By Justin Ewers.
Let’s say you want to buy a house in California, and you decide on San Diego. Nice weather, right? Good jobs. There’s a beach. Maybe your family’s close by. But when you start looking for a place, you discover the average home price has climbed to over $500,000–which is only affordable if you’re making $80,000 a year. Renting isn’t much better: An average two-bedroom (almost $2,000 a month) is only affordable to a household earning $73,000. That, you discover, is the median for the city, which means half of your new neighbors don’t make that much.
So, what are your options? If you’re like most Californians, you do what you have to: You pay more than you should. Instead of setting aside 30 percent of your paycheck for housing (what experts consider “affordable”), you spend at least half of it–or more. Your spouse works, too. If you’re really struggling, one of you gets a second job. Money that could be going to local businesses—or your kids’ college fund–goes instead to a bank or a landlord. And you sit in your high-priced home, far from the beach (those places are way out of your price range), wondering if there’s a way out of this mess.
There may very well be, notes a recent San Diego Housing Commission (SDHC) report, and it’s relatively straightforward: Find ways to make homes more affordable by reducing the costs of building them–and increasing production of both affordable and market-rate housing.
The SDHC report, Addressing the Housing Affordability Crisis in San Diego and Beyond, highlights eleven actions that can be taken by local, state or federal government to reduce market-rate housing costs in San Diego by as much as $51,000 per unit (and by up to $174,000 per unit for affordable housing). These ideas, from shortening permit approvals, deferring development fees, and unlocking underutilized land, could take 10 percent off the top of a median-priced home—and provide local leaders and homebuilders with a huge incentive to build even more.
“This report is one of the first of its kind because it focuses not just on affordable housing, but on housing affordability,” says Debbie Ruane, senior vice president of SDHC’s real estate division, which helped craft the report’s final recommendations.
Under the leadership of the SDHC Board of Commissioners and SDHC President & CEO Richard C. Gentry, SDHC commissioned LeSar Development Consultants to develop Addressing the Housing Affordability Crisis in San Diego, incorporating analysis by Keyser Marston Associates. The report was also unanimously supported by the San Diego Jobs Coalition, composed of local business and civic groups, including the San Diego Regional Chamber of Commerce, the San Diego Building Industry Association, and the San Diego County Taxpayers Association.
To create the report, SDHC identified more than 60 distinct drivers of the region’s high housing costs, winnowing the list down to eleven actionable ideas targeted at both affordable and market-rate homes. New subsidies or taxes, it’s worth noting, are noticeably absent from the group’s final list. “What we concluded,” says Ruane, “is that to take on the challenges we have in San Diego, we have to increase production and reduce costs–that’s a real mind shift.”
It’s a shift that’s taking place in other parts of the state, as well. The California Economic Summit has spent the last two years working with regional leaders to highlight the potential of increasing state investment in affordable housing, while also supporting efforts to increase the supply of market-rate homes. The state’s influential Legislative Analyst’s Office recently came to a similar conclusion, arguing in a recent report that “the key remedy to California’s housing challenge is a substantial increase in private home building in the state’s coastal urban communities.” The Summit’s 2016 Roadmap to Shared Prosperity even puts a number on it–setting a goal of building one million more homes over the next decade to bring supply back into balance with demand.
San Diego offers a glimpse of what this challenge looks like for one city, with the SDHC report revealing that, at current rates of development, the local housing crisis will get worse before it gets better. To accommodate expected regional population growth between 2010 and 2020, San Diego needs to produce almost 162,000 more units during that period—roughly 40 percent for high-income earners, 20 percent for those with moderate incomes, and 40 percent for low-income households.
In the first four years of the decade, though, building permits have been issued for only 26,000 units—more than 21,000 of them for high-income earners. As the report puts it: “At the current pace, San Diego will produce only 10 percent of needed moderate-income housing and 18 percent of needed low-income housing by the end of 2020.”
This undersupply of housing has very real economic costs. The more money homeowners and renters put into housing, the less they can spend on other things, including basic necessities. According to the report, this “affordability gap” adds up to about $2.4 billion annually—or 2.5 percent of the city’s annual gross domestic product.
“If housing were available at an affordable cost to all San Diegans,” as the report puts it, “city households would have $2.4 billion more in disposable income to spend in the local economy, creating jobs and supporting local businesses.” These dollars would also be contributing to local tax revenues, alleviating some of the fiscal concerns cities have had in the past with building new homes instead of, say, retail centers.
So, what does the City of San Diego need to do to get more houses built? SDHC’s report provides 96 pages of details on how its eleven proposals can be implemented, calculating exactly how much each idea could save per unit–from deferring development fees (up to $6,000) and reducing parking requirements (up to $10,000) to increasing ground leases (up to $39,000) and shortening the entitlement process (up to $9,000). Of the eleven recommendations, it’s worth noting, only two require state action—updating the California Environmental Quality Act and aligning the state agencies responsible for housing policy and financing. Only one involves the federal government.
While advocates have been rightfully frustrated by the lack of action in Sacramento to address the housing crisis, many of SDHC’s ideas could be adopted as soon as San Diego–or another city–decides to make them a priority. “You could take this report and plunk it down in any other city, and they could insert their own issues, and gauge exactly what the impact on their own housing would be,” says Ruane.
The state should also play a role providing cities with more incentives to adopt policies that reduce housing costs, she points out: “But most of these ideas are things we can do in our own backyard. We should be able to do it if we want to put our money where our mouth is.”
That’s certainly the plan in San Diego, where the City Council’s Smart Growth and Land Use Committeevoted unanimously in December to direct city staff to work with SDHC on how the report’s recommendations could be crafted into city ordinances–and how the city could advocate for them at the federal or state level.
It’s also one of the top priorities of this year’s California Economic Summit, which will be working with other regions throughout the year to help make these ideas a reality–and to begin bringing down the price of homes for all Californians.