2017: San Diego Housing Forecast

Real Estate

Article by Phillip Molnar pf the San Diego Union Tribune:

 

"Expect increased rent prices in San Diego County next year and many of the same hurdles to get new homes built. 

That’s at least some of the consensus coming out of two real estate forecast conferences in San Diego this week attended by builders, landlords and investors. 

There was cautious optimism about President-elect Donald Trump, anticipation of changes for office space demand and a general displeasure about the failed effort to get Lilac Hills built at the annual economic forecast gatherings of the local Institute of Real Estate Management in La Jolla on Friday and the University of San Diego’s business school on Thursday."

 

Rent Prices

The county’s second biggest landlord with more than 6,000 apartments, the Irvine Company, is not expecting anything to hurt its rental returns.

Liza Strom, Irvine senior leasing agent, said low unemployment, strong job growth and tight vacancies should all help its investments.

“All the trends are looking very positive in 2017,” she said at the IREM event at the Hyatt Regency in La Jolla. “We think we will see rent growth in all markets we own in.” 

In CoStar’s third-quarter housing report for San Diego, the real estate tracker forecasted San Diego rent would increase3.6 percent in 2017 and 3.4 percent in 2018. 

 

Donald Trump

The real estate industry has had a mixed reaction to Donald Trump’s election victory, despite his history as a real estate developer. 

Jason Wood, project principal at San Diego real estate development company Cisterra Development, said Trump’s plan to lower taxes and cut regulation could be a boon for the industry, at least in the first few years. 

“Does everyone know the new president is going to try and lessen some of the regulation that has held us back?” he said to the roughly 250 attendees at the La Jolla event. 

He said there was no question the industry would change, it was just a question of how much. 

“2017, in my opinion, is going to be a good year in our business,” he said. 

However, other aspects of the president-elect give other analysts pause. 

“This idea of traumatizing world economies through Twitter is very unsettling,” said real estate consultant Gary London at the same event. “ I think if we start creating trade wars with China, that could have an impact.”

 

Lilac Hills

The specter of Lilac Hills, a development of 1,746 homes that was voted down in the November, seemed to haunt both forecast meetings. 

The project’s developer, Randy Goodson, said continued community opposition to new housing could have dire effects in the future.

“You're going to have a 34-year backlog on people who will be forming households and deserve a home," he said at the University of San Diego forecast. "There's a social challenge. There's a perspective in society, among a lot of people. They don't feel any obligation to incur any discomfort for the provision of additional housing."

Gary London said Lilac Hills was an example of the difficulty to build more housing, especially large scale.

“It was a marker. People don’t want more suburban housing built if they have the chance to vote on it,” he said. 

 

Office Space

Terry Magee, independent defense industry consultant, said San Diego County will see a growth in Navy personnel as more forces are added to the West Coast. He also expects an increased defense budget.

He said it means more defense companies that support the military in the region that need office space, but they have special requirements.

Magee said those companies will be working with the federal government, so putting them next to a marijuana dispensary would be a bad idea. Also, they may need a sensitive compartmented information facility — called a SCIF — that has wire mesh in the walls, high ceilings and security locks. 

Also a popular topic in commercial real estate discussions at the conferences were co-working sites, or shared workplaces where small companies or individuals rent a desk in a warehouse or commercial building. 

National co-working giant WeWork recently moved into the same downtown building as the San Diego Union-Tribune and has started filling up 1,700 co-working spaces. 

While most analysts said it was a positive development that will attract startups, Jason Wood said he would be cautious about big co-working firms. 

“I’d be getting out if I was an investor of WeWork,” he said. “I think companies and landlords are going to figure out, ‘Why do I need to lease to this middle person? They are making all this money. Let’s just do it ourselves.’”

He said he wouldn’t be surprised in five to 10 years if landlords turned 10 to 20 percent of their office buildings into co-working spaces.

 

Mortgage rates

The rate for a typical 30-year fixed year mortgage has increased 0.6 percent since the day before the election. 

Tony Pauker, senior director of land and housing for Brookfield Residential in San Diego, said in the short-term, the housing market could see a boost in homebuying as people try to fend off rising rates. 

In the long-term, he wasn't so sure. 

"Where we'll be with interest rates on July 1 is not clear," he said. "And it's doubtful we're going to have a big jump in incomes in that period of time."

 

Read more Real Estate news from Phillip Molnar here.