S.D. Proposal : Builders Predict Home-Price Rise if Caps Approved

Housing prices and apartment rental rates are almost certain to rise if the San Diego City Council gives final approval July 21 to an ordinance designed to sharply reduce the number of housing and apartment units built in the city, construction industry officials and economists said.

The measure, called an interim development ordinance (IDO), would impose an 8,000-unit limit per year on new permits for houses and apartments issued over an 18-month period beginning last April 29.

The IDO covers nearly the entire city with some notable exceptions, including Otay Mesa, Tierrasanta and certain transit corridors where building permits would be unrestricted.

Supply-Demand Equation Periled

That the measure would throw the market’s supply-demand equation out of kilter and cause inevitable price inflation seemed a foregone conclusion to several industry officials interviewed last week. The unanswered questions, they say, are not whether the ordinance will force prices up, but by how much and how soon.

If final approval is given July 21 by the council as expected, the measure may take a year or more to cause a slowdown in construction. But housing analyst Sanford Goodkin with Peat Marwick/Goodkin Real Estate Consulting Group of San Diego expects the bill to have an immediate psychological impact.

“There won’t be an obvious shortage of new housing anytime soon,” Goodkin said. “But what cancels that out is perception. If everyone is talking about an impending shortage, that will convince people that they ought to go out and buy while they can.”

Because of the public’s high degree of awareness of the housing market, a growth limitation bill will probably create an “acceleration of future demand to the present, causing an uptick in prices,” said Keith Johnson, chief operating officer of Fieldstone Co., a San Diego home builder.

A recently published study of growth control ordinances passed by several San Francisco Bay Area municipalities indicated that, over a four- to five-year period, there was a 20% increase in housing prices above and beyond the increase attributable to normal housing market factors, said Ken Rosen, chairman of the Center for Real Estate and Urban Economics at UC Berkeley.

“Growth control will raise prices of houses, slow economic growth and make it less attractive for people to locate businesses (in San Diego),” Rosen said. “Growth controls do not serve the public interest, they just raise the price of housing.”

Though conceding that the measure is likely to put pressure on prices, defenders of the measure say the adverse impact of the bill is being overblown by developers, adding that the city districts exempted from the measure’s controls may come close to making up for the reduction in other areas.

The bill fills what many proponents of the measure see as the council’s highest priority--putting a cap on the city’s explosive growth.

‘Looking for Balance’

“The council is looking for a balance between a healthy economic environment and a healthy environment, period,” City Councilman Mike Gotch said. “Housing is an important part of the economy, but the rate of growth has far outpaced our ability to provide infrastructure--sewers, schools and roads--to support it.”

Gotch said the city’s extraordinary growth rate of 3% last year, “nearly the same as in Bangladesh,” called for extraordinary measures.

City Councilwoman Gloria McColl said an unchecked supply of housing does not necessarily make it more affordable. Despite the annual average of 15,000 housing units built in San Diego over the last two years, housing prices in the city have continued to escalate.

New houses and condos in the county sold for an average price of $136,437 in 1986, up from $123,917 in 1985 and $118,235 in 1984, according to Market Profiles of San Diego, a housing research firm.

Existing homes in the City of San Diego during 1986 sold at an average price of $145,034, up from the $130,187 average in 1985 and $123,964 in 1984, said the San Diego Board of Realtors, a group whose members broker about half of the county’s home sales.

Dampening Effect Seen

Robert Morris, executive vice president of the Building Industry Assn. of San Diego, said growth limits and the resulting layoffs of construction workers would have a dampening effect on San Diego’s economy because of the “multiplier effect” of construction jobs.

Each construction job creates 2.5 additional support jobs in insurance, retail, finance and other industries, said Max Schetter, senior vice president and director of economic research for the Greater San Diego Chamber of Commerce. “Construction ripples through the economy,” Schetter said.

But McColl said the industry’s importance may be overstated. “The economy is what drives construction and not the other way around,” McColl said. “I could build 1,000 houses out in the desert, but that doesn’t mean people are going to flock out there.”

The IDO will have its second reading before the City Council on July 21. If the council, which approved the measure by an 8-1 vote on the first reading June 23, approves the measure, it will become law 30 days later. Each district of the city would then be given a quota of permits to be granted to developers each 90 days.

Several other county municipalities, including Oceanside, Carlsbad and Escondido, have also passed growth limits.