As Los Angeles grapples with a housing shortage, it could learn from San Diego, which has proved better at convincing construction companies to build more.
The city is more welcoming to developers, industry insiders say, with fewer regulations and fees, better planning and less rent control.
“It is easier to build in San Diego over Los Angeles because of its legal structure, political culture and defined processes,” said Kevin Shannon, co-head of capital markets at real estate brokerage Newmark, which is overseeing the sale of a sprawling development site in San Diego that is zoned to have thousands of apartments.
The result: As of last quarter, the number of new apartments under construction in San Diego County rose 10% from three years earlier, CoStar data show. New apartment construction in Los Angeles County tumbled 33% over the same period, hitting an 11-year low in the three months through December. San Diego is expanding its apartment pool at nearly twice the rate of L.A. and other major city clusters in the state.
L.A.’s vacancy rate is among the lowest in the country and rental rates are among the highest nationwide. Still, the supply of fresh rental units, which make up the bulk of new housing in Los Angeles, is thinning out despite robust demand.
Although local lawmakers create regulations to protect renters and keep rents down, hoping to combat homelessness, developers and economists warn that the wrong regulations often can add to the cost of building and maintaining apartments, making it hard to make a profit on new and existing projects. People who already have apartments may be protected, but over the long run, fewer are built, they say.
Rent control has been at the center of the debate recently. The city of Los Angeles just tightened its rent control.
It has just lowered the cap on rent increases for rent-stabilized apartments, a massive portion of the city’s housing stock that houses nearly half of the city’s residents. Although the cap doesn’t apply to units built after 1978, it still discourages developers, as it sends the wrong signal to those already worried about restrictions.
At the state level, a similar housing bill that would have halved the cap on rent increases to 5% a year died in the Assembly last week. Assemblymembers decided that too many restrictions can be counterproductive.
“That sounds nice and humanly caring and all that and warm and fuzzy, but someone has to pay,” said Assemblymember Diane Dixon (R-Newport Beach). “How far do we squeeze the property owners?”
San Diego doesn’t have traditional rent control, though it does enforce less restrictive statewide tenant protections.
In Los Angeles, Measure ULA, known as the mansion tax, is another top reason that developers decide to build elsewhere. They also point to other local regulations that make it challenging to evict tenants who don’t pay their rent.
“L.A. has been redlined by the majority of the investment community,” apartment developer Ari Kahan of California Landmark Group said in October.
It’s easier to do business in San Diego because of its real estate development policies, project approval process and overall business-friendly attitude, industry insiders said. It outlines what it wants in a general plan, and if projects line up with that, they can be approved at the city staff level.
“San Diego has a clear, enforced General Plan, and for the most part, it sticks to it,” Shannon said. “San Diego updates its Community Plan and then lets projects proceed if they comply.”
“In contrast, L.A.’s General Plan is outdated and inconsistent,” he said. “Almost everything requires discretionary approvals.”
Elected officials in L.A., including the City Council, have the discretion to decide whether a new project can be built, which can add months to its approval process as the proposal winds through City Hall and public meetings.
“The City of San Diego continues to prioritize the permitting and development of new homes to address our region’s housing needs and support a better future for all San Diegans,” said Peter Kelly, a spokesman for the city Planning Department. “Through updated community plans, streamlined permitting processes and proactive implementation of state housing laws, we are working to increase housing supply and affordability in all neighborhoods.”
The city updates its Land Development Code annually to streamline the permitting process and accelerate housing production, he said. It also adds capacity to build new homes through rezoning and updates to the city’s community plans, with a focus on placing new homes and jobs near transit, parks and services.
“If we can bring more supply, it will hopefully bring down rents,” said Kip Malo, a real estate broker in JLL’s San Diego office.
Most new apartments are being built outside of downtown San Diego, Malo said. “The city has made a concerted effort to try to clean up downtown and it has gotten better, but it’s still got a ways to go.
Of course, developers in San Diego still face the same headwinds that affect developers in other cities, such as interest rates that make construction loans more expensive than they have been in years past.
Recent policy out of Washington also hasn’t helped. Higher tariffs have driven up the prices of construction materials and equipment, while the crackdown on undocumented workers has thinned and spooked much of the international workforce on which the industry depends.
California’s construction industry depends on immigrant workers. Around 61% of construction workers in the state are immigrants, and 26% of those are undocumented, according to a June report from the Bay Area Council Economic Institute.
San Diego is “still California,” Malo said, and has hurdles to get projects approved that aren’t faced by builders in Texas and other states with more lax requirements for new projects, Malo said, but “the political winds have shifted in developers’ favor.”
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