Tom Noon, California region president for D.R. Horton which sold 1,364 homes in San Diego last year, says unless new home construction increases, today’s children won’t be able to afford to live within 100 miles of San Diego. (photo/J. Kat Woronowicz)

New home builders produced an extraordinary 2004, selling 15,570 houses countywide, nearly the same as 1988’s all-time high of 15,647. But the close totals are far apart when it comes to housing mix.

“Back in 1988 the detached market represented 11,279 sales and the attached market was 4,368,” says Russ Valone, president of MarketPointe Realty Advisors, which tracks housing sales. “Fast forward 15 years and the numbers are 5,884 for detached and 9,686 for attached. A significant part of that number is condo conversions. It tells you that we should be thankful for SB800 that has basically created an environment where builders feel less at risk building condominiums and townhomes. What we’re seeing this year is reflective of what we will continue to see in the future in San Diego as we run out of land. The big piece of land that lets us do big tracts of single-family homes is pretty much fading into history.”

Senate Bill 800 is the construction defect reform bill that establishes a mandatory procedure prior to the filing of a construction defect lawsuit. It provides the builder with “a right to attempt a repair of the defect prior to litigation, inspections and exchanges of documentation under certain circumstances, and mediation at various points, all pursuant to various time frames set forth in the bill.”

“It’s a technology we have to learn.” Valone says. “The home-building industry is a solution-based industry. There are needs to meet affordability issues and needs to meet just housing issues. Some of the stuff Downtown falls into the affordable ranges, but when you start talking mid- to high-rises, you start talking cost of construction and cost of parking that drive up prices and make it more the middle class, upper-middle class housing opportunity than significant levels of workforce housing.”

The top new home seller last year in San Diego County was D.R. Horton, which MarketPointe reports sold 1,364 homes. More than 800 of those were attached and more than half of those were in mid-rise projects. “This is a trend that is likely to continue with more and more of the new homes added to the housing stock being built at higher and higher densities,” says Tom Noon, California region president for D.R. Horton.

Home construction is successful when job growth is successful. Job growth has been good in Southern California for nearly 10 years. However, housing construction has not kept pace with the population growth and the industry complains that the housing permit process is chronically sluggish and an obstruction to building. “This is not healthy in the long run,” Noon says. “Spiraling home prices are a ‘feel-good’ thing in the short run for those who already own a home. But in the long run, their kids won’t be able to afford to live within 100-200 miles of San Diego County and enjoy the schools, the water, the sunsets, the recreation that brought them all here.”

In 2004 buyers were looking for affordability, Noon says. Horton builds everything from affordable housing — units required to be sold below market value to buyers who make less than $48,000 per year — to homes that sell for more than $1 million. This includes attached condos from 850 square feet to detached homes of more than 6,000 square feet. “We have multiple mid-rise condos (from four to six stories) under construction Downtown and in Del Mar Heights with more in planning,” Noon says. “We just started another six-story building with underground parking in North Park, (La Boheme) the first to be built there as far as I know.”

D.R. Horton is not confined to San Diego. “We are also the biggest builder in the state of California over the last three to four years and we are still growing. We hope to sell 10,000 homes in 2007, the first builder to ever do that,” Noon says. “That is something all of our employees are proud of. The redevelopment projects we are doing turn older, corroded neighborhoods into new ones again. Redevelopment encourages more redevelopment and whole communities can get a fresh lease on life.”

Horton will continue to buy land for mid-rise communities. “We expect to continue to build 1,000 to 2,000 homes per year in San Diego County for several more years,” says Noon. It also expects to remain at No. 1.

Bob Cummings, president of K. Hovnanian Cos., says the builder is in Downtown San Diego to stay. (photo/lambertphoto.com)

The shift in housing mix swung the compass from the north to central San Diego. In 2003, builders were staged along North County’s Highway 78 corridor and in South County south of Highway 94. In 2004, construction relocated to 4,694 new units south of Highway 52 including Mission Valley, Hillcrest and Downtown. The second largest level of activity was South County with 3,814 units. North County had 3,179 units along the Highway 78 corridor from Oceanside to Escondido.

MarketPointe lists 11 new names on the net sales rankings through the fourth quarter 2004. K. Hovnanian popped up at No. 6 with 495 units sold. The developer spent 10 years working on single-family homes in North County. In 2003, the company produced about 90 detached homes in Encinitas. In 2004, it worked on five projects, which included one in Downtown, Acqua Vista, a twin-tower, 390-unit luxury high-rise condominium project.

“Like many home builders we are seeking to expand our current operating areas,” says Bob Cummings, president of K. Hovnanian Cos. “We are having a hard time finding detached areas to develop. We are still looking for more areas Downtown. We are in Downtown to stay.”

K. Hovnanian Centre City efforts include Cortez Blu, 67 condos that will be available for sale in July 2006, and Phase 2 of Gaslamp Square, a mixed-use, seven-story development that will include 103 condominiums with completion set for November.

With demand outpacing supply, Mark McMillin says his company is dipping its toe into the urban market with the purchase of a few parcels Downtown.

Strong demand fuels the market and keeps these developers busy. “Demand is outpacing supply because of lack of available land,” says Mark McMillin of McMillin Cos. “We’re not looking like geniuses here.” With 637 units sold in the county, McMillin moved to No. 3 from No. 4 in 2003.

McMillin is known for its community developments, especially in the South County. Two-thirds of its sales last year were in Chula Vista with several more projects planned for this year. This home-grown single-family home builder also has picked up a few parcels on one block Downtown and may have sales there next year. “If we want to keep our San Diego presence for the next 10 to 20 years, our company has to learn how to do redevelopment and get into the high-rise market,“ says McMillin. “It’s going to be interesting to see our name on one of those things.” The Downtown project was to be a “pint-sized” joint venture as a first-time attempt but could now get up to 200 units as more parcels are added.

Even with the toehold Downtown — “We’re not in a hurry,” McMillin says.

Yet to venture Downtown, Shea Homes ranked No. 5 in 2004 sales with 623 homes. It too is less dependent on single-family sales. “Approximately half were detached and half were attached (homes),” says Paul Barnes, division president of Shea. “2004 was an outstanding year. It was the perfect (balance) of very high demand and then the latter half of the year there was a little resistance ... sticker shock of pricing, which is probably a healthy thing, a little moderation in the market.”

As Shea Homes builds throughout the region, its mix of housing has become nearly equally split between attached and single-family homes, says Paul Barnes, division president in San Diego. (photo/lambertphoto.com)

Shea is building across the region, with the exception of Downtown. It continues to seek property to develop in the urban core, but views as obstacles the pricing and shortage of property. “Looking right now, it’s rare to see an opportunity (Downtown),” Barnes says. “So we continue to look there and all over the county for attached and detached opportunities.”

Barnes expects 2005 will be another outstanding year. “We’re not going to see the tremendous appreciation of previous years,” he says, “but that’s OK. It is probably healthier for us to be more normalized. As long as interest rates remain relatively low, it will be a great year for home building.” Shea will be working on 22 communities in various stages of development this year.

Builders build because they love to, says Noon of D.R. Horton. “We provide a great product that people live their lives in. We build cities. It makes me proud to be a part of it. When I’m old and gray, I want to drive past one of our communities and tell my grandkids, ‘See that? I helped build that.’ People should notice D.R. Horton as a vital component of their economy, job base and community health. When the builders stop building, people should be alarmed and concerned it is a sign of decay and decline. If you want to go see a place where buildings have not been built in years, don’t drive through them at night. Like a heart-beat in a human body, when building slows, it’s a sign of poor health. When building stops, time to call 9-1-1.”