How Many New Housing Units Does San Diego Need? (Part One)

Ever since I started his blog a year and a half ago, I've wondered about a big question: we all know that housing in San Diego is unaffordable, but what would it take to make it affordable?  Although many would argue otherwise, the basic principle of supply and demand suggests that if we increase supply while keeping demand (i.e., population) constant, prices will fall.  In other words, if we dropped an extra 1,000,000 apartments on San Diego overnight, prices would plummet as the new supply exceeds demand, at least for awhile.  Conversely, leaving the number of units static and increasing population would drive prices up.

Of course, creating new housing units is not simple and doesn't happen overnight.  Even if we could, causing a crash in housing prices could be disastrous for our economy.  Many people have their life savings invested in their houses and wiping that out could cause a lot of bad outcomes, not to mention the investments made by banks and developers.  Also, if prices in beautiful San Diego dropped quickly, many would say that we would be flooded with new people coming to the area.  Makes sense, but it complicates the question.

Nevertheless, regardless of any complications, we need more housing.  As a somewhat recent report from the state Legislative Analyst concluded, building more housing in our coastal areas is needed to control price increases.  But how many new units are we talking about?

For a first step, I just wanted to see what it would take to keep pace with population growth.  In theory, at least at a basic level, keeping pace with population growth should generally freeze price increases.  (A few caveats: some will quibble with SANDAG's population growth estimates, and this analysis doesn't distinguish between low-income housing and luxury units. Also, the rest of the county is just as bad with growth and limiting this to the City of San Diego doesn't take that into account. I acknowledge these shortcomings, but I am willing to forge ahead with my limited analysis. Finally, this is just pure market-rate housing. Some of these units need to be subsidized low-income housing, but I'm not breaking it down by affordability.)

Luckily, state law requires SANDAG to determine how many housing units we need to to keep pace with population growth.  In its Regional Housing Needs Assessment, or RHNA,  SANDAG takes its population growth model, matches it to the housing units needed per additional person (some people share houses), and divvies up those needed units per jurisdiction.  Each city is then required to ensure that it has adequate zoning for the number of units that need to be built.  Nice in theory, but some cities (ahem, Encinitas) refuse or are unable to comply with the law and get sued.  Also, regardless of basic compliance, most cities never actually build the number of units needed, even if they have the capacity in their zoning.

In 2005, SANDAG issued its first RHNA, which called for 107,301 additional housing units by 2010. In 2005, the City of San Diego had a total of 489,005 units (page 146 of this plan). Under the RHNA, 45,741 of the new units were supposed to be in the City San Diego.  Instead, the City had only 514,841 units in 2010, an increase of 25,836 units.  Thus, in 2010, we were already behind by 19,905 units.

In 2010, the next RHNA states that the City of San Diego needs to build an additional 88,096 units by the end of 2020, or 8,009 units per year over 11 years, to keep pace with growth.  Between 2010 and 2015, we built only 11,336 units when we needed 40,045 units.  Adding this shortage to the shortage from 2005-2010, we are currently short 48,614 units just to keep pace with population growth.  Add in the future units needed, and we need 96,668 new units in the City of San Diego by the end of 2020.  That means about 19,000 units per year.  Over the past five years, we built an average of 2,267 units per year.  We gotta up our game.

So there is the goal: 100,000 new housing units in the City of San Diego by the end of 2020. Even that much growth won't cause prices to drop, but it will (hopefully) curb additional increases. Our current planning paradigm isn't allowing for such growth, and if we don't make the necessary changes, housing prices are only going to get worse.  In a future post (Part Two), I want to explore how to make that happen.  If you have any ideas, let me know.