Late last month, Federal Reserve chairman Ben Bernanke said long-term unemployment is a “national crisis.” And it’s urgent that government give more help to the ailing housing industry.
San Diego’s unemployment and housing problems are worse than the nation’s. Housing prices have plunged 38 percent since their peak in San Diego versus 32 percent in the nation. Local unemployment was 10.2 percent in August versus 9.1 percent in the nation.
But local economists have problems with past and proposed government plans to expand employment and help housing out of the doldrums.
Some here would welcome federal help. Mark Cafferty, chief executive of the San Diego Workforce Partnership, likes President Obama’s jobs proposal, which would reward companies that hire the long-term unemployed and put young people to work, among many things. “People are graduating from college that have never worked a day in their lives,” says Cafferty. “Young people who have money spend it immediately,” thus stimulating the economy. “I am a student of what was done by [President Franklin D. Roosevelt’s] Works Progress Administration. Every day I see structures built by unemployed workers during those [Depression] years.”
The San Diego County Workforce Index rose slightly in August after falling for two straight months, and Cafferty is hopeful. But he realizes that sufficient help won’t come from Washington: “Locally, we have to incentivize companies to bring more workers on board.”
Marney Cox, chief economist of San Diego Association of Governments, has questions about some government stimulus schemes, but he is in favor of the infrastructure programs. Some economists contend that such programs don’t put people to work quickly because there’s a long lag before they go into effect. But in San Diego, “We have projects that have been through the vetting process, such as roadways that will improve border crossing, lower wait times, and be worth $7 billion to the economy.” Similarly, there are airport- and water-expansion plans and sewer upgrades that are ready to go.
But, says Cox, politics sometimes gets in the way of efficient ameliorative programs. After the housing bubble burst, “There were five states in which the construction industry and employees took the brunt of the problems.” One state was California. But the federal programs to help housing were aimed at all 50 states — thus lessening impact where it was needed. “We should be doing away with the generalized policies that are open to everyone. And mortgage subsidies are a bad idea. When you bail out people of bad decisions, it sets in motion more of these types of decisions.”
Politicians are touting programs that subsidize so-called green, clean tech industries. But Gary London of the London Group says that only growth in construction can pull San Diego out of the slough.
Will construction ride to the rescue? “In 2009 and 2010, we had the lowest number of housing units under construction since World War II,” says Kelly Cunningham, economist for the National University System Institute for Policy Research, noting the county has lost 40 to 45 percent of its construction jobs. “[This year] housing construction will be up some but will also be one of the lowest in years. Our houses are among the most unaffordable in the nation, and we need more housing. But we are not building, partly because of the overhang of foreclosures; we have to work through that.”
But Cunningham is critical of federal programs to jack up housing. The federal homebuyer tax credits of 2009 and 2010 goosed sales in the short term but just stole transactions from the future, not changing the long-term trend of the housing market. “I see these gimmicks, government trying to encourage banks to refinance, do short sales. But the market has to adjust to equilibrium.” Prices should get low enough to attract buyers, including speculators who may buy or build a home and rent it out.
Nationally, the homeownership rate, or percentage of homes occupied by owners, has fallen from 69.2 percent in mid-bubble 2004 to 65.9 percent, according to Zillow Real Estate Research. San Diego’s rate is a mere 54.1 percent, and “it could drop dramatically as the foreclosure process continues,” says Cox.
He believes housing prices locally will fall another 5 to 10 percent over the next year. Thus, more speculators will buy homes that are seized by banks and discounted or sold at auction and turn them into rentals. That’s another reason why government programs that prop up prices can be counterproductive.
According to the September issue of MarketPointe Realty Advisors, the San Diego apartment rental market continues to show strength. Average rents peaked at $1344 a month in the fall of 2008, then began dropping. They began picking up last year and now have bounced back to a new record high, $1364 per month. Alan Nevin, who just joined the London Group as a principal, says, “Rents could go up as much as 4 percent this year. A year ago there were two- to four-week concessions on rent upon moving in. Those concessions have disappeared. Giving up one month of concessions is equivalent to 8 percent of rent.”
Nevin is counting on San Diego gaining 15,000 to 20,000 jobs over the next year. “There are 50,000 San Diegans between the ages of 25 and 34 who during the recession went to live with Mommy and Daddy. Now they are getting jobs, moving out, and renting.”
But Cox and Cunningham are skeptical about that job growth. Cox notes that jobs appear to be growing, but then the statistics are revised and go negative. “Last year we went from jobs being up 15,000 to being down 10,000. Today’s trend is not good.”
Says Cunningham, “I thought I was being pessimistic early this year when I predicted slight employment growth. It’s been lower than my low expectations. Growth has been stagnant at best.” And government programs won’t help, he says.