The Year Ahead
by Jim Scott

Last month in this column I wrote about how condominium conversions were affecting the housing markets. The column discussed how the process of converting existing older apartment buildings was filled a niche in the market-affordable entry-level housing. I noted that only new governmental regulations could derail the further production of these homes.

Not surprisingly, the social and political debate about conversions has taken on a new character. The intended or unintended fallout from those changes will have a significant impact on the housing market going forward.

The "Safety Valve"

Fredrick Jackson Turner was a famous American historian who made a luminous career from a simple thesis; the vast expanses of the American West acted as a social and political safety valve. It created economic and political opportunity for the teeming masses in the eastern cities. Rather than revolt, as in 19th Century Europe, the lower classes could always go west and measurably improve their lot in life. The safety valve is what separated the destinies of Europe and America in the 19th Century.

Converting apartments into entry-level housing has acted as our contemporary safety valve. It is not necessary in this space to argue the merits of conversion but only to look at the effects. The issue pits several powerful forces; tenants, apartment owners and advocates for affordable housing. I only know this; price increases at the lower end of the market have been moderated by the supply of affordable (converted) housing. I also know this--by some measure of luck and indifference a new class of homeowners has been created. Any social scientist will tell you that property ownership is good for society, the social theory of the 'stake in society' is as valid today as it was in the 19th Century. Of this there is no argument.

Our Discontent

A new set of City regulations has appeared regarding this market. There are three main changes and the first two make perfect sense. Converters need to pay more in fees and lower income renters need more economic relocation assistance. Considering the profits made thus far, these charges did not go far enough. The third rule is more worrisome. It has the potential to sharply reduce the supply of these inexpensive homes. Conversions will now have to conform to current zoning and building codes. While this may seem perfectly appropriate and reasonable, how it is administered could make future conversions rare and expensive. I am sure that most of the projects converted over the past three years would not pass muster under the new rules.

Not all is bleak. These changes create, as always, a new set of winners and losers. If you own a newer apartment building with adequate off-street parking the value of your property should be increased. If you own an older conversion prospect with little or no off-street parking, you just rolled snake eyes. The irony is that we need more and not less of the latter.

The County population is increasing along with the gap between rich and poor. The end result of this can be a seething lower class along with a declining middle class. The safety valve of cheap home ownership has never been more important to the integrity of our social fabric. This I believe.

It Was Just Nine Years Ago..

Nine years ago home ownership was certainly more affordable. To refresh your memory, the winter of 1994-95 marked the beginning of this current and remarkable housing market. As prices in Mission Hills approach an average of $500 per square foot, it is useful to remember that homes fetched less than $170 during that grim winter. This is supply and demand in action. Jobs, population and development have not been in balance since that winter. Try as all the interest have, the current market is reflects the imbalance of supply and demand.

This cannot be sustained. The region's economy has been remarkable in creating jobs over the past nine years. It spite of that success, there have been job losses as companies have quietly left the region. I know Worker's Comp is the current whipping boy, but I suspect expensive housing may be the real villain. Increased production of housing for both rent and sale is the only answer to further the economic progress of the past nine years. That ship has not sailed and I see no one getting on the boat. The only thing that seems certain is that prices and rents have no where to go but up, at least in the short run.

2004

The Spring Follies is in full swing. The market for this year has started out like none I can remember. Rates are attractive and our Teflon regional economy is performing well in relation to the county and state. There will be a market correction ahead but probably not this year. Party on Garth.

I welcome your comments; my email address is jimscott@sqre.com.

You can reach Jim Scott at his office, conveniently located in the heart of Mission Hills, at 1111 Fort Stockton Drive. Founded in 1982, Scott & Quinn is the oldest full service real estate firm in Mission Hills and is still locally owned and operated. Jim has been a homeowner in Mission Hills since 1976. He is married and has two boys. He can be reached at 296-9511, extension 100. Scott & Quinn features professional property management as well as 15 sales associates. Click here to see Jim's past Market Reports .You can also download Jim's 26 page research paper on San Diego County apartments.