Expert Predicts Sharp Rise in Housing Costs

SAN DIEGO —  Housing prices and rents here will increase significantly over the next year because a scarcity of construction financing will cause the supply of new houses and apartment buildings to fall short of demand, a real estate economist predicted Thursday.

Kenneth T. Rosen, a business professor and chairman of the Center for Real Estate and Urban Economics at the University of California, Berkeley, said that increasing demand for San Diego housing caused by the area’s continued growth, coupled with the diminishing housing supply, will cause prices to jump over the next year.

Nationwide, construction financing for home and apartment builders has all but dried up over the past six months, Rosen said, because of the restrictive lending policies imposed on banks and savings and loans by federal regulators in the aftermath of the S&L; debacle.

San Diego has particularly felt the “credit crunch” because of the financial problems of HomeFed and Great American banks, the two largest local housing lenders, Rosen said. HomeFed has stopped making construction loans to builders because of capital problems, and Great American has left the market altogether, after having sold its Southern California branches last year to Wells Fargo.

Rosen, who spoke at a gathering sponsored by the UC San Diego Economics Round Table, did not say how much of an increase he expects in San Diego housing prices, which overall have risen only slightly over the past year and a half.

Dean Cannon, president of the California League of Savings Institutions, said in a separate talk Thursday that he expects housing prices to go up 10% to 15% statewide over the next year.

Rosen predicted that only 8,000 single-family houses will be built in San Diego County this year, down from 16,000 during the 1986 peak year. He estimated that only 3,000 apartment units will be built, down from the 27,000 permitted countywide in 1986.

Although real estate brokers and lenders report a recent pickup in market activity, current prices still reflect a flat market.

The average existing home in the San Diego area sold at a median price of $174,200 in April, a decline from $175,333 in April, 1990, according to the San Diego Board of Realtors. The median is the figure at which half of all other prices are higher, and half are lower.

Similarly, prices of new houses in county subdivisions have leveled off. The average countywide subdivision home cost $264,300 during 1991’s first quarter, down from the $268,700 average for the same three months last year, said Russell Valone, president of Market Profiles of San Diego, a housing market research firm that tracks subdivision sales.

The inventory of unsold single-family houses available for buyers has steadily declined over the past six months. The unsold housing inventory in the county was 1,736 units as of March 31, contrasted with 2,045 at the end of December and 2,307 on Sept. 30, Valone said.

Apartment rentals in the area have been similarly flat because of a combination of factors, including a glut of apartments; the Middle East conflict, which sent military personnel from the area, and the recession, which has caused some families to double up.

Rents have been stable, observers say, because landlords are scratching for tenants. The average vacancy rate at area apartment buildings was up to 8.3% as of April 15, from 6.1% a year ago, according to a survey by the San Diego Apartment Assn., a trade group representing owners and managers of about 150,000 apartment units in the county.

However, Rosen said the San Diego market has “bottomed,” and he sees prices going up because of various factors, including low supply and San Diego’s continuing growth. He said the county will add about 35,000 residents this year, fewer than the 70,000 added in 1990 but still a significant increase.

San Diego’s housing prices have held their own, he said, when compared to other regions of the state and nation harder hit by the recession. Parts of the Midwest and Northeast have seen 20% declines in housing values, he said.