By Alan Nevin
As published in The Daily Transcript: December 21, 2011
It’s turban time!
It is that time of year when I gaze into the future and make inevitably accurate projections for the coming year in San Diego County.
It all starts with jobs and that’s a good thing because San Diego County gained some 25,000 jobs in 2011 and that’s totally without the assistance of the moribund construction industry.
This past year our County gained jobs in virtually every industry category except construction. Even the government, with all its prattle about cutbacks, actually gained jobs at all levels. And the bleeding stopped in manufacturing. Since 2008, our County lost 10,000 manufacturing jobs, but this year we had a net gain of 700 jobs.
From an unemployment standpoint, we’re just not there yet. From 2000-2008, our County average unemployment was barely 5.0%. Since then, 10%. Not so good, but coming down. By the end of 2012, the San Diego unemployment rate should be in the 7-8% range. That is not quite as bullish as you would think because in my calculation it includes the military which is, by formula, not included in the unemployment rate that the government tallies each month. Therefore, with 115,000 men and women in uniform in San Diego, the inclusion of the military drops the unemployment rate by about 1.0%.
The largest wound remains construction. If it weren’t for health care facilities and the military, our construction industry would be a total basket case.
In 2003, we permitted 18,000 residential units, half of them single-family homes and the balance condominiums and apartments. In 2011, we will permit about 5,000 units. In 2012, we will do marginally better. Our single-family units permitted should top 2,500, if, in fact, enough lots can be completed. And right now, the supply of ready-to-go lots is miserly.
Blessedly, interest rates will remain at a crowd-pleasing 4.0%.
On the multi-family side, it is nearly impossible to get a loan to build condominiums so almost the entire multi-family permitting in 2012 (about 3,000 units) will be apartments, many of them downtown. Alas, few will be ready to occupy prior to 2014.
Unfortunately, apartments do not have the same multiplier effect as single-family housing. Multi-family units are typically 1/3 the size of a single family home which means one-third the labor and materials, and apartment dwellers rarely install a pool and elaborate landscaping, or fencing, or spend enormous sums on draperies and other interior furnishings. Therefore, apartments do not provide the same bang for the buck to the economy as a single-family home. Lowe’s and Home Depot and Dixieline don’t generate major profits from apartment dwellers.
Having said that, we do need apartments. This year, we will create some 10,000 households in San Diego and living year-round on the beach is probably not the best option. So we do need apartments and lots of them. We know that because the vacancy rate in the County is below 5.0%, concessions have disappeared and rents are rising.
Further, unlike Phoenix or Las Vegas, we have virtually no vacancies in our single-family housing inventory. This is one tight little market.
The resale housing market will continue to be vibrant, selling 2,200-2,700 units monthly in 2012. The only problem is that the inventory of units available for sale is shrinking as the foreclosures and short sales ebb.
And that leads to my next major conclusion: Home prices will increase by 3-5% in 2012, and sometimes higher in those ZIP codes where the high school districts have bulging SAT scores.
On the commercial side, it’s all good news. Occupancy rates in office, industrial, retail and hotels will rise as a result of increased demand and negligible increases in inventory. Basically, all quality levels will see improvement with “A” quality space in particularly strong demand. The Urban Land Institute’s recent Emerging Trends report rates San Diego among the strongest commercial markets in the Nation.
This forecast for 2012 may appear slightly Pollyannish, but after four years of negativism, this guru can finally see some light at the end of the tunnel. We here in San Diego are one of about a dozen metropolitan areas in the Nation that have been blessed with modest recoveries while the balance languish.
It’s not time yet to bring out the champagne, but a few bottles of Stone Pale Ale are in order. Cheers!
Excellent reading and analysis. Our prospects here in Atlanta are not nearly as rosey as yours in San Diego. I enjoyed the way the “guru” broke things down into easily understood, bite-sized chunks of knowledge. Best part is … he’s family! (Daughter married “son-of guru.”)