San Diego Falls Behind Housing Production Goals: 62% Deficit Creates Cash Buyer Opportunities

The 62% Production Deficit: San Diego's Housing Supply Failure

The California Department of Housing and Community Development (HCD), in consultation with SANDAG (San Diego Association of Governments), identified a need for over 171,000 new housing units between 2021-2029 for the San Diego region. For the City of San Diego specifically, the RHNA (Regional Housing Needs Assessment) target for this period is 108,036 homes.

Despite recent progress—with San Diego permitting nearly 8,800 new homes in 2024, the second most productive year in the last decade—the city still falls dramatically short. Year after year, San Diego fails to keep pace with projected housing demand. Even with the 2024 surge, housing production must more than triple for the city to meet its state-mandated goal of 108,000 new units by 2029.

This production deficit compounds over time. Each year San Diego falls short, the cumulative gap grows wider. The region isn't just failing to meet future needs—it's falling further behind on addressing the existing shortage that has built up over decades of underproduction.

Compared to other California metros, San Diego's housing crisis mirrors statewide patterns. San Francisco, Los Angeles, and Orange County all struggle with similar production deficits, regulatory barriers, and affordability challenges. But San Diego's combination of geographic constraints (ocean to the west, mountains to the east, Mexico to the south) and intense demand makes the supply shortage particularly acute.

The implications are clear: San Diego's housing production failure is structural, not cyclical. The 62% deficit represents a fundamental imbalance between what the region needs and what it can deliver under current regulatory, economic, and political conditions.

Middle-Income Housing Crisis: Only 62 Homes in 2 Years

Perhaps the most shocking statistic in San Diego's housing crisis: just 62 middle-income homes were permitted citywide in a 2-year period, according to a San Diego Union-Tribune investigation.

Middle-income housing refers to homes affordable to households earning enough to qualify for properties in the $500,000-$1,000,000 price range—precisely the segment where most San Diego homeowners live in neighborhoods like North Park, South Park, Clairemont, College Area, and Allied Gardens.

Why Has Middle-Income Housing Production Virtually Collapsed?

The answer lies in a devastating economic squeeze:

• Too Expensive for Affordable Programs: Middle-income households earn too much to qualify for subsidized affordable housing programs, which typically target households earning 80% or less of area median income.
• Not Profitable Enough for Market-Rate Developers: With construction costs remaining high due to labor shortages, material inflation, and regulatory hurdles, developers focus on luxury properties where profit margins justify the expense and risk. Building a $600,000 home costs nearly as much as building a $1.2 million home, but the returns are dramatically different.
• Regulatory Costs: Rising construction costs and higher-than-expected bids pose a risk that further reduces purchasing power and limits project delivery, with a $6.51 billion funding gap identified in the City's fiscal outlook. These costs hit middle-income projects hardest because luxury buyers can absorb premium costs while affordable projects receive subsidies.
• Inflation Impact: San Diego County's inflation rate was 4% in November 2025, the second highest in the nation, with shelter prices increasing 5.6% over the year. This inflation makes new middle-income construction economically unfeasible.

For homeowners in the middle-income price range, this creates fierce competition. With virtually no new middle-income supply coming online, buyers must compete for existing inventory. Every home that hits the market in North Park, Clairemont, or College Area faces multiple offers, bidding wars, and pressure to waive contingencies.

This is precisely where cash buyers provide competitive advantage—and where sellers gain leverage.

Supply Constraints Drive Inventory Scarcity

San Diego's production deficit translates directly into inventory scarcity. As of early 2026, San Diego's inventory stands at 2.2-3.0 months of supply depending on property type—well below the 5-6 months typically considered a balanced market.

A balanced market has around six months of inventory, indicating stability between buyers and sellers. Markets with fewer than four months of supply mean sellers have the advantage, while more than six months signals a buyer's market.

At 2.2-3.0 months, San Diego remains firmly in seller's market territory. While San Diego County's Unsold Inventory Index in November was 3.2 months, slightly higher than last year's 2.9 months, this still characterizes a very tight housing market.

Why Does the Production Deficit Keep Inventory Perpetually Tight?

• New Construction Can't Keep Up: Even when permitted, new construction takes 18-24 months to complete. The 8,800 homes permitted in 2024 won't hit the market until 2026-2027, and that volume still falls far short of demand.
• Lock-In Effect from Pandemic-Era Mortgage Rates: Homeowners who refinanced at 2.5%-3.5% rates during 2020-2021 face enormous disincentive to sell. With current mortgage rates at approximately 6.22% as of early 2026, moving would more than double their monthly payment. This "lock-in effect" removes inventory from the market.
• Coastal vs. Inland Differences: Coastal neighborhoods like Pacific Beach, Ocean Beach, and La Jolla face additional inventory constraints from vacation rentals reducing long-term housing supply. Meanwhile, inland areas like East County and South Bay encounter geographic barriers limiting expansion.
• Seasonal Variations: While spring and summer typically see inventory increases, even these seasonal bumps remain below historical norms due to the structural deficit.

The combination of chronic underproduction and lock-in effects means San Diego's tight inventory isn't a temporary condition—it's the new normal.

Why Your Home Has Value: Scarcity Economics

Here's the fundamental economic principle every San Diego homeowner should understand: scarcity drives value.

Your home isn't valuable despite the housing shortage—it's valuable because of the housing shortage. The 62% production deficit creates a supply-constrained market where demand consistently outstrips available inventory. This imbalance gives sellers leverage.

Consider the math: San Diego needs to permit 108,036 homes by 2029 to meet RHNA goals. At the current pace of approximately 9,000 homes annually, the region will fall dramatically short. This production deficit is structural and won't be solved in the short term.

Regulatory Barriers Preventing Increased Production

Despite recent reforms, NIMBY (Not In My Backyard) opposition continues to delay and block housing projects throughout San Diego. Critics describe how NIMBYs exploit California Environmental Quality Act (CEQA) to subject even run-of-the-mill projects to onerous legal fees and years of delays.

Examples include UC San Diego student housing for 2,000 students, the Midway Rising development where groups are "weaponizing CEQA", and Banker's Hill historic district applications designed to block density increases.

Construction Cost Inflation: With shelter prices increasing 5.6% year-over-year and construction costs remaining elevated, developers face enormous financial hurdles to bringing new projects online.

Profitability Squeeze: The middle-income housing segment—where most San Diego homeowners live—faces the worst profitability squeeze. It's too expensive for affordable housing subsidies but not profitable enough to attract market-rate developers.

The bottom line: sellers have leverage in supply-constrained markets. If you own a home in San Diego, you own a scarce asset in a market where production cannot meet demand. Understanding this dynamic is critical to making informed decisions about when and how to sell.

Traditional Buyers Locked Out: The Financing Barrier

While supply constraints create seller advantages, they also create enormous challenges for traditional financed buyers—challenges that make cash offers increasingly attractive to sellers seeking certainty.

Mortgage Rate Barrier

With mortgage rates at approximately 6.22% as of early 2026, financing costs limit the buyer pool. While forecasts suggest rates could ease to approximately 6.0%-6.3% in 2026, these levels still represent significant affordability challenges.

Affordability Crisis

The gap between incomes and home prices is staggering. It takes $242,560 to afford the mortgage on a median-priced home in the San Diego metro area, according to Redfin's analysis (assuming homebuyers spend no more than 30% of income on monthly mortgage payments).

Meanwhile, median household income in San Diego County was around $108,000-$112,933, meaning someone would have to spend more than 67% of their earnings on monthly housing costs to afford a median-priced home. In October, the median home price was 8.7 times higher than the median household income.

Appraisal Challenges

In San Diego's competitive market, fierce competition can drive final purchase prices to exceed appraised values, potentially causing appraisals to fall short of the agreed-upon purchase price and creating complications in securing financing.

Without an appraisal contingency, buyers must pay the difference or lose their deposit. Many buyers waive contingencies to compete, but this creates enormous risk if appraisals fall short.

Timeline Delays

Traditional financed transactions require significantly longer timelines. While conventional loans typically take 30-34 days in San Diego, FHA loans take 38-45 days due to additional property standards and second-level underwriting. Traditional listings take 60 to 90 days from listing to closing.

These barriers mean traditional financed buyers struggle to compete for scarce inventory. They face affordability challenges, appraisal risks, contingency complications, and timeline delays—all of which make sellers nervous about accepting financed offers in competitive markets.

Cash Buyer Advantage in Supply-Constrained Markets

Cash buyers thrive in supply-constrained markets precisely because they eliminate the barriers that plague traditional financed buyers.

Speed: 7-14 Days vs. 30-60 Days

Cash buyers in San Diego typically close in 7 to 14 days, with some buyers able to close in less than a week if the title is clear. This compares to 30-34 days for conventional loans and 38-45 days for FHA loans.

Cash deals skip appraisals and underwriting since there's no lender involved. This speed matters enormously to sellers facing financial pressure, relocations, probate situations, or simply wanting certainty and closure.

Certainty: No Financing Contingencies

Cash offers eliminate the risk of financing fall-throughs or appraisal gaps. There's no lender who might deny the loan at the last minute, no appraisal that might come in low, and no underwriting conditions that could derail the transaction.

In a market where sellers fear that a sale will fall through because of financing, cash offers provide peace of mind.

Competitive Edge: Multiple Offers

As of June 2025, many San Diego properties receive multiple offers averaging about four offers per listing. In these competitive situations, cash offers consistently win because they offer sellers speed and certainty.

Market Share Data

While approximately 22% of home purchases in California were made with cash in 2024, below the national average of 31% in July 2025, certain market segments show much higher cash buyer concentration. San Diego's luxury market (homes $2M+) shows 68% cash buyers in 2025, demonstrating that cash transactions dominate in competitive, high-value segments.

For San Diego sellers, understanding the cash buyer advantage helps contextualize offers. While cash offers may come in below listing price, the speed, certainty, and convenience often justify accepting a slightly lower number—especially when accounting for carrying costs, commissions, and repair expenses in traditional sales.

Why the Production Deficit Won't Be Solved: Structural Barriers

Sellers banking on increased housing supply to flood the market and reduce their property values should understand: the production deficit isn't getting solved anytime soon. The barriers are structural, not cyclical.

Regulatory Complexity

San Diego housing projects must navigate a maze of regulations: density bonus law, community plans, coastal commission review, environmental impact reports, and local discretionary permits. CEQA allows naysayers to subject even run-of-the-mill projects to onerous legal fees and years of delays.

While 2025 CEQA reforms exempt urban "infill" housing projects from CEQA if they are less than 20 acres, implementation remains inconsistent, and the biggest impact will likely be outside the city, particularly North County coastal communities.

Construction Cost Inflation

Construction costs remain high due to labor shortages, material inflation, and regulatory hurdles. With San Diego County's inflation at 4% and shelter prices increasing 5.6% year-over-year, these costs show no signs of moderating.

NIMBY Opposition

Despite pro-housing rhetoric, local opposition to density remains fierce. The "NIMBY-industrial complex" thrives on financial incentives, allowing attorneys specializing in working with NIMBY groups to literally make a living by blocking housing developments through environmental lawsuits.

Profitability Squeeze on Middle-Income Housing

Middle-income housing faces an impossible economic equation. It's too expensive for subsidies but not profitable enough for market-rate developers. This segment—where most San Diego homeowners live—will continue experiencing the worst supply deficits.

The takeaway for homeowners: expect tight inventory for years to come. The structural barriers preventing increased production aren't going away. Your home's scarcity value is not a temporary phenomenon—it's a long-term market characteristic.

Neighborhood Impact: Where Supply Constraints Hit Hardest

The housing production deficit affects San Diego neighborhoods unequally. Understanding where supply constraints hit hardest helps sellers position their properties strategically.

Central Neighborhoods: North Park, South Park, University Heights

These walkable, amenity-rich neighborhoods experience the highest demand and most limited supply. Urban neighborhoods like downtown, Bankers Hill, Hillcrest and North Park permitted roughly 30% of the city's homes over seven years, despite making up less than 3% of total land area.

Many would-be sellers who locked in low mortgage rates are holding their properties, which keeps resale inventory constrained, especially noticeable in North Park and University Heights where turnover is already lower than the city average.

Inventory is still limited, especially for updated single-family homes and character properties in North Park. South Park is very competitive, with homes selling in 18 days, demonstrating intense demand pressure.

Mid-Tier Suburbs: Clairemont, College Area, Allied Gardens

These middle-income neighborhoods face the worst production deficit. As the 62-home statistic demonstrates, virtually no new middle-income housing is being built. Existing inventory in Clairemont, College Area, and Allied Gardens faces fierce competition from buyers priced out of coastal and central neighborhoods.

Coastal Areas: Pacific Beach, Ocean Beach, Mission Beach

Coastal neighborhoods experience additional inventory constraints from vacation rentals reducing long-term housing supply. These areas also face strict coastal commission oversight that limits new construction.

For sellers in any of these neighborhoods, understanding local supply dynamics helps contextualize offers. In North Park or South Park, expect multiple offers and bidding wars. In Clairemont or College Area, middle-income buyers will compete fiercely for limited inventory. In coastal areas, cash buyers often dominate due to property conditions and vacation rental considerations.

Action Plan: Capitalizing on Scarcity as a Seller

If you own a home in San Diego, you own a scarce asset in a supply-constrained market. Here's how to capitalize on that scarcity:

1. Understand Your Leverage

You're not selling in a distressed market—you're selling in a supply-constrained market where demand exceeds inventory. The 62% production deficit means your home has value because supply cannot meet demand. Approach negotiations from this position of strength.

2. Evaluate Timing Considerations

While spring typically brings an inventory bump, the fundamental supply-demand imbalance persists year-round. Waiting may not improve your position since production won't catch up with demand in the foreseeable future.

Meanwhile, you're paying property taxes, insurance, maintenance, and opportunity costs. If you're ready to sell, current market conditions favor sellers regardless of season.

3. Compare Cash vs. Traditional Sale

When evaluating offers, compare net proceeds after accounting for all costs:

• Cash Offer: Typically 7-14 day closing, no repairs, no staging, no showings, no commission (depending on buyer), no carrying costs during escrow
• Traditional Sale: 60-90 day timeline, potential repairs, staging costs, realtor commissions (5-6%), ongoing carrying costs, risk of financing fall-through

A cash offer at 90% of listing price might net more than a traditional offer at 100% once you account for costs, time, and risk.

4. Consider Your Situation

Cash sales make particular sense for:

• Financial Pressure: Foreclosure, divorce, job loss requiring quick liquidity
• Relocation: Job transfer or family situation requiring definite timeline
• Probate: Inherited property where heirs want quick, simple distribution
• Property Condition: Deferred maintenance or needed repairs making traditional sale challenging
• Certainty Preference: Valuing guaranteed closing over potential upside from traditional sale

5. Strategic Advantage of Speed and Certainty

In a supply-constrained market, speed and certainty have real value. Cash buyers provide peace of mind that traditional sales cannot match, particularly when you need to coordinate closing with another purchase or relocation.

The bottom line: San Diego's 62% housing production deficit creates opportunity for informed sellers. Your home has value because supply cannot meet demand. Cash buyers help you capture that value quickly and with certainty in a market where traditional buyers face enormous barriers to financing and competition.

Frequently Asked Questions

Conclusion

San Diego's housing production deficit isn't a temporary market condition—it's a structural failure that creates lasting scarcity. With only 62% of needed housing being built and a shocking 62 middle-income homes permitted in a 2-year period, the supply-demand imbalance favors sellers who understand their leverage.

For homeowners, this means your property has value precisely because supply constraints keep inventory tight. Traditional financed buyers face affordability challenges, appraisal risks, and timeline delays that make cash offers increasingly attractive.

If you're ready to sell, you're not fighting against market forces—you're capitalizing on them. Cash buyers provide the speed and certainty to capture your home's scarcity value in San Diego's supply-constrained market.