Archive for residential development

Households as both renters and owners

Several friends of mine own a condominium unit but don’t live there.  Instead, they are renters when it comes to their family home (a larger condo, a townhouse, or the main floor of a small house).

Is this a uniquely Vancouver experience, or the start of a broader urban trend in North America?

Here’s how it has happened in Vancouver.  A young couple together buys a condo in the downtown area (Yaletown, Coal Harbour, etc.), maybe a 1 bedroom unit.   They love living and working in close proximity and in the walkable, amenity-rich milieu that higher density neighbourhoods can offer.

A few years later they decide to have a child or children, and quickly the 1 bedroom unit is too small.  Suburbia and long commutes offer no appeal and really nor does having that suburban house (with lawns to mow, gutters to clean and other time and money sinks).  They like being able to get to-and-from work quickly, allowing for more family time.  Plus, they have lots of friends with children downtown–this is their community.

But, if they want another, larger, downtown unit, the costs of selling the one bedroom and buying a larger condo or a townhouse is quite high (in part because of market lift since they first bought in).  By contrast, the cost of renting that larger condo or townhouse is much less, especially when offset by the rental income they can achieve from leasing their owned 1 bedroom unit.  (For example, rent out the well-located 1 bedroom for $1700 and then rent a larger place for $2200/month; by contrast buying the larger place might cost $3200/month–or more–in mortgage and condo fees; if they moved to a slightly less expensive neighbourhood still near downtown, they might be able to rent a large 2 bedroom place for the $1700).

They keep owning the 1 bedroom unit, as an investment.  The rent covers most of the mortgage and carrying costs initially, and over time as they pay down more of the principle, the rent fully–or more than–compensates for the carrying costs.

This scenario allows the family the benefits of old fashioned home ownership where they have a nest-egg at the end of 25 years, or equity should circumstances change and they wish to buy a different home.  It also allows them the flexibility of renting in terms of being able to move should employment needs change or if they need to relocate for children’s schooling.

Owning the 1 bedroom is also an investment in the city, to which they are also contributing as citizens who work and play there.

So what do you think? Is this a bizarre Vancouver anomaly? A once-in-a-market-cycle phenomenon? Or something that is happening or could happen in many other cities going forward?

(P.S. I’m now on Twitter)

Between rental and ownership: new forms of home tenure coming?

America’s crisis of real estate values and negative home equity has many urban theorists wondering whether home ownership is bad for the economy and bad for many individuals and families.

Richard Florida is one of them:

Two American dreams – of homeownership and of unfettered economic mobility – may be in conflict, as homeownership, especially in downturns like today, impedes mobility and makes it harder for individuals to move to work and the labor market on the whole to adjust….My hunch is it’s time for new hybrid forms of housing tenure which mix the benefits of ownership with the flexibility of renting.

So what might we see in the future?  Here are a few ideas, but I want to hear your thoughts as well.

First, lets assume that future cities will see more use of “multi-family”dwellings.  That is duplexes, townhomes and apartments.  These often smaller homes allow for higher density and lower energy use.  This opens up options.

Idea #1: Renting with a long-term lease of three, five or even 10 years.   In this scenario, homes would be rented in the way office space is today: by the square foot, not by the number of rooms.  And, as part of the lease the tenant and landlord would agree on an allowance for “improvements” or building out the space into the desired apartment/townhome.  The costs of creating the tenant’s ideal space would be rolled into the monthly lease costs.

So, you lease 1000 square feet, and can decide if you want one, two, or three bedrooms, and how big a kitchen compared to other spaces, and one bathroom, or two.  You could also decide on features: tile or linoleum; laminate or hard wood; granite counters or not (and how big).   All choices would affect the monthly rent (for example, having tile instead of lino might be a difference of $6/month).  There would, of course, be a cost of breaking the lease — because of the expense the landlord incurred upfront — and only people with good credit ratings and “tenant” ratings would be able to participate in this type of arrangement.

There may also be the option to expand.  Suppose a couple rents 600 s.f. for a one bedroom place, has a child and plans another so now wants 1000 square feet.  If another adjacent unit became available 400 square feet could be carved from that, allowing for two more bedrooms and a larger living space.  This again, is just like how office space lease works.  Certainly, some architectural planning would be required — buildings that could accommodate this style of tenure would need to be purpose built to handle it.

While some people rent because they need flexibility to move on a month’s notice, most don’t.  Many people know they want to stay put for a certain number of years: for example, the five years while the children are enrolled in a good, nearby school;  or, the first 5 years of a child’s life, before school becomes an issue;  or, the five years between empty-nest statsus and retirement.

In all cases, a longer lease term in return for a custom space might be a welcome option.

#2 – a new style of strata ownership What if you bought a share of a building, rather than an individual unit (a little bit like how some housing co-operatives work).  For example, purchase a 2% share of the building in which you live.  Perhaps a professional apartment-owner-manager organization would own 51% of the building and rent out suites to non-owners as well as owners and provide top quality amenities and services.

One advantage to the purchasor is that even if you need to move for your job, you might have an option to retain ownership of the building allowing you to wait for a better market in a recession and in the meantime reap the benefits of rental income from ownership without the hassle of renting any suite yourself.  So other residents could own a share, a rule on the length of time one can be an absentee owner might have to exist.

An advantage for the community is that having owners as well as renters helps to create a sense of ownership in the broader area — of being a stakeholder.

Owners in the building would have priority as suites became available if they wanted a larger or smaller place or a different view.Under this scenario there might be a “rent to own” option as well.

#3 – what are your ideas? 

Urban families after the great reset

As energy becomes expensive and major cities increase their status as economic drivers, families who live in them will inhabit smaller spaces than many do today. Some are already there, and from their lifestyles we can glimpse into the future.

Melanie, her husband and two children live in their 950 square foot condominium in Vancouver’s Yaletown district, adjacent to downtown.  She also runs a pre-and-post-natal fitness (Fit4Two) business from home (although she gives classes and does personal training at local rec centres or outside).  Here are some perspectives on the future, based on their experiences.

Idea #1 – Families of the future valuing time more than space

One main reason Melanie’s family lives in the urban core is to avoid commuting.  If they lived in a suburb, her husband — who works long hours in the film industry — would rarely see the kids between commuting and the job’s hours.  Melanie’s business requires she be near many pending and new moms, and being in Yaletown puts thousands of potential clients within an easy distance to make with a stroller.

Saving time and valuing time as much or more than money or space is becoming a new feature of 21st century life for many young adults.  Although commuting between distant suburban locations and urban cores where the jobs are packed will in the future continue to be possible using various transit and shared options that will emerge, many families will reject this option preferring to focus on the housing option that allows for more quality time together.

Idea #2 – Two bedroom apartments or condos can accommodate a family of four (although some modifications would help)

In the future, although some families will manage to afford single family homes in close proximity to jobs and other needed amenities, more will live in duplexes, triplexes, townhomes and apartment buildings in the bigger, more dynamic cities.

Many families of three of four will live in 2 bedroom condos — so what will that be like?  and what lessons could the architects and developers of future buildings need?

For Melanie’s family, the bedrooms are just that — places to sleep and store your clothes.  They selected their unit in part because the suite maximized space in a well-layed out kitchen-dining-living area.  With Ikea organizing technology in place, the living space offers room for children’s toys; entertaining space for having a few friends over and a vertically-organized home office that partially folds away when not in use.

What isn’t working quite so well for them is the small size of the second bedroom, which must accommodate two children in separate beds.  Bunk beds are not appropriate for children under age 10.  So Melanie is looking into “trundle beds” where one bed pulls out from under the other and tucks away during the day.  A better designed unit for the future family home might offer a second bedroom big enough to accommodate two twin beds.  Maybe furniture makers can get creative as well — how about twin murphy beds?

 Idea # 3 – Families will use creative strategies to avoid over-accumulation of stuff that won’t fit.

Melanie’s general rule: When something new comes home, something else has to go.  This applies to clothes, toys, sports equipment, etc.  Melanie thinks this rule helps kids appreciate what they have and learn that they can’t have everything they want — there are trade offs in life (if you want this, then you won’t be able to have that).  Birthdays and Christmas are focused around receiving one big gift, and one set of (out-of-town) grandparents contributes to a plane ticket fund instead of giving gifts, allowing the whole family to visit at least once per year.

In the future, with fewer families having a basement, garage or spare room into which to dump excess stuff, websites like craigslist and eBay could be even busier as families seek to unload one set of belongings and find others.

#3B – the experience economy rises out of condos

As the children get older, Melanie hopes to shift from giving the kids toys to giving them experiences.

Indeed, many individuals and families are already trying to consume in the experience economy rather than the non-durable goods one, regardless of whether they have kids or live in a condo.  They spend their money on experiences (whether a trip to the spa, having nails done, a fancy dinner, enjoying a $5 latte with a friend, etc.) rather than on lavish belongings if they have to choose.

Families in condos might become a dominant consumer of “experience” rather than what can be purchased at Toys ‘r Us.  (And there might be some great business opportunities in catering to these future families).  I know, or have known, many families who use strategies like this — many young children can understand the choice between receiving lots of toys or getting to go to Hawaii or Disneyland for Christmas.

***

Do you live in a condo? what insight does this give you into future North American families?

What about participating in the experience economy over the non-durable goods one?

Thanks Melanie, for sharing.

Car-free communities in the 21st century

 Older neighbourhoods in European and some North American cities often work well as pedestrian and cycling zones because they emerged before the automobile existed.   Any new community, by law, typically has to allow for automobiles both in roadway allowances and parking regulations.

But what would happen in the 21st-century if you built a community that deliberately excluded automobiles. In Vauban, Germany, they decided to find out as the New York Times’ Elizabeth Rosenthal describes (via CEOs for Cities):

Street parking, driveways and home garages are generally forbidden in this experimental new district on the outskirts of Freiburg, near the French and Swiss borders. Vauban’s streets are completely “car-free” — except the main thoroughfare, where the tram to downtown Freiburg runs, and a few streets on one edge of the community. Car ownership is allowed, but there are only two places to park — large garages at the edge of the development, where a car-owner buys a space, for $40,000, along with a home.

The community was built in 2006 and has 5,500 residents all living within 1 square mile.

Rosenthal mentions a new community, Quarry Village, is proposed for Oakland California that also limits automobile access.  However, mortgage lenders are reluctant to support the project citing concerns that houses with no parking will not hold their value in car-centric America.

Condo units in the downturn: vertical sprawl

Well located, condominium units in Vancouver’s uber-chic Yaletown have become as challenging to sell these days as a generic single family home in the suburbs.  As the residential real estate market has softened, it has hit some homes harder than others.

The economic principle of “scarcity” has been evident.  Where there is “geographic constraint” or a limited potential future supply, prices are holding up and sales velocity, while slower, is still measurable.  For example, quality homes (especially those with heritage qualities) on their own lots in vibrant neighbourhoods of Vancouver city have held their values reasonably well — and continue to sell.   They are not making any more single family lots in Vancouver.  By contrast with thousands of new condominium units scheduled for completion over the next 12 to 24 months, and tens of thousands already in existence, potential buyers see no reason to jump in now.

I suggested a while back that condominium towers in Vancouver were starting to look like vertical sprawl — the same exterior architecture of glass towers combined with similar cookie-cutter interiors.  In the suburbs, the homes might be detached, or low-rise townhomes, but otherwise typically share the characteristics of “sameness.”  Again, a potential buyer of a suburban home has no particular urgency at the moment.  There will always be something available.  US studies seem to show a similar phenomenon of sprawl homes declining and unique, urban core homes in vibrant cities retaining value.

This turn in the real estate market somewhat confirms my earlier thoughts that urban condominiums may have more in common with the suburban sprawl than many of their proponents would like to admit.

A lesson for condo-lovers: buy something unique.  Don’t by the generic 2 bedroom with a view of the adjacent tower.  Try to find a way to buy a unique unit, with a special feature (view, deck, whatever), and in the long run you’ll be better off as it will retain its value.

This past week MacLeans Magazine had a revealing article about the challenge of selling a generic condo unit (which inspired this post).

Trailer parks

Apparently trailer parks could become an affordable yet highly livable housing options.

They do offer some advantages over apartment block living, but providing similar density levels:

  • fresh air flow with windows on all walls;
  • accessibility for those who struggle with stairs;
  • expandability (you can add up as well as out);
  • options to own or rent;
  • with good landscaping the possibility of living amongst greenery

This comes from a summary of a forthcoming book by Bill Morrish — which opened my eyes to the possibilities.  At first blush, the idea of trailer parks as solutions to increase density in inner-urban cores sounds inappropriate.  But, upon reading the links above, I’m now more intrigued.

Think ahead: 3 bedroom condos needed

During the last real estate cycle, condominium living became popular in many cities.  Most buyers were singles or either young couples without kids or empty-nesters.  With perhaps Manhattan and Vancouver being notable exceptions, families with young children have generally not been among the new inner urban residents.

In part, this is because few new condominiums offer more than two bedrooms.  A two bedroom works fine with one child, but can be challenging with two or more kids.

This week in the Globe and Mail, Terrence Belford laments the lack of three bedroom units in Toronto’s new condos, seeing this as very short sighted.  He quotes urbanization specialist Jane Renwick who astutely notes: “Concrete lasts 200 years, so how will this situation change the face of the city 50 or 100 years down the road?”

Looking ahead in the future of North American civilization, more families will want to live in condominiums in order to be close to work as well as urban amenities.  Fuel prices will be high again, making commuting not only a time waster but also expensive.   Additionally, real estate prices will dictate that a condominium will be the starter home for many families, while others will prefer to spend their money on vacations, educations and other experiences rather than an expensive home with white picket fence.

Belford correctly notes that developers rarely build three bedroom units because at present there is not much demand for them, and profits are higher building 1 and 2 bedroom units.

What he doesn’t mention, is a solution that has been proposed in Vancouver (although not really implemented yet).  Vancouver condo marketer Bob Rennie as well as former chief city planner Larry Beasley, have both suggested that perhaps condominiums need “secondary suites” or “mortgage helpers.”

What if a building offered two bedroom suites with an attached small studio apartment of say 350 square feet.  The studio would have its own entrance, like a back door, as well as a door connecting it to the main unit that could be locked.  A couple or small family could live in the two bedroom unit and rent out the studio for a few years until enough mortgage is paid down or household income increases.   Then, they could take back the suite and use it as a master bedroom.

These studio suites would also serve to help alliviate the rental housing shortage in many cities.

Alternatively, with the separate entrance someone could use the studio suite as a home office or home business space.

Perhaps the slowing of the real estate markets in most cities will allow urban planners and developers to rethink what they’ve been  approving and building in order to think long term.  On the 100 year horizon, cities may need more 3 bedroom+ units.  If they fail, then Belford believes:

By mid-century, the lack of family-sized condominiums in the Toronto area may prove as effective a birth control measure as China’s one-child policy.

Which cities are more recession proof?

Professionally and personally I’ve been devoting considerable time to understanding the current American economic crisis.

One interesting issue emerging from my readings — but that is being overlooked in the mainstream media and even in some of my favorite economic blogs — is that there is not really _one_ national economy.  The US economy is comprised of myriad regional economies.  Therefore, not every place may be suffering, even if the average or sum of all the local economies faces a crisis.

Cities have their own economic dynamics that can run in contrast to the national or global economy.  Although the credit crunch has become a global challenge, and commodity prices tend to emerge from global supply-demand dynamics, some cities will fare better than others just as during generally good times, there are places that still struggle as well as ones that flourish.

So, which US cities are less likely to see a prolonged economic downturn?

The housing-led recovery prediction:

Well, the economists’ concensus (no, that doesn’t seem to be an oxymoron these days) seems to be that subprime mortgages and defaults on them were a key source of the current crisis.  Sub-prime borrowing artificially increased demand for houses, supporting land development and construction.  The current result is a large oversupply of housing.

Most economists believe that the US national economy will not fully recover until the excess inventory is absorbed, which will allow home values to stop falling and start rising.  Excess supply will continue to push down prices until then.  But once prices are rising because there is no longer an inventory, then construction can happen, generating economic activity.

But, not all cities and regions had a significant amount of subprime mortgages.  Therefore, according to this logic we should expect those metro areas with fewer subprime mortgages to be places where the economy will begin growing sooner.

I found a list (several actually, some by county, some by city).

From the Federal Reserve Board, the cities with the fewest sub-prime mortgages as a percent of loans in 2005:

rank city percent of loans subprime
99 Raleigh, NC 12
100 Ann Arbor, MI 11
101 San Francisco, CA 11
102 York, PA 11
103 San Jose, CA 10
104 Santa Rosa, CA 10
105 Lancaster, PA 10
106 Durham, NC 10
107 Madison, WI 09

I haven’t found a list of total subprime loans from 2002 through 2007 divided by total loans or total stock, which might provide a more accurate assessment of the exposure.

The Case-Schiller index does offer some additional or perhaps alternative evidence of which cities might be more recession proof this time.   The cities that have seen prices fall less than 5% since June 2007  are:

  • Charlotte
  • Dallas
  • Denver
  • Boston

None of these are on the list of lowest percentages of subprime mortgages, but other than Dallas (which had 23% of mortgages subprime) were in the bottom third (between 13% and 17% subprime).

So, based on the “housing will lead recovery” theory, Charlotte, Boston and Denver are probably places to watch.  I’ll also add Raleigh Durham to the list.  This area wasn’t on the Case-Schiller index that I downloaded.  However, I found a website, Home Price Trends, apparently tracks listings and prices.  According to the website, Raleigh-Durham median sale price is the same as it was in June 2007.

Admittedly, this is a crude forecasting model.  If I had time (which I do not), I would examine additional measures including but not limited to: percentage of jobs in manufacturing and finance/banking; job growth or losses during previous recent economic challenges (2001, 1991), and the reliance on oil / gasoline.

What other indicators might we look for in determining a region that will weather the current economic storm well (or poorly)?

addendum:  The New York Times just released a map showing which US cities have growing economies and which are in or heading for recession. (Pointer: Ryan Avent, The Bellows)  Raleigh-Durham, Charlotte, Dallas, Denver and Boston are all on the growth side.

From factories to bedrooms and boardrooms

Some North American cities are experiencing strong demand for office, residential and retail space, particularly in the core areas of the metropolis.  Meanwhile manufacturing has declined, leaving some former factory buildings under utilized.

A result is that city governments are allowing these spaces to be converted or redeveloped into other uses.

New YorkCity is one such place.  According to the NY Daily News ..

“The Bloomberg administration had a strategic plan from the beginning – to rezone or redevelop manufacturing areas to promote, originally, office space,” said Pratt Center Executive Director Brad Lander.

“But it’s worked out to be almost entirely residential development,” he said. “There’s a real concern it’s gone too far.”

More than 20 Bloomberg rezonings have converted manufacturing land into residential or commercial uses, transforming neighborhoods like Red Hook, Long Island City and the South Bronx into trendy residential addresses.

Seth Pinsky, head of the city Economic Development Corp., said many of the rezonings, in Brooklyn‘s Greenpoint and Williamsburg for example, sought better uses for run-down, largely vacant manufacturing sites.

Should residents and the broader business community be worried?

I’m not an expert on New York.  But as a general statement, I’d say people should be cautious about such conversions, but also view them with a broader long-term perspective.  They may simply reflect an evolution in the purpose of cities rather than short sighted decisions.

Converting industrial space may represent a shift in the economy of cities away from manufacturing and toward more service oriented industries and knowledge-economy work that are people oriented. A  city wanting to support these clusters will need to find more space for residences and more room for office space.

Still, city governments and tax payers need to be cautious about converting industrial space to residences.  Business users, whether industrial or office, typically pay much higher property taxes compared to home owners.  More people, however, typically means a higher demand for city services from garbage collection to policing.  A rapid shift away from industrial uses will likely result in either higher taxes or reduced services, or both.

Another reason to be cautious about converting too much manufacturing space to office or residential use is that new and future styles of manufacturing may need space tomorrow. Not everything is made overseas and higher fuel prices may support new innovative products being manufactured in North American cities.  For example, the Blackberry mobile device is made in Waterloo, Ontario, Canada.

Of course, manufacturing of some products is likely not coming back to North America — the entire supply chain associated with them is in another part of the world.  And places like New York that once were centres of manufacturing may not be the locations of new, future manufacturing.  The Blackberry example is worth noting — it’s not being made in Toronto.

New York City is now about global knowledge-based service industries, finance, fashion management, etc. Perhaps supporting those clusters is what the city government and residences need to focus on.

A shift in the global and North American economies is underway and this will necessarily being a shift in real estate use.

Back to the future

In the Philadelphia area (link via Planetizen), city officials representing older neighbourhoods and inner ring, older suburbs are now working together to promote these communities as great alternatives to far flung, distant suburbs:

They are places that have been long suffering as homebuyers the past few decades have opted for more spacious homes on large lots in new subdivisions on the suburban fringe….

All the Classic Towns – the boroughs of Ambler, Bristol, Collingswood, Doylestown, Haddon Heights, Lansdowne, Media, Riverton and West Chester, along with Philadelphia’s Manayunk and Overbrook Farms neighborhoods – have made significant comeback strides with a variety of revitalization efforts….

Organizers already have worked up a sales pitch that plays off the budget-busting gas situation: If you live in these walkable mixed-use communities with convenient access to public transit, you probably can get rid of at least one car in your driveway.

While planners have been advocating for years a return to older communities as a way to curb suburban sprawl, Seymour said, “I think now with gas prices, the market is finally catching up to those policy objectives.”

And this is happening not just in Philadelphia. Communities around North America with rich and sometimes forgotten histories are now seeking to restore and revitalize boarded up or otherwise dilapidated former-downtowns or industrial areas. Many are creating higher density housing in the process, such as loft apartments in restored older brick warehouses.

Many older neighborhoods in the core cities and suburbs of North America were built around transit 100 years ago. In Vancouver Gordon Price famously calls them the “street car neighbourhoods.” Where the street cars stopped, family-owned retail thrived. Many North American cities have similar histories. As the automobile took over, and suburbanization thrived, street cars disappeared and street car communities often fell on hard times, even becoming rough “inner city” spaces.

But the old spaces are often still there and offer an authenticity as well as an opportunity to return to higher density and walkable living. Apartments can be built above retail if they are not already there from 100 years ago. Neighboring single family housing is often on much smaller lots than in a more recently laid out suburb. This allows people craving even a small backyard along with walkability and transit accessibility the possibility of finding that (see the recent blogosphere discussion on this between Avent, Atrios, and McArdle.)

As in Metro Philadelphia, it may be important for certain civic leaders to promote what these communities offer to families and individuals struggling to deal with the challenges facing the automobile-based sprawl model as gasoline becomes less affordable.

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