Market Report: April 2006

Dear Friends;
 
This month I am starting a three part series on affordable housing. As an avid obit reader I have long been fascinated with a particular type of San Diegan. He is profiled this month. I apologize to all women here, the use of San Diego Man was a necessary literary device. I promise many brickbats in the next two columns as I go after some sacred cows.

--Jim

San Diego Man

You know this guy. Born between 1918 and 1925 in some small town way east of here. Passed through San Diego during the war and liked what he saw. Easily found steady employment in places like Convair, SDG&E and North Island or maybe opened a gas station out in Encanto. Married the girl back home and bought a three-bedroom, one-bath house for $11,000 in Allied Gardens with no down payment. She stayed at home and they and their boomers lived decently on one income. They joined a club called ‘Heaven on Earth’ to celebrate their good fortune. He managed to get most of his kids in college and usually bought a new car every two or three years. He and his friends began retiring around the time Carter was President. His retirement was secure enough that he afford European tours and RVs. Perhaps his good life was karmic reward for his having just enough courage to stuff himself into the belly turret of a B-17.

New San Diego Person

San Diego Man and his children lived in a San Diego that is not ours. New San Diego Person, a member of either Generations X or Y, operates in a less secure and far more difficult economic environment. To afford housing, families often have two wage earners and perhaps three jobs. To afford shelter, this group often has to sacrifice health care and retirement savings and endure uncomfortable commutes. Add this insult; the two newest generations also subsidize the property taxes of San Diego Man and his kids. The only way to give New San Diego Person a taste of the old good life is to build plenty of new housing. The problem is there is no light from any quarter showing the way much less any resolve.

Nowhere is this more painfully evident than the ongoing debate over condominium conversions. This political theatre now on view features several interest groups and various city authorities trying to work out a new set of rules for the now stalled process of converting older apartments into condominiums. This will all get worked out and the net result will be that conversions will cost consumers more and presumably they will get a better product. Additionally, displaced tenants will not be treated quite so roughly during the conversion process and will get a small piece of the converter’s swag, undoubtedly at the expense of the buyers. This is all well and good but it adds not one home to the housing stock. All you are doing is shuffling the deck—there will still be but 52 cards.

The San Diego Premium

I think the body politic views high prices and rents not so much as a problem but as the dues for being in the ‘Heaven on Earth’ club.  They believe The San Diego Premium will trump all. The Premium idea goes like this; it was an article of local faith that people would work here for lesser wages because of San Diego’s weather, lifestyle and location. This all worked well because housing was priced appropriately with income levels. San Diego Man did not have to give up half of his disposable income to make his house payment.

But after 1976 or so that all began to change. That year the median price of a home in San Diego was just about the national median. Wages are relatively higher now but we are still not Los Angeles or Boston. And you know the story about the median home price in San Diego, about double the national average. It is fair to say we have become a mid-wage city with upper-middle prices. We were able to adjust to this unprecedented appreciation because of another social change, the women’s movement that gathered steam in the early 70s’. The economic boost from the second income is now played out and unless we repeal child labor laws something has to give.

The Premium has carried this town since V-J Day. We need a new trick as other areas have developed their own unique Premiums. Consider these facts; for the first time in thirty years the county lost population last year. Reminiscent of 1991, 49-state in-migration, the best kind economically speaking, is heading in the wrong direction reversing a 10-year trend. The rate of home ownership, 70% nationally, has plummeted to 55% in our County. Again, trending in the wrong direction. I have never understood the allure of Riverside or Las Vegas or other places of that ilk. But they have their own Premium, jobs and affordable housing. Teachers want to own a home too.

Our communal belief in The Premium has given us the political and moral cover to avoid hard choices. The growing political power of the X and Y generations will force us to challenge and change cherished ideas about growth and density. After all, do you want to drive to Temecula to see a nurse? But that is for Part II of this series next month.

Click here to see Jim's past Market Reports. You can also download Jim's 26 page research paper on San Diego County apartments.

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