The Numbers

San Diego County added roughly 24,000 new households last year, according to SANDAG estimates, while the pace of new home construction — even after a genuine building surge — hasn't kept up. It's a gap that has defined the local market for the better part of a decade, and it's worth understanding exactly where it comes from before assuming it will simply correct itself.

A Real Building Surge, Still Not Enough

To be fair to the builders, San Diego has actually been on a run. The City of San Diego permitted nearly 8,800 new homes in 2024 alone, the second-most productive year for permitting in the last decade. Countywide, roughly 36,000 housing units were added between 2022 and 2025 — more than any California county except Los Angeles.

That sounds like real progress, and it is. But the state has told San Diego County it needs 171,685 new housing units by 2029 to meet its share of California's housing mandate, with three out of every five of those required to be affordable to low- and moderate-income households. At the current pace, the county is producing homes faster than it used to, but still well short of what the mandate — and the underlying demand — actually calls for.

Where the Growth Is Coming From

Household formation isn't the same thing as population growth. It's people moving out on their own for the first time, adult children finally signing a lease, roommates splitting up, retirees downsizing into separate units instead of aging in place together under one roof. SANDAG's own long-range forecast has actually gotten more conservative about San Diego's future population growth, projecting under 3.5 million residents by 2050, with only about 125,000 net new residents expected between now and then. That's a meaningfully slower growth rate than the region saw in prior decades.

Which raises a less comfortable question: if population growth is slowing, why does the housing shortage still feel so acute? The answer is that scarcity isn't only a function of how many new people show up in a given year. It's the accumulated shortfall from years of underbuilding relative to household formation, layered on top of a housing stock that's aging and, in some pockets, being removed from the market faster than it's replaced.

The Affordability Math

When households grow faster than housing units, even for a handful of years, the math is unforgiving. More households compete for a roughly fixed stock of homes, which pushes up both purchase prices and rents. It's the single biggest reason San Diego has remained one of the most expensive housing markets in the country even through stretches of high mortgage rates that, in theory, should have cooled demand.

A More Complicated 2025

Here's where the story gets more nuanced than a simple "supply is short, so prices only go up" narrative. Through much of 2025, San Diego actually saw median home prices dip on a year-over-year basis — a genuinely unusual signal for a market that's spent most of the last decade defying gravity. Mortgage rates that opened the year above 7% before drifting down toward 6.2% by December, a buyer pool that seemed to hit a wall of fatigue after years of rapid appreciation, and a modest uptick in inventory all played a role.

That doesn't mean the structural shortage has disappeared. It means the market found a temporary equilibrium where higher borrowing costs offset some of the pressure from undersupply. Compare that to what happened in Sun Belt boomtowns like Austin, where new-home inventory climbed to roughly 91% above 2019 levels and prices fell more sharply — San Diego's correction, such as it was, stayed shallow by comparison. Coastal California markets simply don't have the room to overbuild the way Texas and Florida metros can, which is part of why nearby Orange County saw inventory actually shrink and prices keep climbing through the same period.

How San Diego Stacks Up Against the Rest of Coastal California

It's easy to talk about San Diego's housing shortage in isolation, but the more useful comparison is against its coastal California peers. Los Angeles County is the only county in the state adding units faster than San Diego right now, and the Bay Area's housing production has been constrained by even tighter land-use politics and higher construction costs for most of the last decade. Orange County, meanwhile, has actually seen its for-sale inventory shrink relative to pre-pandemic levels even as San Diego's ticked up slightly.

The pattern across all of these markets is the same: California's most desirable coastal counties have spent decades approving less housing than their economies generate in jobs and households, and the bill for that mismatch comes due in the form of home prices that outpace incomes almost everywhere along the coast. San Diego isn't uniquely broken. It's a fairly representative example of what happens when a desirable place with a strong job market makes it structurally difficult to build.

The Rental Side of the Equation

Buyers get most of the attention in housing-shortage conversations, but renters feel the household-formation math just as directly, often before it shows up in home prices. A young professional who can't find an apartment they can afford ends up staying with roommates or family longer, which delays the household formation SANDAG is counting, but doesn't reduce the underlying demand. When that same person eventually does form their own household, whether by renting or buying, it adds to the same pool of competition for a limited number of homes.

This is part of why ADU construction and multifamily infill matter so much for long-term affordability, even for people who have no interest in living in either. Every unit added at the lower end of the market takes pressure off the units above it, a dynamic housing economists sometimes call filtering. It's slow and unglamorous compared to a splashy new development announcement, but it's one of the more reliable ways a supply-constrained market like San Diego actually finds relief over time.

ADUs: The Quiet Supply Story

One of the more interesting shifts in how San Diego adds housing has nothing to do with big apartment towers. Accessory dwelling units, the backyard cottages, garage conversions, and small standalone units that state law has made dramatically easier to build over the last several years, have become a meaningful and growing share of new housing production. They add density without changing a neighborhood's basic character, and for many homeowners they've become a practical way to generate rental income or house a family member.

It's a slow-moving trend measured one lot at a time rather than one project at a time, but it's worth watching, because it's adding supply in exactly the low-density neighborhoods where new apartment buildings are hardest to permit and slowest to build.

What This Means If You're Buying

A shallow, temporary price dip is not the same thing as a buyer's market. Inventory in San Diego is still tight by national standards, nothing like the 91%-above-2019 supply levels Austin is working through. If 2025's softer prices and slightly calmer pace felt encouraging, that's a legitimate signal, but it isn't evidence that waiting another year will get you a meaningfully better deal. The more durable advantage for buyers over the past year has been a modest reprieve in competition, fewer bidding wars, more room to negotiate on price or terms, rather than a fundamental reset in what homes cost here.

What This Means If You're Selling

If you're selling, the 2025 numbers are a reminder that pricing strategy matters more than it did in 2021 and 2022, when almost anything sold quickly at almost any price. Buyers have more selection than they did during the tightest years, and they're more rate-sensitive than they used to be. That doesn't mean the market has turned against sellers. It means the sellers who price realistically and present their homes well are still getting strong outcomes, while the ones anchored to 2022-era comps are sitting on the market longer than they expect to.

What To Watch

  • Permitting activity in North County and South Bay, where there's more available land and often a friendlier political environment for new housing than in the urban core.
  • ADU construction, which continues to punch above its weight as a source of new supply.
  • Multifamily completions downtown and along transit corridors, where state laws are meant to unlock more density near jobs and transportation.
  • Whether the 2025 price softening holds or was simply a pause driven by elevated rates rather than a genuine shift in the underlying supply-demand balance.

The takeaway for buyers and sellers alike: San Diego's structural undersupply isn't solved, but it also isn't a one-way ratchet toward ever-higher prices. The market found real, if temporary, relief in 2025. Whether that continues depends less on how many people move here next year and more on whether the region can keep building at the pace it's finally found.