What you need to know about San Diego's homebuilding slump

New home construction in San Diego County has picked up slightly but is still substantially down from the same time last year.

Building permits for all types of homes — condos, apartments and single-family homes — were down by 3 percent in the second quarter of 2017 compared to the second quarter in 2016, said a Real Estate Research Council report released Tuesday.

It is an improvement from the first three months that showed a 37 percent drop in residential permits, but not enough to make up for a slow start. In the first six months of 2017, the county has issued 17.5 percent fewer permits than the same time last year.

A lack of new homes pushes up prices because of fierce competition for a limited number of houses and condos. While higher home values are good for owners in most cases, it can make homeownership out of reach for many potential buyers.

The only place in Southern California with a similar reduction in building is Orange County, which has seen a 26.7 percent drop in permits in the first six months. Los Angeles, Riverside, San Bernardino, Ventura and Santa Barbara counties have had increases in permits.

San Diego County’s slowdown is mainly the result of a drop in multifamily permits (apartments and condos), which is likely because of an anticipated slow down in rent appreciation, said Gary London, real estate consultant and president of London Moeder Advisors.

“We’re entering a less aggressive phase in terms of increasing rental rates,” he said. “We’re reaching an apex. The cost of construction continues to go up and we can’t squeeze more rental revenue out of the market right now.”

London said it’s difficult for a builder to make the numbers work financially when rental revenue is not going up as quickly.

There have been 2,633 multifamily unit permits issued in the first six months of this year, compared to 3,825 at the same time in 2016.

There are other factors the building industry points to as reasons for a slowdown, such as lack of buildable land, community opposition to new projects, government barriers to new entitlements for residential building and a slowing market for luxury rentals and homes.

“We’re running out of folks that can pull the mortgage on the high-end stuff,” said Borre Winckel, CEO of the local Building Industry Association.

Why you should care

Even for homeowners, ever-increasing home prices can be a bad thing for the economy.

As prices for rentals and homes increase, companies have to work harder to recruit workers and pay them more to keep up with housing costs, said Alan Gin, an economist at University of San Diego.

Gin’s report on the local economy from the Burham-Moores Center for Real Estate said July was a good month for the San Diego region, in part because of an increase in building permits.

However, he wrote that it will take a long time to catch up to what San Diego County will need given population and job numbers.

Gin reasoned 144,700 jobs have been created since the end of 2010. In theory, about 115,000 residential units should have been created to accommodate workers and their families — but, the region produced 68,000 less than that.

What’s next

Most forecasters predict Southern California will add more housing in 2017 than 2016.

The UCLA Business Forecasting Project, California Department of Finance and the California Association of Realtors predict Southern California will have 2,400 to 8,800 more residential building permits this year than 2016.

Also, the building permit trend in San Diego County shows an increase since the start of the year. While it will very difficult to reach previous year’s numbers at this point, early indications for the rest of the summer seem positive.

There were 159 new residential housing permits issued in January, 492 in February, 758 in March, 520 in April, 457 in May and 1,850 in June.

For San Diegans willing to make the commute, nearby Riverside County has built more single-family houses than anywhere else in Southern California. In the first six months of the year, 3,552 single-family permits were issued — nearly double San Diego and more than Los Angeles and Orange counties.

A bright spot for construction workers in San Diego County is hotels and motels, which have seen permits increase by 200 percent in the first half of 2017 compared to the same time last year.

phillip.molnar@sduniontribune.com (619) 293-1891 Twitter: @phillipmolnar

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