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Housing prices threaten growth, study says

Dean Calbreath, SAN DIEGO DAILY TRANSCRIPT

Thursday, April 16, 2015

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  San Diegans spend a greater percentage of their household income on shelter than in the nation's other 20 biggest metro areas, the report says.
  "This serves as a barrier to the region’s economic performance," said economist Kelly Cunningham, who compiled the report. "With higher home prices, 'leakage' of local income flows out of the region to pay for financing costs on relatively larger mortgages and rental rates paid toward institutional owners based elsewhere."
   Since bottoming out in 2009, the median home price in San Diego County -- including condominiums and apartments, as well as single-family homes -- has grown 60 percent to $430,000, putting it close to the all-time high of $500,000 it achieved in 2005, before the real estate bubble began to sag and burst.
   While San Diego's median household income of $72,700 is 19 percent higher than the national average, its annual expenditure on shelter is 57 percent higher.
   During the past five years, the median home price surged 13 times faster than the median household income, a trend that is likely to continue for the foreseeable future.
Cunningham said that in a healthier market, where households don't spend so much money on housing, people would have more discretionary income to spend on other local services and goods, "reducing the rate of leakage and improving the region’s overall economic performance."
   "This stark difference is evidence for just how 'house poor' San Diegans are," Cunningham said.
   Measuring the cost of shelter against the median income is just one way of evaluating the home market. Using other measures, San Diego isn't necessarily the most expensive market -- but it is one of the most expensive.
   The National Association of Home Builders’ Housing Opportunity Index, for instance, ranks San Diego as the 10th most expensive market, based on the percentage of households that can theoretically afford to buy a median-priced home.
   Cunningham said one way of addressing the lack of affordability would be to increase the supply of housing.
   But partly because of the lingering effects of the Great Recession -- ranging from stagnant salaries to tougher lending practices -- home construction has been relatively sluggish.
   Last year, the region added only 6,871 units, barely enough to keep up with half the rise in the population growth, Cunningham said.
   But the other side of the equation is that unless wages grow faster, San Diegans may not be able to afford new homes even when they do hit the market.
   "The result is San Diego families are doubling up, delaying purchases and moving farther and farther away from job centers as a way of mitigating higher shelter costs in the urbanized core of the region," Cunningham said.