but there is no enforcement mechanism, and cities routinely fall short.
It is possible to add more housing than San Diego is currently building. But it requires making hard decisions about allowing developers to replace single-family houses with multifamily buildings.
Without making it easier to make those changes, or showing a willingness to overcome those obstacles, San Diego’s growth will keep lagging those in Canada and the Sun Belt, and rents will continue to stress a majority of households.
Alon Levy is a Paris-based mathematician and public transportation policy writer.