High costs and federal dependence strain San Diego’s economy as inequality grows

SAN DIEGO — High housing costs and potential federal budget cuts will challenge San Diego’s economy in the coming year, though experts remain cautiously optimistic about the region's burgeoning AI industry and local social programs.

Speaking at the 42nd Annual San Diego Economic Roundtable at the University of San Diego, chief economist Daniel Enemark of the San Diego Regional Policy & Innovation Center presented a complex outlook for the region.

Enemark highlighted the area's significant economic strengths, noting that San Diego’s GDP is larger than more than half of all U.S. states. The region also remains home to the nation’s largest concentration of military assets.

However, high inflation and skyrocketing home prices are eroding local incomes. Enemark warned that San Diego risks becoming a "new Santa Barbara," referring to the city currently ranked as the most unaffordable in the United States.

The economist also noted that historical zoning decisions have fueled economic-racial disparities, leaving Latino and Black communities to fall behind.

Additionally, San Diego’s heavy reliance on defense spending leaves the local economy vulnerable to potential shifts or cuts in federal budget priorities.

The "California Dream" is showing signs of structural fatigue in San Diego, one of America’s premier coastal hubs. According to an analysis by economist Daniel Enemark, the city’s prosperity is increasingly bifurcated, prompting a critical policy question: "For whom is this economy actually performing?" Enemark’s findings suggest that beneath the surface of San Diego’s desirability lies a fractured economic reality that fails to distribute gains equitably.

The analysis identifies two primary structural vulnerabilities. The first is a systemic over-reliance on federal outlays. With the U.S. Navy serving as the region’s largest employer, San Diego’s fiscal health is uniquely exposed to shifting political priorities in Washington, D.C. Specifically, the prospect of aggressive spending cuts under a potential second Trump administration poses a significant risk to a local economy built on the back of defense appropriations. This dependency underscores the lack of a sustainable, diversified growth model.

The second vulnerability is the persistent legacy of racial and socio-economic stratification. Enemark frames this not merely as a social justice concern but as a significant economic drag. Systemic inequality serves as a barrier to entry for a large segment of the population, stifling human capital and leaving entire districts economically marginalized within an otherwise affluent city.

Furthermore, the rise of Artificial Intelligence (AI) presents a double-edged sword for the region. While high-cap tech leaders like Qualcomm are poised to benefit from the AI boom, the "long tail" of small businesses faces the risk of technological obsolescence if they cannot bridge the digital divide. Beyond the competitive landscape, the potential for AI to automate white-collar roles and reduce human interaction threatens to deepen social isolation—a trend already exacerbated by the digital age—and further destabilize the city’s middle class.

San Diego’s economic challenges are hitting the local Vietnamese-American community particularly hard. The skyrocketing cost of living and high housing prices are putting significant pressure on both families and the small businesses that anchor our neighborhoods—from our ubiquitous nail salons and phở restaurants to various professional services. There is a growing concern that these small businesses may be left behind in the AI revolution, making it harder for them to stay competitive. Additionally, many Vietnamese workers in administrative and assistant roles face a high risk of displacement as these positions become increasingly automated. For those navigating the complexities of the immigration system—whether waiting on F2B family sponsorships or securing H-1B and EB-5 visas—these local economic shifts create an even more challenging environment to achieve long-term financial stability.