Growth Slows but the Debate Over It Doesn’t : Development: Despite obvious impact of recession on builders, opponents say now is the time to press forward with restrictions.

It took a recession and a war to accomplish what local governments throughout San Diego County have struggled to do for decades: slow the region’s rapid growth and development.

So goes a bit of black humor heard in environmental circles since the nationwide economic downturn, combined with investment uncertainties attributable to the Persian Gulf War, reduced San Diego’s flood of development in the late 1980s to a mere trickle in recent months.

As the nation began slipping into a recession last summer, and credit tightened because of the savings and loan debacle, the impact on development in San Diego County was as immediate as it was dramatic.

Countywide, the number of residential units for which building permits were issued last year totaled less than 17,000, a 10% drop from 1989 and well below the 30,500-unit average for 1986-89, according to figures compiled by the San Diego Chamber of Commerce. In some individual cities, that downward trend is even more pronounced.

“The economy already was causing a considerable slowdown in construction, and then when Iraq invaded Kuwait last August, things got much worse,” said Max Schetter, head of the Chamber of Commerce’s economic research division. “At that point, everybody just held their breath and put their hands in their pockets.”

But rather than shelving, at least temporarily, the growth-management debate that has been a staple of San Diego politics ever since the so-called “Smokestacks vs. Geraniums” mayoral campaign early this century, the recent slowdown has simply added new shadings to that thorny issue.

Indeed, some developers argue that their industry’s bleak times--marked by the scrapping of some projects, the postponement of others and layoffs in their and related fields--vividly underline their oft-stated contention that market forces, not government edicts, are the major factors in growth management.

“For about the last nine months, the economy has been a more effective growth management tool than anything government could or should do,” said Mac Strobl, an executive with TCS Governmental Consulting Inc., a development-related lobbying firm.

But if developers insist that now is precisely the wrong time for additional governmental growth controls or fees, many environmentalists argue just the opposite. From their perspective, the reduced pace of development has provided, in San Diego City Councilman Bob Filner’s words, “a very welcome breather” in which elected officials can plot out growth guidelines from a pro-active stance, not the reactive mode prompted by heavy development pressures.

“Good planning is not a function of how fast or slow you grow, but how and where you grow,” said Peter Navarro, chairman of the slow-growth growth management group Prevent Los Angelization Now (PLAN). “That’s why now--when there aren’t as many builders beating on the door for a change--is the best time to put together a sound set of rules to get ready for the next boom that we know will come.”

Even some politicians who regard the recent slowdown as a needed respite, meanwhile, concede that the development reduction has come at a price. For just as the building slowdown has its roots in the nation’s economic problems, so, too, has it spawned financial problems of its own in local cities by reducing taxes, development fees and other revenues.

In Escondido, for example, where Assistant City Manager Jack Anderson admits that growth has slowed “almost to a dead stop,” officials estimate that the drop in development has cut about $1 million from the city’s $40-million budget.

Similarly, in Oceanside, a newly elected slow-growth City Council faces a $5-million budget shortfall, with development fees falling more than $2 million below last year’s levels.

“I’d say that a good 50% of our problem is the result of the slowdown in our economy,” said city Finance Director Carl Husby.

Though building revenues also dropped in the city of San Diego, the impact has been less severe, because officials anticipated and budgeted for the decline, according to City Manager John Lockwood. City planners recognized, Lockwood said, that developers had “stocked up” on permits in the late 1980s, hoping to avoid future growth limits considered by the council.

The figures documenting the reduced development activity throughout San Diego County merely confirm what many local builders began recognizing in mid-1990: that the real-estate business, as Frank Panarisi, president of Construction Industry Federation, puts it, “took a real heavy hit” in the recession.

With many builders postponing planned projects or reducing the size of ones already under construction, layoffs began spreading last year from development firms to related jobs in fields such as ranging from title insurance, architecture, landscaping and lumber sales yards, Panarisi said. The experience of Shea Homes San Diego was typical, as the firm laid off a third of its staff last November and reduced construction by half last year, according to Shea president Tom Noon.

“If there’s any sector of the economy that’s in not just a recession, but a depression, real estate is it,” economist Schetter said.

Last September, a study by the Building Industry Assn. estimated that nearly 7,500 jobs had been lost throughout the county in development-related fields during the first nine months of 1990. That grim statistic likely has worsened over the past four months, because, as BIA executive vice president Bob Morris notes, “An awful lot of water has gone under the dam since then.”

Ironically, even as such cutbacks became more commonplace, many local developers grew increasingly skittish about being closely linked to their industry’s downward spiral. With banks applying more rigid standards to construction loans, many developers fear that “admitting you had to pull out of one project won’t make it any easier to put together your next deal,” Panarisi explained.

“As far as financing, the rules of the game have been changing literally week to week,” TCS executive Strobl said. In the late 1980s, he noted, bank loans covering 100% of development projects’ cost were not uncommon. But the savings and loan industry collapse, coupled with bankers’ growing caution amid troubling economic signs on the horizon, dried up that once abundant source.

“Today, you can’t find a deal like you could get easily a few years ago unless you’re 100% leased in advance,” Strobl said. Now, banks often insist on an sizable equity investment from developers--a requirement many are unwilling or unable to meet.

As a result, considerably fewer development deals were put together throughout the county in 1990, particularly in its final six months, than in recent years.

The number of housing units built countywide has gradually declined since the mid-1980s, dropping from a peak of 43,561 in 1986 to last year’s total of less than 17,000, according to the Chamber of Commerce’s figures. In 1989, 18,813 residential units were built, down from 28,394 in 1988 and 31,327 in 1987.

In the city of San Diego, residential construction permits increased slightly last year, from 6,235 units in 1989 to 8,289. City planners and others, however, primarily attribute that rise, not to a more receptive economic climate, but rather to developers’ rush to win approval of their projects in advance of several tough growth-control initiatives and higher development fees debated last year at City Hall.

As in the county, residential development in the city also has dropped sharply over the past five years. From a high of 19,180 units in 1986, the annual number of residential construction permits issued declined to 12,414 in 1987 and to 11,787 in 1988, then dropped into four digits the past two years.

From last June through December, the drop-off in home building could be seen in the reduced number of construction permits issued month by month: 393 in June, 183 in July, 164 in August, 94 in September, 62 in October, 61 in November and 24 in December. While normal seasonal construction cycles account for part of that pattern, the worsening economy and growing concerns over the gulf crisis played more significant roles, city officials and developers alike agree.

Similar reductions occurred in several North County cities. In Escondido, the number of residential units dropped from 1,682 in 1989 to 667 last year, while in Oceanside, about 1,100 building permits were issued in 1990, down from 2,818 the year before.

“There was more opportunity for building permits to be issued in 1990, and if the economy had stayed the same, I would have expected the numbers to have stayed the same as (1989),” said Jay Petrek of the Escondido Planning Department.

With development having been restricted in Escondido in 1988 and 1989 while the city revised its general plan, Petrek said, he had anticipated that builders would at least maintain the 1989 levels of development. Instead, residential development there dropped by more than 60% last year, about the same as the decline in Oceanside.

Given those precipitous drops, many developers contend that any additional governmental regulations or fees imposed on their industry not only would exacerbate that existing problem, but also could delay the regional economy’s overall recovery by driving up housing costs and discouraging businesses from locating or expanding here. Because of the sluggish market, however, housing costs have been dropping.

“In the future, in communities where growth restrictions exist, it will become more difficult for them to compete,” said Mike Stewart, project manager for the Fieldstone Co. “We’re starting to see land prices come down and you will see constructors drift to where land prices have come down.”

Through repetition of their economy-as-growth-control argument, developers hope to win new-found sympathy in government corridors that could help, if not to ease existing growth restrictions, at least prevent passage of new ones.

One of the first major tests of that strategy will come this spring, when the San Diego City Council is scheduled to again consider the establishment of so-called “citywide impact fees.” Described by advocates as a means of making development pay for itself, the fees--passed but later rescinded by the council last fall amid worsening economic conditions--would assess builders for roads, libraries and other public facilities needed because of their projects.

“There’s merit to (developers’) concern about new fees,” Filner said. “But those fees also affect our ability to build the infrastructure we need to attract and retain jobs in other areas. They see the fees as a burden. I see them as an investment in the future. We can be sensitive to their needs without throwing environmental protections out the window.”

San Diego City Councilman Ron Roberts, who strongly opposed the impact fees proposed last year, predicts that the council will be guided more by a desire to create new jobs than strengthen restrictions on growth when it renews its debate on the volatile issue.

“I think all of us--even some of the no-growth advocates of the past--are going to be proponents of economic development this year,” Roberts said. “Any new fees need to be questioned very thoroughly. Because while this idea of development paying for itself is a fine concept, some pretty unrealistic things have been done in the name of it.”

PLAN’s Navarro, though, is less generous in his assessment of developers’ difficulties.

“These guys are crying crocodile tears all the way to the bank,” Navarro said. “This notion of using the slowdown as an argument against growth management is ridiculous. In their greed, developers overbuilt when times were good, and by late ’91 or early ‘92, they’ll be back at full throttle again. Now’s the time to do something about that.”