San Diego’s Scarce Commodity: Land : Home Building: With growth-limiting policies adopted in recent years, buildable sites have decreased. Longtime local builders often find themselves looking elsewhere for opportunity.
San Diego home builder Bill Davidson remembers a time only four years ago when finished lots in Rancho Penasquitos, a suburb northeast of the city, could be had for $46,000.
Today, similar 6,000-square-foot lots go for about $125,000.
With local governments adopting various growth-limiting policies in recent years, buildable land in San Diego County has become scarce.
Longtime local builders like Davidson, who’s been in the business since 1971, continue to do well, but find themselves adjusting to the realities of the market, often looking elsewhere for opportunity.
The long-range picture is clouded by the difficult search for land, and San Diego’s immediate new-home economy has taken a downturn in concert with the remainder of California and the nation. “Inventories are still at one of the lowest levels of the decade, but we’re seeing more standing inventory than we had a year ago,” reports Peter Reeb, vice president of the Meyers Group, a real estate market research company.
Countywide, the number of finished unsold homes, both attached and detached, was down to 1,690 in September from 1,887 a year before.
But slower sales in November and December had builders cranking up the marketing heat during the traditionally slow holiday period.
Much of the lethargy is being felt by builders with new homes priced at more than $300,000, Reeb said, and many are offering aggressive incentives.
At Foote Development’s The Summit in Carlsbad, where only a few homes priced from $300,000 to $420,000 remain, a buyer can close even if he hasn’t sold his previous home.
Foote will cover fees and six months of payments on home-equity loans on the old house to help make down payments on new ones and carry consumers through the transition.
Barratt San Diego offers a “guaranteed sale program” on several projects. If a buyer’s old home doesn’t sell within 60 days, Barratt will buy it for 90% of the appraised value. Barratt is also buying down interest rates, offering 30-year fixed loans that start at 7 7/8% before rising to a permanent 9 7/8% after two years.
Other builders are throwing in landscaping bonuses or paying closing costs.
Meanwhile, San Diego home builders are turning to neighboring Southern California communities such as Riverside County, Rancho California and Corona.
While the largest San Diego builders remain active at home, the picture may not be quite as rosy as some of them tend to paint it.
“It may seem like they’re doing well on the surface, but I think you’re going to see a big shift in the next few years,” predicted Jeff Meyers, president of the Meyers Group.
“You’ll see even more builders looking to Las Vegas, Rancho California and elsewhere. Many of the medium-sized builders will be eliminated. None are gone yet, but some out-of-town companies have shut down their San Diego divisions.”
For builders who don’t own land bought years ago, it’s becoming difficult to offer a single-family detached home for under $200,000 in San Diego County, Reeb said. The median price of a new single-family home in the county now stands at $249,900, according to the Meyers Group’s most recent report.
Even if new-home sales throughout Southern California are sluggish in the coming months, statistics indicate that San Diego should fare better than most markets.
“During the last five years, annual population growth in San Diego County has gone from 49,000 to 90,000,” said Bob Morris, executive vice president of the Building Industry Assn. of San Diego County.
“During the same time, production of residential units dropped from 43,500 in 1986 to an estimated 20,000 for 1989.”
The city of San Diego’s 18-month Interim Development Ordinance, adopted in August, 1987, limited annual housing unit production to 8,000, down from a 17,000 peak in the mid-’80s.
Production of single-family homes dropped from 4,677 in 1985 to 3,602 last year, according to the San Diego Assn. of Governments.
Other cities adopted slow-growth measures, including Carlsbad, which introduced a growth moratorium while writing a new plan to assure that essential services precede new development, and Oceanside, which now limits annual residential production to 800 units.
Even with growth restrictions, areas of the county continue to rack up reasonably good sales figures, in some cases because of permits approved prior to growth limits.
North County accounts for a large portion of San Diego County’s building action, both along the coast and inland.
During the third quarter of 1989, 957 new housing units were sold in the inland north area, including Rancho Bernardo, Rancho Penasquitos, Escondido and San Marcos, according to the Meyers Group.
Along north San Diego County’s coast, where Oceanside--including the 4,840-home master-planned Rancho Del Oro--leads the market, 853 homes were sold.
Some builders are looking to San Diego’s South Bay for future opportunity. Baldwin Communities is master-planning a 20,000-acre property known as Otay Ranch, and half of the 11,000-home East-Lake community is nearly completed.
With new single-family homes out of the reach of most first-time buyers, more builders are constructing attached housing or looking to other markets.
Pacific Scene, which prefers to build apartments, condos and first-time single-family homes, now does more than half its building outside San Diego.
This year, the company will build 600 homes in San Diego, down from 1,100 three years ago, plus 700 in outside communities including Sacramento, Phoenix, Fresno, Bakersfield and Riverside/San Bernardino counties.
Company Chairman and CEO Tawfiq Khoury said the industry has been hurt by wary local governments.
“In 1971, we could build a house and sell it for $16,000. Now, we pay about $25,000 in fees alone,” he said.
“Even if we go with a plan in full conformance with zoning ordinances and community plans, we still have to go through a two- to three-year process fraught with uncertainty and subject to endless negotiations and reductions in units allowed.
“The length of time, the number of consultants--lawyers, engineers--add to the cost.”
Pacific Scene’s experience in San Diego is indicative of a planning trend that favors builders of larger homes.
According to Reeb, of the Meyers Group, one reason behind rising home prices is that plans for lower-density projects--those with larger lots--have an easier time going through the government approval process. In Oceanside, for example, homes on lots of 10,000 square feet or larger are exempt from the building permits’ cap.
Davidson, who made his mark building luxury homes, just bought 105 lots in EastLake Greens, part of the EastLake community. His 2,500-square-foot homes along a golf course will carry an average price of $350,000.
Besides looking to other parts of San Diego County, Davidson has expanded beyond county boundaries with projects in Rancho California and Corona in Riverside County.
At the San Diego-based Buie Corp., there’s been a similar shift.
“We’ve had a big drop-off in San Diego County,” said Jim Saivar, a senior vice president at Buie. “Our biggest year was 1987, when we built 355 homes. This year, we’re doing about 190, and next year, probably 334.”
But Buie expects a record local year in 1991, when it plans to build 475 homes, due to its sizeable land inventory.
Buie owns 180 lots on Mt. Soledad in La Jolla, where luxury homes priced from $600,000 to $1 million will be built, and property for a 500-home development in Rancho Penasquitos, where prices will start at just under $300,000.
Like Davidson, Buie is active in Corona, where it is building 2,700 homes.
Barratt San Diego has six projects in the works in San Diego County and two in Riverside.
“The move to Riverside is predicated on our need to provide affordable housing,” said Brian Angelini, vice president of sales and marketing. At the Northview project in Riverside, single-family home prices start at $130,000, far below San Diego’s prices.
“Our annual output is dropping,” Angelini said. “Our biggest year was 1987, when we built 659 homes. This year, we’ll do about 500.
“We’re finding a bit of resistance in the marketplace over $300,000,” Angelini said. “I think the move-up market is slowing because the entry and first-time markets are dwindling. A typical entry-level home now is a one-bedroom condo.”
