New San Diego homes selling for less per square foot than existing ones: report

SAN DIEGO (FOX 5/KUSI) — Prospective homeowners in San Diego have seen some of the biggest discounts in the country this year when buying new builds compared to existing residences, according to a recent Zillow report.

While new-build home prices are still elevated from pre-pandemic levels, buyers in 21 metros in the U.S. saw savings for new builds in May, averaging about $3.50 per square foot — the biggest discount recorded by Zillow median sale price data, the real estate company said.

San Diego, where homebuyers saw the biggest discounts out of those areas, recorded new home prices that were about $57 per square foot. According to the report, new constructions sold for about $552 per square foot while existing ones went for about $609 per square foot.

Salt Lake City and Los Angeles were close behind in reported savings for new constructions, with $53.60 and $52.40 respectively, Zillow found.

"New builds have only been less expensive per square foot than existing homes in five other months since the start of 2018, and this is the biggest savings seen yet," Zillow researchers wrote in the report.

This trend is largely being driven by changes in the composition of new constructions. The report explains that lots where homes are being built are shrinking in size faster than existing ones, with new builds in the U.S. taking up an average of 460 feet less than those in 2018.

Land and building costs have been primary factors in this trend, especially as high interest rates make smaller units more appealing for developers and buildable land becomes more scarce, Zillow added.

Another explanation for the momentary widening in per foot sale prices offered by the real estate company is that townhomes and condos are representing a smaller portion of new constructions sold in May compared to 2018, when the company began tracking this data.

According to Zillow, these units are typically more expensive per square foot of living area than single-family residences.

This report comes as new constructions have taken on added significance as elected officials across San Diego are hoping to close the inventory gap created by decades of underbuilding that has pushed housing costs up.

In the city of San Diego, more permits were issued to build new homes in 2023 than it had at any point prior in the last decade, granting about 9,691 to developers, as Axios San Diego first reported in March. However, these efforts have still fallen short of the city's need for new homes.

Under the city's state-mandated housing element, which is a roadmap cities prepare to show how they plan to meet their residents' housing needs, the city needs to add about 13,500 new units each year across all income levels.