Marney Cox, SANDAG (San Diego Association of Governments) Chief Economist
Gary London, real estate economist with London Group Realty Advisors
Related Story: San Diego Housing Among Nation's Least Affordable
MAUREEN CAVANAUGH: More confirmation that it is tough to own a home in San Diego. An Interest.com survey was released yesterday that shows San Diego near the bottom of the list on house affordability. Today I have Gary London and Marney Cox. Welcome to the program. Let's talk about the survey in general. Sharp increases in home prices across the nation. In most markets, income is not keeping up. What is driving this nationwide?
GARY LONDON: I think that low interest rates obviously have played a factor. That is coupled with the fact that there's been a delay with a lot of people with the recession. People that need to believe that the recovery was real. We are starting to believe. There've been a lot of speculative all cash purchases. The lag on the part of deliverers and builders to bring housing to the marketplace. That takes a lot of time in the best of circumstances. Financing takes even longer. It's about supply and demand.
MAUREEN CAVANAUGH: Thank you. We know that housing is expensive, but is it surprising to see San Diego ranks so low on housing affordability.
GARY LONDON: It is a bit surprising. You would think those markets more affordable. I do think these numbers move up and down depending on what transactions an institution is tracking. We have been historically low on the scale of affordability.
MAUREEN CAVANAUGH: Now I will welcome Marney Cox, Chief Economist with SANDAG. Now what when it comes to median income, when you compare San Diego across the nation where do we fall?
MARNEY COX: San Diego is relatively well-off when you compare us across the nation on income. The average is a little over $60,000 per household per year. We start looking about the price of living in San Diego at that income, and it doesn't stretch far enough to cover all of our needs.
MAUREEN CAVANAUGH: Yes, we have high cost of living. Why is that?
MARNEY COX: The primary ones are home prices anywhere between 30% to 50% of income of households. It takes immediately a big chunk out of that income. One of the things that has happened in San Diego is a little different from the rest the nation. It may have to do with some of the affordability issues. The types of jobs that we've created in San Diego since the end of the recession have not been similar to the jobs that we've lost going into it. We've replaced them with low playing jobs. When we do that it, affects the affordability gap.
MAUREEN CAVANAUGH: The median price of a home in San Diego is $469,000. That leaves median income in San Diego about 30% below what it needs to be in order to afford that median price. What are the factors that account for that?
GARY LONDON: We're a community that is growing because we are an economy that continues to grow. That drives demand for housing. Demand for housing has increased significantly since the recession, with the growth of the economy. But on the supply side we have been lacking in available homes. That is a permanent problem. That is not something that we're going to solve even as builders start to build more homes again. We're always going to be behind. We will see that kind of statistical aberration to continue for years.
MAUREEN CAVANAUGH: I want to get Marney's take as well. Is it an issue of supply and demand?
MARNEY COX: What got us into the problem we're in today is a supply problem. Under supplying the number and types of units needed in order to stabilize prices. I think what is happening today ñ one of the interesting facts is over past five to seven years, even prior to the recession, we see more people moving out of San Diego than moving in. This is unique. San Diego usually draws people from other parts of the United States and because it has job opportunities and is a nice place to live. Recently we've seen more people beginning to leave, simply because of housing costs are too high.
MAUREEN CAVANAUGH: What factor you is our growth policy in our growth region that has to do with whether or not people are able to afford homes here?
MARNEY COX: Two things. Primarily, those growth policies got us into problems. I think both policies are what got us into the problem we're in today. A lot of growth limitation, permit limitation, and policies dating back twenty plus years in San Diego that cramp supply. We're generating a lot of jobs and a lot of people are still coming here. We're under supplied in terms of housing units. Something unusual about San Diego, people and families are grouping together to afford a house. We are unique that way. We see today is a little different. We have smart growth, which says that we know where growth should occur, and we're trying to channel or encourage growth in those areas. Sometimes those places are expensive which adds to the value that you need to pay for your house.
MAUREEN CAVANAUGH: Gary explain a little more about chronic shortage of homes here in San Diego.
GARY LONDON: Simply because we go by virtue of people moving in or out, we are growing. We're having increasing demand, and with that we are constantly pressed to build more houses. The problem is the pushback. There still is pushback in the neighborhoods to build enough housing, and we're always going to be in that place, because we have run out of land in the county. The places that we will be building are places that are already urban, and smaller plots of land, redevelopment of what is already there. We're going to see more complexity in providing houses in the marketplace. That will keep supply down over the years.
MAUREEN CAVANAUGH: When we talk about pushback, is this something that has to do with what we must take into consideration ñ resources, environment and water supply ñ as we continue to add homes?
MARNEY COX: Yes. A lot of decisions and development have to face the broad range of issues that need to be addressed in order to move forward. The continuing challenge in terms of supply, I'm not sure that is on the same subject. It does not have to be true. I think the point that Gary made earlier, one of the things that redevelopment did for us is made it easier for developers to come ñ with reduced risk ñ and build projects. The right kind of agency needs to be available to accomplish some of the goals that Gary mentioned. We're becoming an urbanized area and we've stopped expanding into new green acres. Now we're internalizing and focusing on where redevelopment needs to take place. We do not have all the tools necessary to allow that to occur in a seamless or cost-effective way.
MAUREEN CAVANAUGH: Let me take a call from a listener, Brad from Kensington.
NEW SPEAKER: Hello, thank you. I would like to ask a question about developers and investment groups like BlackStone. It is my understanding that they may be attempting to artificially inflate pricing by slowly releasing homes or holding on to them, to create further lack of supply and drive up prices.
MAUREEN CAVANAUGH: Have you heard anything about that? The shadow inventory that we've been talking about.
GARY LONDON: I do not know that their strategy is to release them slowly to drive up prices. I think the strategy is to purchase houses as income producing assets. Somebody is living in the house that they are renting, they are occupying housing. This is the result of the fact that our additions to the inventory are stagnant over the last few years. We're going to see that we need to build more housing. I think over time speculators and investors will exit from the housing market and will in fact sell our homes at higher prices because they can. There's less inventory that is being built. I wouldn't describe the fault of them, I would say that that is part of the marketplace as it is.
MARNEY COX: I slightly disagree. I do believe that paying all cash for a house, scooping up cheap houses and rental units to the point about releasing them slowly, I think that is in the interest of the investment community who scooped up the house. Just like it was in the interest of the banking community to take over foreclosed units, and to hold on to those in inventory. Slowly put them on the market to avoid flooding the market, so we are not creating more foreclosure problems at the time. I do not think it is unusual for investors to think of self-interest. Brad has a good point. That is a typical business model that you would use with any asset.
MAUREEN CAVANAUGH: What you're saying is that while it may give a boost to real estate industry, it is not actually helping the overall San Diego economy?
MARNEY COX: Exactly, butI think Blackrock would like the San Diego area to do well. I do not think they have individual household interests at heart.
MAUREEN CAVANAUGH: This is my final question, when you see ranking like this come out with San Diego as one of the least affordable places for housing in the country. When that comes up, what happens when businesses see this?
GARY LONDON: The trouble I have with that question, that is the way it is always been in San Diego. We have had versions of this conversation in good times and bad. Companies still come to a greater extent and build here, because this is a diversified region. Housing is a challenge but we are still among the least expensive coastal markets. When compared to Orange County and West Los Angeles or San Francisco. We remain in that position. Those communities continue to grow. Economic growth is much more complicated than just looking at the housing sector alone.
MARNEY COX: I think Gary brings up a good point, just because you are out of the top ten, California has five of the most expensive housing markets in the nation. San Diego is probably one of the few coastal areas you want to look at that are affordable. I do not think that is the typical process. Housing is one of the items that they need to have an area to produce a product or provide service. San Diego continuously is at the bottom end of the competitive marketplace for businesses. That is why we've places like Seattle, Washington, and Utah growing and expanding, and the setting that the next level of expansion needed to take that take place in an area that needed the expansion.
MAUREEN CAVANAUGH: I have to end it there. Thank you both.