Regulation adds 40% to housing prices, study shows

San Diego County's many layers of government regulation may explain 40 percent of the area's high cost of newly built housing, according to a new study released Wednesday.

The Fermanian Business and Economic Institute at Point Loma Nazarene University said even a 3 percent cut in regulations could benefit consumers through $2.5 billion in higher income, a $3.1 billion boost to the county economy and 37,331 more jobs.

"I think there probably is no more important issue, either short term or long term, than the cost of housing in San Diego," said Lynn Reaser, the center's chief economist and principal author of the study.

"For our children, for the many friends we have, for the people we depend on for various goods and services, the cost of housing is a major impediment. For our economic growth it also is a critical challenge. For companies deciding either to come here or leave here or more importantly whether they decide to expand here, it's heavily dependent on the cost of housing."

The 71-page study, financed with between $50,000 and $100,000 from area builders and the California Homebuilding Foundation, focused on five cities and the unincorporated area of the county.

Based on those cities' building permit processing history over the last three to five years and estimates from about 20 development companies, Reaser's group concluded that regulation could represent up to 55.9 percent or $480,746 of the cost of a new $860,000 apartment or condo in Carlsbad.

"Our initial response was wow, that's a big thing," said Glen Van Peski, director of Carlsbad community and economic development.

He said he would like to see the evidence behind that finding but believes the city is constantly looking at ways to cut housing costs. Coincidentally, he said, the city has put on hold a proposed a fee of $20 per square foot for new apartments pending the outcome of a lawsuit elsewhere.

San Diego mayoral spokesman Craig Gustafson said city staff are reviewing the report's accuracy and recommendations and will identify potential streamlining initiatives.

" Any future efficiency measures would join a series of reforms Mayor (Kevin) Faulconer has already enacted to help reduce the overall cost of housing so more San Diegans have the opportunity to achieve their housing goals,” Gustafson said.

The Building Industry Association of San Diego County and other industry and housing advocacy groups have formed a loose coalition, Housing You Matters, to publicize the report and seek reforms at the local level. Joe LaCava, chairman of the San Diego city Community Planners Committee, said he would reach out to join the coalition.

"It's time we stop talking about this every couple years and actually get serious about getting in there and doing the hard work (of reform)," LaCava said.

Former San Diego City Council President Tony Young, now CEO of Rise San Diego, an urban neighborhood improvement group, joined other leaders at a press conference at Liberty Station.

"This is something all of us can embrace, from the building community to housing advocates," Young said.

Former Escondido Mayor Lori Holt Pfeiler, now CEO of the local Habitat for Humanity low-income housing group, said even a couple earning $80,000 cannot afford a new home. Former San Diego Mayor Jerry Sanders, head of the San Diego Regional Chamber of Commerce, called the report a "wakeup call" for all government leaders.

Numerous previous studies have analyzed various aspects of San Diego's housing market, often pinpointing the cost of permit processing and building infrastructure and public facilities, plus dealing with anti-development feelings in some neighborhoods.

For this study, Reaser's center broke down the home-building process into its various phases and assigned costs at each level - from the initial entitlement of raw land for development to the actual construction.

The cost in time at every step was estimated for the first time, Reaser said, and was found to be responsible for between 3.8 percent of the cost of a new home in Santee to 23.4 percent for a high-end home in San Diego.

Extended delays translate into higher costs because of the added financing necessary to keep a project afloat pending final approval. Those added costs get passed on to the ultimate builder and buyer in the form of higher land costs for each lot and the final price point.

Carlsbad's Van Peski said delays aren't solely a city's fault.

"Only part of the time it's in our shop," he said. "A lot of the time it's in their (developers') shop."

The report included a number of recommendations, including setting a 30-day deadline for tentative subdivision map review and standardizing building standards countywide.