How deep is Downtown’s housing market? With 33 projects totaling 3,276 homes already built and sold, can another 35 buildings and 5,800 units designed to house 11,000 people be absorbed in the coming years?

One way to address this is to look how close the links are between employment and housing.

A survey of office tower workers shows only 6 percent live in the 92101 ZIP code. That’s low and represents a disconnect between Downtown’s office workers and their place of residence. Yet it is not particularly surprising. The phenomena of upscale urban living here is relatively new, while the office core’s 10 million square feet of space has been in place for decades.

One reason few people both live and work Downtown is the narrow focus of the new residential. Most of the condos are between 900 square feet and 2,000 square feet in size, most selling for between $375,000 and $1.5 million and with prices skewed to the top of that range. That’s high, even in expensive San Diego.

Earlier surveys suggest these homes attract couples who are 50 years or older and affluent with at least one person working Downtown. But that demographic does not match those already living in the area.

Of the 21,200 persons who do reside Downtown, 42 percent, or 9,000, are ages 20 to 29. That’s much younger than the buyers. And this group is 63 percent male and 88 percent renters, again a disconnect from the profile of the new home owners.

Much of the existing Downtown population has not been presented with housing it can afford. The 2000 census reveals the median income of the existing Downtown residents is $24,000, yet it takes a household income of more than $100,000 plus equity from a previous home to afford most of the existing inventory.

More affordable units may be added as Little Italy is completed and East Village develops. But it also is certain East Village will have its share of expensive housing. Certainly the Omni Hotel’s Metropolitan, now selling condos on its top 10 floors for $1.1 million to $3 million, and Park Place, which has units ranging up to almost $2 million, are examples. But others, such as the M2I block just up from the ballpark, will sell units starting at $200,000.

Condo Depth

The condo market is deep, at least in the following sectors:

• Demand generated from persons who have shown a propensity for being Downtown and who presumably could move into the for-sale housing stock if smaller, less expensive condominium units are delivered.
  
  
• Continuing demand from equity-rich downsizing older baby boomers.

Of the 9,000 Downtown residents with jobs, 2,400, or 27 percent, work in office high-rises. That is a small percentage of the 40,000 office workers, meaning the pool of potential buyers for the right kind of project is large.

Until those options are available, little hope exists for a true linkage between Downtown workers and residents.

That’s a shame, because the region’s other “downtowns,” UTC and Carmel Valley, are doing a better job of providing nearby housing for the workforce. In UTC, 24 percent of the office workers live nearby; in Carmel Valley, 50 percent.

The good news in those figures is the forecast that as Downtown’s housing options broaden, it will be become more attractive to new businesses.

Speculators

Also important is determining whether the new condos Downtown are being bought by speculators or those who make them a primary home.

A survey of nine buildings shows 62 percent of the units are occupied by their owners and that of those who have speculatively purchased units, 87 percent only have one.

While the speculative market is somewhat large, this is primarily a positive indicator, suggesting that people are willing to bet considerable money that housing values will rise. The negative would be that if the market turns soft, a considerable inventory of speculative units now being re-rented could be dumped, causing prices to drop.

This is unlikely to happen. The next significant delivery of homes will not be until 2005, when 14 projects and 2,200 units come on line. Of the 1,200 units to be completed in 2003 and 2004, most are reserved, with waiting lists. Also, the vacancy rate in dedicated rental units is a low 4 percent.

Prices Will Stabilize

The market today is not glutted, nor will it be in the foreseeable future. Rather, it is likely demand will grow for new office projects that in turn will spur demand for more housing.

Still, we must be approaching the end of a long eight-year cycle of regional home price appreciation. It is not a bubble waiting to burst, but more likely will grow much slower, with the probable exception of East Village because of its proximity to the new ballpark.

Gary H. London is president of The London Group Realty Advisors Inc., providing real estate consulting and economic analysis. Check him out on the Web at www.londongroup.com.