Housing, the job market and transportation were, perhaps not surprisingly, the hot-button issues discussed most at Friday’s 22nd annual San Diego County Economic Roundtable at the County Administration Building, 1600 Pacific Highway. The 8:30 a.m. event drew an overflow crowd, which had to watch the discussion in an adjacent room via television broadcast.
Speakers for the event included UCSD economics professor Dr. Ross M. Starr, President and CEO of San Diego Regional Economic Development Corporation Julie Meier Wright, Chief Economist for San Diego Association of Governments (SANDAG) Marney Cox, President of The London Group Realty Advisors Gary London, President and CEO of the San Diego County Hispanic Chamber of Commerce Linda Caballero-Merritt, and President and CEO of San Diego Workforce Partnership, Inc. Lawrence G. Fitch.
On the macro level, Starr predicted scant change for the U.S. economy this year, with Gross Domestic Product growth projected for the first quarter at 3.6 percent and 3.1 percent for the fourth quarter. Unemployment will remain between 4.6 percent and 5 percent throughout the year, with a slowing of construction spending, consumer spending and real estate value growth in the second half of the year.
“We expect 2006 to look very much like 2005, but we expect some slowing of economic growth,” Starr said, later thanking the real estate sector for the recent economic stabilization but attributing the economy’s forecasted slowing down to rising federal interest rates, predicted to remain between 4.5 percent and 4.75 percent throughout the year.
Starr concluded that incoming Federal Reserve Chairman Ben Bernanke is a superb choice for the position, universally praised and with solid economic policies and goals.
With the city’s current financial situation in the forefront, San Diego’s ability to attract lending and investment is of important concern. Wright’s presentation demonstrated San Diego’s competitiveness for investment against other cities. Among comparable cities, San Diego ranks ninth overall, measured in categories of environment (in which San Diego ranked first), economy (ninth), balance (11th), and equity (10th), a category that factors income distribution, transit and housing affordability. San Diego trailed Seattle, Denver, Portland, Ore., Raleigh, N.C., and Austin, Texas, the top five.
Factors leading to this ranking consist of the city’s population further outpacing housing, driving the median home price further up to nearly $617,000, according to the Association of Realtors. In fact, Wright explained that San Diego’s median home price is double those of all its competitors except Seattle. This means that San Diego’s median outlay, consisting of peripheral costs such as property taxes, is also larger than that of other cities. Additionally, the gap in San Diego between home price and income growth is increasing. While the benchmark of household income paid toward the home is 30 percent, San Diego’s is 47 percent. Furthermore, the increasing reliance on adjustable rate loans can be potentially disastrous should the economy take an unforeseen nosedive or interest rates spike. Finally, Wright stated that 5 percent of households are able to afford a median-priced home, a factor employers must consider when relocating their business. “Housing is the greatest single immediate threat to competitiveness,” said Wright.
Marney Cox’s presentation of San Diego’s local economic forecast predicted an increase in job growth, a decline in unemployment rate and decelerating home prices. The rate of inflation will increase. Twenty-two thousand new jobs are expected to be created in the county in 2006. According to Cox, 2006 will benefit the visitor industry, defense contractors and high-tech clusters, while the construction industry, retail trade and state and local governments will all suffer.
Much of the venture capital resources are going toward biotech and telecom, the county’s two largest sectors. Population will increase by 15,400.
Gary London focused on San Diego’s housing and real estate market, where he expects more equilibrium will be seen between housing supply and demand and median housing price will increase 5.5 percent. Condo conversions, which have been red hot, will slow down dramatically. This frequent source of housing to a first-time buyer will see its prices raising past the affordability of these buyers. Condo conversion purchases, however, have kept residential rents at minimum increases. The resulting rent stagnation, though, has seen capitalization rates decline for apartments.
After his overview of our coastal area transforming from a manufacturing to a service economy, London concluded by stating that San Diego’s big issue, now and in the future, is the county becoming more urban. With that, San Diego must find a way to create jobs closer to where people are, to put less stress on transit infrastructure.
During the question and answer session, the main topic was housing, and it proved to be one of the only topics of discussion due to the 11:30 a.m. scheduled adjournment. London stated that San Diego’s housing issue is an income problem in disguise. He proposed employers help in some way with the cost of owning a home for employees. Several members of the panel later disagreed, arguing this as a disincentive for companies to relocate to San Diego. Humorously, Starr explained that recession would indeed provide a solution to many of these problems, of course following with the fact that recessions bring on separate problems of their own. All panelists seemed to concur that density provides a realistic solution. It would increase the supply of housing as well as affordability. However, it brings a greater need for transportation improvement. This is a difficult battle, however, as higher density is neither initially favorable to citizens nor to politicians, who answer to citizens. Cox advised local government must be convinced that density is a good thing.
Wright concurred, saying that “Density is absolutely essential to affordability.” In discussing housing’s role in attracting businesses to the region, she classified housing prices as a cost of doing business, as there is presumably more pressure on higher wages here than elsewhere. Lastly, as the conversation migrated toward expanding income distribution, the meeting concluded with several panelists concluding that education is the best treatment for low-income people. While communities fight against the expansion of colleges, higher learning is essential for the increase of living standards.