San Diego is a major city on the coast of the Pacific Ocean in Southern California, along the border of Mexico. With a population of nearly 1.5 million people, it is the second-largest city in California and the eighth largest in the country. Despite having one of the highest costs of living in the US, the city has a good demographic outlook for the coming year. The population growth rate is expected to be near the national rate, which is a good sign for current and future San Diego real estate investors since with this growth comes an increased demand for housing, on both the rental and purchase side. According to NeighborhoodScout, more than 54% of residents in the city live in rental properties as opposed to owning their own homes, meaning the tenant pool for rental properties is already large.
America's Finest City has one of the most diverse and dynamic economies in the US, with a highly-skilled workforce and strong job growth. The defense industry has long been (and still is) a pillar of the local economy. The city is home to the largest concentration of military in the world. Along with being the headquarters of several major national defense contractors, it also hosts the largest naval fleet in the world.
Due to its strategic location on both the US-Mexico border and on the Pacific Rim, San Diego is an important center of international trade. It is home to the world’s busiest international border crossing, and to one of America’s top 30 containership ports.
San Diego is also a leading hub for manufacturing and innovation companies, spanning across many different industries including aerospace, shipbuilding and repair, biotech and medical treatment, telecommunication, craft brewing, and biofuel production.
Tourism is a major industry in San Diego and accounts for one-in-eight local jobs. San Diego is one of the nation’s top-ranked tourist destinations, owing to the city’s year-round hot weather, miles of beaches, and countless tourist attractions such as Balboa Park, San Diego Zoo, and SeaWorld San Diego. Nearly 35.8 million people visited the city in 2018, spending an estimated $11.3 billion.
The San Diego real estate market was named one of the Top 30 US Markets to Watch by PWC in its annual Emerging Trends in Real Estate: United States and Canada 2019 report. Although housing is expensive in San Diego, strong employment and income growth are generally able to drive demand for it. It is worth noting that San Diego home prices are relatively affordable compared to other top markets in the state of California. That’s why if you can afford to buy an investment property in the city, then the San Diego market can be a great place to invest in real estate. According to the PWC report, the San Diego housing market benefits particularly from growth in the technology industry, and consequently, development trends are changing in order to adjust to technical requirements. In an attempt to solve the issue of affordability, developers are in the process of building additional types of housing as well as more housing and relaxing some rules that allow for variances in construction.
|Facts and Market Trends in San Diego|
|Homes For Sale1,000|
|Traditional Vacancy rate4.70%|
|Airbnb Occupancy Rate59.03%|
|Median Rent Price$2,610|
|Median Days on Market51|
|Price to Rent Ratio27.3|
|Average Cap Rate|
|Average Rental Income|
|Median Household Income$76,662|
|RENTAL STRATEGY||STUDIOS||1 BEDROOM||2 BEDROOMS||3 BEDROOMS||4 BEDROOMS|
The San Diego real estate market has witnessed a strong real estate appreciation in recent years. According to NeighborhoodScout, since Q1 of 2000, San Diego property values have increased by 145.43%, which is an average annual appreciation rate of 4.77%. According to Zillow, the median house price within the city climbed by a modest 1.8% over the past year, and even smaller gains (0.5%) are predicted through the summer of 2020.
Zillow lists the current market temperature as “neutral”, with the median San Diego home value standing at $634,100. After several years of being a very hot seller’s market, it now seems that the San Diego housing market is cooling off and shifting towards a balanced market, with an equal number of buyers and sellers. Home prices in the area are rising more slowly today than in past years. That’s why buying an investment property in San Diego makes for a good real estate investment.
With tourists visiting in record-breaking numbers, San Diego is the 2nd most popular destination in California for Airbnb users after Los Angeles. Some 1 million guests stayed in Airbnb rental properties throughout San Diego County in 2018, bringing hosts a total of $213 million in income, the second-highest Airbnb income in California after LA.
San Diego’s City Council is in the middle of a long and ongoing battle between supporters and opponents of vacation rentals. It spent much of 2018 arguing over proposed short-term rental regulations, especially after it enacted a new law sharply curtailing Airbnb rentals in the city. However, a successful referendum petition drive led by Airbnb supporters forced the City Council to repeal the new law. The law in question, which was to go into effect in July 2019, would have limited short-term rentals in all parts of the city to owners’ primary residences (i.e. barring the use of non-owner occupied short-term rentals), and only for 6 months of each year while hosts are not present. Under this ordinance, all San Diego Airbnb operators would have been required to obtain a Short-term Rental License annually for a fee of $949, as well as a San Diego transient occupancy tax (TOT) certificate.
In May 2019, a new bill to regulate short-term rentals in San Diego County’s coastal communities won approval in the state Assembly. The bill takes aim at vacation rental platforms such as Airbnb, HomeAway, and VRBO. Under this assembly bill (AB-1731), vacation rental platforms are restricted to listing a residential property for no more than 30 days a year unless the host was on site. Nevertheless, the bill allows year-round rentals for traditional home-sharing in which hosts rent out a spare bedroom or a granny flat on their property. The listing of any other home or investment property is banned.
This bill received mixed reactions and divided local jurisdictions in San Diego County’s coastal zone. As for the Airbnb platform, it voiced strong objection to it.
The future of Airbnb in San Diego is uncertain given the years-long delay in getting any firm regulations adopted. The AB-1731 bill is supposedly a pilot program that shall expire in five years, and that shall be studied to determine the effectiveness of the tighter controls.