Aug 23, 2023 - Development

San Diego developers pull back on apartment building

Data: CoStar; Chart: Axios Visuals

The city of San Diego has spent years trying to make it easier to build more housing, but the first half of 2023 saw developers pull way back on apartment building in the metro area.

Driving the news: Developers broke ground on buildings with 1,150 apartments in the first half of 2023, according to new data from CoStar, a real estate information company.

  • That's down from 3,031 during the same period last year.

Why it matters: The crash in homebuilding will only exacerbate a long-running regional housing shortage. Combatting that shortage has become a bipartisan political priority, but homebuilding this year hasn't been in line with those efforts.

By the numbers: The city of San Diego needs to build about 13,504 homes per year through 2029, according to its latest state-mandated housing needs assessment.

  • But it's on track to issue permits for 4,839 homes this year, said Elyse Lowe, director of San Diego's development services department, based on preliminary city data. That would be just 35% of its target.

Yes, but: Permitted projects are running into problems before they can start construction, said Joshua Ohl, CoStar's San Diego analyst.

  • "With the rapid rise in costs for labor and materials, projects that are penciling at the beginning of the permitting phase, by the time they get permits approved, they no longer pencil out," he said.

What they're saying: Lowe said developers taking advantage of recent city policy changes meant to spur accessory dwelling unit production could be part of the decline.

  • "The infill development community is small and there are only so many projects they can do at once," she said. "We're going to review as many projects as we did last year, but we're going to get fewer units."
  • Brian Schoenfisch, a DSD official focused on downtown, said the difficulty to secure construction loans has meant developers request permits, but can't always begin projects on schedule.
  • "It does stand to reason that as the city converts to more infill, and smaller projects, that there would be a slowdown," said Keely Halsey, assistant DSD director. "It's just a different layer of complexity for those projects, and then you get fewer units out of them."

What we're watching: Lowe said the best thing the city can do to combat the downturn is approve permits on a predictable timeline. In January, the city brought in private contractors to help clear a lengthy permit backlog.

  • She told Axios the city will clear that backlog in two months.
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