Perspective on Real Estate

February 13, 2003

March 12, 2003

March 19, 2003


Adjustments needed for urban infill

One of the reasonable ways of catching up with the demand for more housing is to get more homebuilders to build within the urban cores of the city proper rather than the suburban and outlying portions of metropolitan regions. Yet this is not the area that most builders have either experience or willingness to meet demand. It is far easier for them to build in traditional areas rather than urban neighborhoods.

The major reasons have to do with the reality of facing more red-tape, more neighborhood resentment or demands, environmental concerns, the lack of critical mass in terms of land so that construction efficiencies can be anticipated. A subdivider is usually looking for enough land so that there is construction continuity, which allows more effective production, not unlike the assembly line of automobile manufacturers -- except with autos, the line of cars moves to them. Building homes means that each of several trades has to be scheduled so that they do not get in each other's way; the team of subcontractors is able to move to each home site, or each apartment unit.

When we have in-fill development, the builder has to find unused lots, then bring his trades into one home at a time destroying any mass effort. It usually costs more for the same home than if that home were part of a tract, or the builder has to remove present homes or other buildings from the site before he can use it.

He may be present in an area in which there is speculation going on, or gentrification (where younger people are buying homes in a formerly downtrodden neighborhood now springing to life), which also drives up the cost of available land and homes or buildings. This is what is evolving east of the new ballpark, all over downtown and now in Los Angeles after so many years of doubt that it ever would.

The developer must determine why the land has been skipped; whether there is contamination or a toxic condition in the land or building; whether the utilities will be sufficient to serve the improving neighborhood; whether building codes may make it too costly or impossible; and whether the neighborhood planning group may be against what the builder proposes. I ran into that in Hollywood and it was neither rational nor fair.

Sometimes rats have more political power than what the redevelopment agency or neighbors will allow. Reasonability is seldom part of the mix; and trust is simply not present.

Sponsors, including faith-based and nonprofits, can become excellent partners in the venture. I advised a Hartford, Conn. insurance giant, which decided to arrest the "cancer" in a terribly dilapidated complex -- they brought in a builder partner and created an award-winning community that succeeded in the face of "impossible" odds.

In-fill housing also will need more productivity (higher density) from the land because the developer has had to pay more than a typical suburban tract parcel. Speculation has driven the prices up. This means that more units per acre are needed to give this economic viability; that's unfortunately known as "density", which connotes "tenements" to so many people who have not been exposed to decent products.

The political entity is as much in the dark as the neighbors for neither has been educated regarding urban housing, redevelopment, density or in-fill. No matter how deep the demand may be, the builder's worse fears may make him feel like a pioneer venturing into enemy territory. And that's a shame! Builders and businessmen are conditioned to not pioneer anything, otherwise they walk around with arrows in their backs. Another shame.

As the region's housing stock grows older, there will be an increasingly urgent need for rehabilitating more homes and apartments so that they are in compliance with living standards, health laws, toxic abatement and demand for units.

I recommend that you buy Urban Land Institute's excellent "Developing Successful In-fill Housing," by Diane Suchman, published last year. You may write to me if you are interested or call ULI's (800) 321-5011 and get the price and order form. Also, read the Department of Housing and Urban Development's "Barriers to the Rehabilitation of Affordable Housing." The skills of the redevelopment agency, local HUD, Fannie Mae (NYSE: FNM), Centre City Development Corp., and the San Diego planning department can be of great use to all concerned in making more urban housing available. More action and players will allow a smoother pathway.


February 13, 2003

March 12, 2003

March 19, 2003