Future of construction holds condos in SD County, houses in SW Riverside County
The next 20 years of housing construction can be seen in the long trail of regulatory paperwork that fills developers’ filing cabinets for years before a bulldozer rolls across an acre of land.
In San Diego County, 70 percent of that future will take the form of town houses and tall condominium or apartment buildings, according to data from MarketPointe Realty Advisors, a local industry consulting firm.
Most people who want a brand-new house and still work in San Diego will have to look to Southwest Riverside County, where the opposite is true: 81 percent of the new units working through the bureaucracy are houses.
Southwest Riverside County has far lower house prices, thanks to acres of empty space being available for development, and lighter regulation of developers by its cities, industry observers said.
But in San Diego County, a devastated market in houses, expensive local government permits and rising demand for rental units have stimulated a move toward denser housing.
The median house price in North San Diego County fell 37 percent from a 2005 peak to $427,500 in February, and in Southwest County the median fell 56 percent to $200,500 the same month, according to county assessors’ data.
House prices have been pulled down by jitters about the economy and a seemingly endless stream of foreclosures: 55,809 foreclosures in the region since 2007, according to ForeclosureRadar, a data firm.
“The single-family detached market has been so devastated with the collapse in home pricing, there’s very little buyer demand in San Diego,” said Alex Zikakis, president of Capstone Advisors, a real estate consultancy in Carlsbad.
With demand low and prices low, investors who would have funded new developments in years past are no longer interested, Zikakis said.
Instead, they’re looking at apartment buildings.
Credit-damaged former homeowners who wish to stay in the area must find a place to rent. Higher demand raised average rents in March in San Diego to $1,335 a month, up 1.5 percent from a year earlier, according to Cassidy Turley BRE Commercial.
With stock and bond markets sluggish, investors looked to apartment buildings for a good return.
In 2010, they bought $676 million in multifamily buildings, up 88 percent from 2009, according to Cassidy Turley.
“It’s a very, very sought-after property type by investors,” Zikakis said. “The hottest investment category in the commercial real estate world, for San Diego, is apartments.”
As apartment buildings have became more expensive, investors have turned to building new ones to meet demand.
While some of the new complexes will be built as rentals, they’ll be constructed to the standards required to convert them to for-sale condominiums as the market recovers.
“If you build the condos to condo specs, all you have to do is file a condo map later, and pay all the fees,” said Trevor Jensen, a partner with Lee Land Team in Carlsbad.
Government on board
Local governments have encouraged the trend to more density.
San Marcos has 4,234 apartments and town houses in the development pipeline, more than half of which are planned in the city’s Creek and University Districts.
The city wants to manufacture a downtown by building 30 blocks of pedestrian-friendly, mixed-use development.
“We made a very conscious decision to go to a more green, smart-growth approach to downtown,” said Paul Malone, city manager of San Marcos. “We don’t see a big need going forward, in terms of our desired housing mix, to build a lot more freestanding housing than has been built or entitled.”
Meanwhile, San Diego County’s government is updating its general plan.
The proposal, scheduled for an Aug. 3 vote, would concentrate new housing around a few denser areas in the backcountry, such as Valley Center and Ramona, and reduce the number of houses allowed in remote, rural areas.
“At one point, I remember them talking about 70,000 units coming out of the backcountry,” said Russ Valone, CEO of MarketPointe.
Under current zoning, 20 percent of all new houses in North County over the next two decades would be built in Fallbrook, Valley Center and Hidden Meadows, MarketPointe’s data said.
Many of those units could disappear if the latest zoning revision proposal goes through, Valone said.
Jensen and Valone said government regulation combined with the latest building boom to dramatically reduce the amount of land available for development, forcing builders to concentrate on more density.
Indeed, the amount of developable land in all of San Diego County fell 30 percent between 2000 and 2008 to 386,000 acres.
Many of those acres are far out in East County near the Golden Acorn Casino or Borrego Springs, said Beth Jarosz, a senior demographer for SANDAG.
Land dropped in value
Yet, land scarcity doesn’t seem to enter into the equation these days, said Patrick Miller, another partner at Lee Land Team.
Builders have no interest in raw land that hasn’t begun the bureaucratic process, called entitlement, in which developers plan streets, lay out sewer mains and power lines, and otherwise set up the infrastructure for new construction.
The process can take four to seven years before cement is poured. As a result, the price for such land dropped as much as 60 percent since the mid-2000s peak, Miller said.
Land that made its way through most of the entitlement process is getting some interest, but it’s priced almost in lockstep with the anticipated price of the housing that will be built on it, Miller said.
Thus, when houses dropped 40 percent in value between 2006 and 2009, so did fully entitled land.
Builders may instead be focusing on town houses and high-rises because the final products can be sold cheaply, right in line with consumers’ ability to pay.
“With houses, you have fewer units to spread the costs over,” Miller said. “You get a high-density project with efficiencies and economies of scale. The condos are going to be priced lower than single-family residences, appealing to a wider group.”
The median price of condominiums in North San Diego County in February was $215,000, according to data from the San Diego County assessor, less than half the median price for houses.
Still the place for houses
In Southwest Riverside County, the February median house price was $200,500, less than a San Diego County condo, going some way to explaining why builders have 87,267 houses in the bureaucratic pipeline, 82 percent of all units.
More than half will be in Menifee, Lake Elsinore and San Jacinto.
“Riverside has always been predominantly a detached marketplace,” MarketPointe’s Valone said.
The region has more undeveloped land available for development, and fewer costly regulations, said Mark Knorringa, CEO of the Riverside Building Industry Association.
Some areas, including Menifee, Beaumont and the unincorporated county, reduced their building permit fees in recent years, creating more incentive to put up houses, Knorringa said.
“Single-family detached housing is more likely to sell in this market,” Knorringa said.
Indeed, while market forces and regulation are pushing San Diego builders to squeeze more living spaces into less land, there’s some industry trepidation over whether people will actually buy them.
Ken Baumgartner, CEO of kirE Companies in Poway, bought a long-unfinished town house project in Escondido last month.
“There’s probably still skepticism,” Baumgartner said. “People need to choose to live there, and what population is going to live there? Attached housing has a pretty good future. It’s going to be a choice.”
via- North County Times – The Californian