Q: Is the San Diego County market saturated with luxury new apartment projects?
Phil Blair, Manpower
NO: Developers are well positioned to make those decisions. Currently it seems if you build them they will come. But we can’t lose sight of the need for more working-class housing in San Diego County so that the very capable talented young families that make up our workforce and economy can afford to stay here.
Kelly Cunningham, San Diego Institute for Economic Research
A: YES: But what else can be built when housing is unaffordable because of government over-intervention? Reducing regulations and cutting taxes would go a long way to more affordable housing being offered. Mandating some homes be subsidized causes the cost of other homes to rise even more. Requiring builders of market-rate $800,000 homes to include some affordable units makes the price rise to more than a million to compensate. Building enough housing units would significantly improve affordability.
David Ely, San Diego State University
NO: Considering the shortage of housing in San Diego, it seems unlikely that the luxury apartment rental market has reached its saturation point. Demand for apartments with upscale amenities, especially in downtown San Diego, should be strong based on the area’s population demographics. High single-family home prices, the potential for rising mortgage rates and decreased tax incentives for home ownership should also contribute to solid demand for luxury apartments in the near future.
Gina Champion-Cain, American National Investments
NO: The interests of both consumers and developers are currently aligned with the luxury market. Add regulatory policy promoting luxury development over higher density, smaller, lower-cost construction and you have three powerful forces working in synchronicity. The high deposit level required for home loans has effectively barred a large segment of substantial income residents from home ownership. Those folks have increasingly turned toward luxury rentals while regulation encourages development of the luxury category.
Alan Gin, University of San Diego
NO: With the labor market strong, there is a market for higher-end apartments. This is particularly the case for younger professionals who are not yet ready to make the commitment to purchase a home. The problem is that not enough less luxurious, more affordable units are being built. If luxury apartments are being built in place of more affordable ones, then that is a problem. But the market needs to and should be able to provide units at all levels.
James Hamilton, UC San Diego
He is not participating this week.
Gary London, London Group of Realty Advisors
NO: Although we may know better where the market stands as the latest batch of approximately 2,000 downtown units in downtown comes online soon. The rental market remains strong with both rent levels and occupancy levels at peak performance. Saturation would be the result of a dearth of high paying jobs, and the consequent absence of renters available to pay high rates. The test will be downtown, which has added thousands of rental units but not jobs. That is unsustainable. The coastal markets have also ed luxury projects, but their appeal is broader, so I doubt that we will see saturation there.
Norm Miller, University of San Diego
NO: Since when have we ever been concerned about excessive supply of any residential product? Would lower rents be a shame? The real problem and question is why we don’t provide more affordable smaller units and the answer is: Fixed-cost fees force developers away from small units, parking requirements are excessive and permitted heights and density are too restrictive. It’s a wonder we get any development with CEQA and NIMBYs. We need more YIMBY saturation! (CEQA is short for California Environmental Quality Act, NIMBY is not-in-my-backyard and YIMBY is yes-in-my-backyard.)
Jamie Moraga, IntelliSolutions
NO: Although our region is in desperate need for more affordable housing, developers are meeting the demand for new luxury apartment projects. The target market for these projects are millennials, who are seeking amenities, including gyms, dog runs, lounges and yoga studios and will pay more to get these perks. How long these projects are sustainable is another question. Developers may look to convert them in the future to condominiums should demand drop.
Austin Neudecker, Rev
NO: Saturation of the luxury apartment market matters little because there is a shortage of housing in general (I acknowledge that the problem is primarily affordable housing) and prices can easily be reduced. Developers may not like it, but they must simply lower prices to sell the units (or rent until there is sufficient demand). More supply equals lower prices, hopefully creating cascading benefits in other price brackets as some upgrade.
Bob Rauch, R.A. Rauch & Associates
NO: While there is significant product in the pipeline, especially downtown, the rental market is rock solid. Downtown will only run the risk of saturation if they add rental units without adding jobs. Having said that, there are many strong sub-markets in San Diego that can luxury apartments. Further, as baby boomers age, there will be a luxury, independent living apartment market that will develop at a rapid pace. The barriers to entry to build in San Diego, coupled with the population growth of our residents bodes well for a balanced market here.
Lynn Reaser, Point Loma Nazarene University
YES: San Diego appears to be facing an overbuilding of luxury apartments similar to that along much of the West Coast. The more than 2,000 new apartments opening this year will be more than double the number added in each of the prior two years. Downtown luxury properties could see a softening in rents to attract high-income millennials. Housing for other market segments is sorely needed, but low-income housing, wage, and other regulatory requirements could limit the supply response.
John Sarkisian, SKLZ
NO: We have failed to build enough housing to accommodate our population growth for the past 10-plus years. We need to increase overall housing supply. If the result is an over-building of luxury apartments, then developers will lower rents in order to fill their buildings and meet the markets demand and pricing. Many of these luxury buildings are being developed in the urban core which will stimulate more economic growth in the city and less auto traffic.
Chris Van Gorder, Scripps Healt
NO: Developers are building mostly upscale apartments to meet the growing number of renters facing a dearth of available properties. Like most West Coast cities, San Diego has a shortage of land zoned for housing. Builders pay the same fees whether they construct high-end, or slightly more affordable properties, so they are building more profitable luxury properties. Renters are paying what’s asked, and trying to afford it through strategies like taking on roommates, so I don’t see the situation changing anytime soon.
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