The Ground Floor

Beautiful and Sustainable at a Surprising Price

Buildings can be judged successful thanks to good architecture, sustainable design, or a positive social impact. San Francisco's Plaza Apartments is a rare example of one that succeeds at all three.

A nine-story mixed-use building near downtown San Francisco, the Plaza Apartments contains 106 rental housing units, 1,000 square feet (93 sq m) of retail space, and a 99 seat performing arts venue. Not a conventional urban apartment building -- all 106 units are reserved for the previously chronically homeless. Developed by the nonprofit Public Initiatives Development Corporation on a $22 million budget, the project also contains services for building tenants, which include on-site case managers, a psychiatrist, and a nurse practitioner.

The project is part of a nationwide trend of "housing first" when dealing with homeless. New approaches recognize that securing housing is the first step to independent living. Cities across the country are finding that providing housing first and then treating underlying causes -- such as mental illness or drug addiction -- reduces the overall costs to taxpayers and social service agencies. Tenants of the Plaza Apartments pay half their income in rent, $410 on average.

In addition to the social mission, the structure also features cutting-edge LEED Silver environmental design. The roof sports both a sundeck and 26-kilowatt photovoltaic system. The creative facade is fine-tuned to maximize winter sun on one side and provide summer shade on another. The San Francisco Chronicle raved that the "designers crafted a structure of lasting warmth and presence," concluding the design features a "creative depth you don't find in most residential projects, including condominium complexes stuffed with seven-figure units."

Although the project wasn't developed for a profit, it has taken over a hundred of formerly homeless off the street and improved the character of the neighborhood. With city residents and officials pushing hard for community benefits, particularly in return for allowing lucrative investments in urban neighborhoods, the Plaza Apartments could contain ideas useful elsewhere. Instead of writing a check to a faceless housing fund, a donation towards a facility like the one described here could improve the neighborhood and set formerly homeless people on a path to recovery.

A complete case study of this project can be found on ULI's Development Case Studies web site, which features detailed descriptions of urban development projects around the world updated each quarter.

Only subscribers can access the complete case studies, but short descriptions are available to all. The complete case study for Plaza Apartments includes floor plans, contact information of the development team, description of building features, and a summary of important lessons learned.

Washington Business Leaders Form Coalition to Help Solve the Workforce Housing Crisis

This post was written for The Ground Floor by Marge Fahey is director of media relations at the Urban Land Institute.

"Workforce housing has become a big problem for us; driving to affordability is no longer an option," J. Michael Pitchford, co-chair of the Washington D.C. ULI Terwilliger Center for Workforce Housing, explained to more than 60 business leaders at a breakfast meeting May 14^th at the Bank of America offices.

The ULI Terwilliger Center called upon the business community to join its effort in making workforce housing a reality. The Terwilliger Center asked leaders to be part of the solution by joining a new regional initiative -- the Workforce Housing Endorsement Coalition.

The goal of the Coalition is to promote the creation of well-designed and strategically-located workforce housing in the Washington, D.C. metropolitan region, and to recognize this housing with an annual awards program. In addition, the Coalition will offer public support and recognition for completed projects, or those that are under regulatory review by a local jurisdiction in the Washington, D.C. region.

The Terwilliger Center invited Carl Guardino, president and CEO of the Silicon Valley Leadership Group, to speak about the importance of joint efforts and coalitions in solving key community issues, such as housing affordability.

The Silicon Valley Leadership Group currently represents 260 employers who provide one out of every four jobs in Silicon Valley and have generated $1.5 trillion in annual revenues. "We ask [the employers] annually, what is the top issue your employees face? …the answer always comes back 'homes that our employees can afford.' It's an issue that we have to address."

Moving Beyond 'Drive until you Qualify'

In a joint effort by the Chicago-based Center for Neighborhood Technology (CNT) and Washington, D.C.-based the Brookings Institute, an interactive mapping web tool -- the Housing + Transportation Affordability Index -- was developed to measure the true affordability of housing by applying transportation costs.

The tool provides housing and transportation costs as a percentage of income on a neighborhood-level basis for 52 metropolitan areas using 2000 U.S. Census data and analysis of household transportation costs.

Urban planners, policy-makers, and transportation and housing advocates measure housing affordability as 30 percent or less of household income. However, housing affordability is not always what it seems.

As Scott Bernstein, president for CNT explained during a presentation today at the Brookings Institute, the old adage of "drive until you qualify" is really no longer an appropriate measure of housing affordability. As gas prices increase along with suburban sprawl, much of the population is paying as much for transportation as they are housing.

Harnessing the Sun

The U.S. Department of Energy (DOE) will invest up to $13.7 million over three fiscal years (2008 – 2010) in 11 university-led projects focusing on developing advanced solar photovoltaic (PV) technology manufacturing processes and products. Combined with a minimum university and industry cost share of 20 percent, up to $17.4 million will be invested in these projects.

University projects have the potential to significantly reduce the cost of electricity produced by PV from current levels of $0.18-$0.23 per Kilowatt hour (kWh) to $0.05-$0.10 per kWh by 2015 -- a price that is competitive in markets nationwide, the DOE said. President Bush’s Solar America Initiative aims to make solar energy cost-competitive with conventional forms of electricity by 2015.

Each participating university will work with an industry partner to ensure the projects retain a commercialization focus and that results are quickly transitioned into market-ready products and processes.

Apartment Market Going Strong

The apartment industry is apparently faring the economic climate well. Large apartment owners are scaling back portfolio size, whereas apartment management firms are increasing their portfolio size by as much as 70 percent.

"The apartment industry has historically been dominated by smaller local and regional firms, particularly in the area of property management," noted Doug Bibby, National Multi Housing Council president. "But that is clearly changing as we see the emergence of several powerful national property managers. These firms are using economies of scale to overcome thin margins and to refute the conventional wisdom about property management being a low-growth area."

"Not only are they surpassing investor and client expectations," Bibby added, "they are raising the customer service benchmark for the industry.  By leveraging their national platforms to recruit, develop and retain the best available talent, they are bringing a new level of professionalism to the sector and transforming the renter's experience."

According to the National Multi Housing Council's 19th annual ranking of the 50 largest U.S. apartment owners and the 50 largest U.S. apartment managers there were few changes in the top of the NMHC 50. As a matter of fact, the NMHC reports that for the first time in the survey's history, the top 10 firms on last year's NMHC 50 owners and NMHC 50 managers lists made the top 10 again this year, with only small shifts in the order.

Impacts of Inclusionary Zoning

The Furman Center for Real Estate and Urban Policy and the Center for Housing Policy in Washington D.C. released a study this month, The Effects of Inclusionary Zoning on Local Housing Markets, offering information on the impacts of Inclusionary Zoning (IZ) -- a popular but often controversial affordable housing policy requiring or creating incentives for developers to set aside a portion of newly produced housing units as affordable housing in exchange for certain benefits or cost offsets -- have on housing prices and production in the San Francisco and suburban Boston regions. The paper also includes descriptive information on IZ policies in the Washington D.C. metropolitan area.

According to the study’s findings, there are substantial variations in the design and impacts of IZ program across jurisdictions and across regions. For example, in the San Francisco area, the study found no evidence that IZ programs have increased the price or reduced the production of single-family homes, despite the fact that 93 percent of the programs are mandatory. In the suburban Boston area, by contrast, the study found evidence that IZ programs resulted in small decreases in production and slight increases in prices of single-family homes.

Collateral Damage: Squeezing Out Affordable Housing

While everyone's attention is focused on market gyrations, credit squeezes and the housing melt down, not to mention the latest sex scandal and—remember—the endless Democratic Presidential campaign, the affordable housing industry is being quietly closed down.  Look at what has happened:

• Low income housing tax credits—the price for these credits has fallen in the past few months from over $1 per dollar of credit to 80 to 82 cents to the dollar—a 20% decline that is making new deals unworkable.  The main reason for this meltdown is what has happened to Fannie Mae and Freddie Mac; their accounting scandals resulting in the new restrictions on their mortgage purchases as well as the decline in housing prices and the mortgage-backed securities markets all have combined to reduce or eliminate their profits.  Thus the biggest market maker for the tax credits, Fannie Mae, has reduced its purchases of credits from over $2 billion in 2006 to $1.1 billion in 2007 and is now reportedly a net seller of credits.  Freddie Mac has also reduced its purchases as well.  The major banks that were also buyers are now struggling with loses and don't need or want credits.  While the new pricing makes credits attractive investments to the corporations that used be in the market for credits, it will take months or years to get them back in as active buyers.

Does the Housing Slump Have a Silver Lining?

On February 26, 2008, Standard and Poor's released the latest S&P/Case-Shlller® Home Price Indicies, which showed historic drops in home prices around the country over the course of 2007. The two charts excerpted from the report below tell the story.

Compact Communities - Is Density Incompatible With Safety?

Reducing the carbon footprint of metropolitan areas will require making them more compact in order to reduce driving or vehicle miles traveled (VMTs). Forgive me for saying this (density being a four letter word) but this will require increasing the density of existing communities and building new ones with appropriate density. 

So what are the best ways to design compact, densely populated, walkable communities which are attractive, safe and lively? One thing clearly needed is enough housing so people live in the community; this is what creates the "24/7" communities which have been shown to be most successful over time. What are the best ways to do this while reducing crime and enhancing public safety?

An Election About Change, But Not For Housing Policy Yet

We are now down to three principal candidates for the U.S. President and it seems an opportune time to check in with their campaigns to see if the much touted change they plan to bring will include desperately needed changes in federal housing policy. At this point, however, real change to these policies seems unlikely based on a recent scan of their websites. Instead, it looks like there will be a continuation of existing policies with some tinkering around the edges and a bow to the sub prime debacle. 

This is not to say that the proposals put forth on the candidates' websites are necessarily bad ones; just that they deal with short term problems and mostly avoid fundamental changes needed to meet the ongoing decline in affordability of housing for low income and middle class Americans.

A Moment of Clarity

Occasionally there is a moment of bright sunshine in the midst of the blizzard of stories about the sub-prime debacle, the Wall Street melt down, and the collapse of the housing markets. This one comes from Michael Hill, president and CEO of Emerge Homes Inc., a luxury home builder of all people. His article on the op-ed page of Monday's Washington Post, titled Don't Blame Subprimes: Those Bad Loans Were Just a Response to Our Real Problem, provides clear insight into what underlies the subprime problem -- to wit, the unprecedented decline in housing affordablity in many key U.S. markets. This is a problem of far greater and longer term significance even than the subprime mess.

As he says,

What's happening in the market today is not the bursting of a five-year bubble but the bursting of a 40-year bubble and the failure of the mortgage loan system to meet the needs of the marketplace.

HOPE VI Zeroed Out in the President's FY 2009 Budget

The President's $3 trillion budget was released on Monday to the usual fanfare, and, like most Presidential budgets was declared dead on arrival. That said, what it does lay out is where the the fights will be for more funding.  One is HOPE VI.

HOPE VI, the revitailization of the oldest and worst public housing projects in the US, has been the most effective urban renewal program of the Federal government in the past two decades. It has been slow, expensive and controversial, but it has turned blights on neighborhoods into community assets that raise the value of surrounding properties. According to the President's housing budget, "Cumulative results of the HOPE VI program as of June 30, 2007 follow: 68,657 households have been relocated, 87,445 units have been demolished, 61,222 units (new and rehabilitated) have been completed, and 58,719 completed units have been occupied."

Each HOPE VI development is no longer a bleak crime-filled high rise. They are attractive, safe mixed income developments, often tied in with new schools, retail, home ownership opportunities, and community services. Though the original goal of the program was to redevelop the worst 100,000 public housing units (of the some 1.2 million in the country), it has done its job so well, despite delays and cost overuns, that it needs to be continued in order to bring the same neighborhood revitalization to small and mid-sized cities which often have one or more public housing projects in need of total redevelopment.

How Housing Subsidizes Infrastructure and Why That Matters to Climate Change

You will hear a lot about ULI's three core issues in the weeks and months ahead, assuming you haven't already. They are workforce housing, infrastructure and climate change; they are each vitally important land use issues in and of themselves but even more important when understood together. They all interrelate.

For instance, if one objective is to reduce the amount of driving (vehicle miles travelled or VMTs) so that the greenhouse gasses cars emit can be reduced, the best way to do that is to build compactly, and to mix uses and incomes together in walkable communities. 

This means that housing needs to be provided that is affordable and appropriate to people of all incomes and stages of their lives. Why? Because anyone who can't live in this compactly designed community has to live away from it and drive to work and shop, emitting greehouse gasses all the way.

But this is hard to do because it is so expensive to build housing. And what is one primary culprit in the cost of housing? The subsidy that housing is required to pay to build the infrastructure.

Housing Prices at The Edges Falling Faster

It's always a (somewhat unexpected) pleasure when facts begin to support one's theories. So the report in the Sunday, January 20th Washington Post on their front page no less, was a welcome arrival. The headline of the report: Region's Home Prices Continue to Fall; Some Pockets Thrive.

Now before I'm accused of schadenfreude, and taking joy in falling home prices, let's be clear that I own a home as well, the price of which has fallen more than I care to say.  What was satisfying is that my theory about the greater volatility of home prices on the suburban edge appears to be reflected on the ground, at least in the Washington Metro region.

The Theory:

Even though regional development patterns have been the same in the past few years as the past few decades (since the late 1940's to be precise), and most housing has been built on the suburban edges, now some 50 plus miles from downtown, the market for this suburban edge housing is declining. This is due to a number of factors including:

• changing demographics (fewer households with school age kids),
• longer commute times due to growing traffic congestion,
• higher gas prices (and the growing realization that they will continue to rise for years to come),
• concern about the need to reduce driving and greenhouse gas emissions, and
• the growing desire to live in more urbanized settings among the Baby Boomers and their kids, the Echo Boomers, the two largest American demographics.

Do we know how much we are spending on driving? Do we care?

According to surveys, spending on transportation is the second largest item in the family budget, some $8,000 a year. Do we have any idea we are spending that much?

That was the question posed to a presenter at the Transportation Research Board annual meeting here in Washington this week, a huge gathering approaching 10,000 transportation practitioners and researchers from around the world -- kind of the Consumer Electronics Show for transportation junkies. The paper under discussion looked at combined housing and transportation spending, and was done by the Center for Neighborhood Technology (CNT) and presented by Carrie Makarewicz, previously from CNT, and now a doctoral graduate student at the University of California Berkeley. The research demonstrates how financially strapped families can become when the costs of driving was added to the presumably more affordable cost of housing in distant suburbs -- Minneapolis was shown in this poster session. It raised the question of whether these consumers actually put the costs together. Makerewicz' professor, Elizabeth Deakin observed that her studies suggested most people have no idea. Car payments and the price of filling the tank come at different times, so it is impossible for most people to estimate.

This seems a critical factor in affecting travel. If we knew how much driving really cost, would we reduce driving? Could we? We agreed this is a good topic for further research.

A Congressional Remedy for the Housing Crisis?

Congress returns this week to rising fears of recession and a growing crisis in the housing markets. Proposals for Congessional action are being developed but no consensus for action has yet emerged.

Sarah Rosen Wartell of the Center for American Progress wrote the following update Monday:

There are increasing indications that the President is sure to offer a proposal in his State of the Union address or before for: (1) a universal tax rebate of some form and (2) business investment tax incentives. He continues to argue for making the Bush tax cuts permanent as well.

Good News for Urban Housing

The headline in USA Today is that the FBI reports violent crime fell 2% in early 2007. The story goes on to say, "The FBI's preliminary review follows two consecutive years in which the federal government recorded slight increases in violent crime. Among the first indicators to signal a possible shift in the troubling crime trend came in October when a national police advocacy group reported that a rising number of cities were recording significant declines in assaults and assaults with firearms during the first part of 2007. Assault offenses are generally regarded as precursors to more serious violent crimes."

The FBI report itself has additional interesting news, namely, "Violent crime rose 1.1 percent in non-metropolitan counties and in cities with populations between 10,000 and 24,999." In other words, while big city crime is begining to fall, rural and small town crime may be on the rise.

Why is this good news for urban housing? The fear of urban crime has been one of the biggest roadblocks to encouraging people to move back to the city. As urban crime and unrest rose in the 1960s, 70s and 80s, people who could moved out of the cities to the suburbs. 

As urban crime fell in the 1990s, people began to migrate back to the city. In the past several years, with the rise in the number of teenage males, crime began to rise again, fortunately not enough to slow the urban renaissance, though it could in time. So the fact that urban crime may be stabilizing or even falling is very good news.

There are, of course, other factors that have been behind the migration out of cities and back in -- schools, cleanliness, and demography to name a few. But crime has been a major factor and will always be a threshold issue -- if a city cannot provide an environment that feels safe, people won't move in and its population will continue to decline.

So for now at least, the news is good for the Back to the City movement.

Mega-Mansion Mania: Short-Lived?

In a recent edition of Newsweek, columnist Robert Samuelson laments the rampant development of mega-size homes (long known as "McMansions") that are replacing smaller homes in so many established neighborhoods throughout the Washington, D.C., metropolitan area. These 4,000-plus square-foot homes, often out of character with the rest of the homes on the block, imply greed and the need to impress, he notes, asking, "What is it with Americans and their homes?"

Samuelson certainly makes a point. Although some industry research indicates that Americans are downsizing their houses, the numerous McMansions that have sprung up on small lots in inner-ring suburbs would appear to point in the opposite direction. It would be interesting to look at who is buying these homes. Baby boomers with kids still at home? Boomers making room for the kids to return from college? Making room for the grandkids to visit Just how large can the market be for these huge, expensive houses?

The answer to market demand may be clearer once the home buying patterns of Generation Y become more established. Demographic analysts tell us these echo boomers -- who are far more apt to delay marriage and having children than their parents -- will be more likely to choose smaller homes in close-in urban neighborhoods, reflecting their preference for dense, city-style living (as in heading downstairs to the ground-level coffee shop). This will undoubtedly influence the multifamily market in downtowns and close-in neighborhoods in the years ahead. Even those who could afford to buy big will likely choose an upper-end condo over an upper-end single-family McMansion, say the experts.

Indeed, Generation Y -- and, to be sure, some empty nesters who are shedding stuff -- may trigger a lasting trend toward smaller, denser housing that de-emphasizes driving and emphasizes access and convenience. "Less is more" could trump "more is more." Time will tell.

Knowing When to Hold Them

The year-end news from Wall St. continues to be big write offs on all kinds of MBSs, CDOs, and SIVs, with predictions of more to come in the next quarter. The obvious problem with this is that it looks like everyone, even our 401Ks, are losing value. The not-so-obvious problem (opportunity?) is that someone is going to make a lot of money from these losses.  Why?

To understand this look at the underlying assets, most of which are mortgages on single family homes. The default rates on prime mortgages are still very low and withing historical trends -- no big deal. It is in the sub-prime and Alt-A markets where the big losses have been occurring and they have been big -- 20% to 25% rates of default in sub-prime mortgages. But these last two categories make up a small portion of the overall market, and a smaller portion of most CDOs and SIVs. So why the big write downs?

Largely the problem is the market. All markets hate uncertainty, and there is now great uncertainty about how much of what kind of asset is in each of these exotically structured investment vehicles. Everyone bought them off of the relationship of ratings to return, and when the Wall Streeters told the investors they had highly rated assets that had above market returns, the buyers didn't blink and bought, forgetting that above market returns means above market risks, regardless of rating agencies.

President Bush's Sub-prime Mortgage Relief Proposal

So far, there is more confusion than clarity about President Bush's announcement Thursday of a new plan to provide relief for people with mortgages that are about to have the interest rates reset higher. More details are needed to really understand how and whether this plan will work. That said, here are a few preliminary thoughts:

• Foreclosures hurt neighborhoods as well as families, so reducing foreclosures is a good thing for all.
• It is impossible for programs like this to sort out the good eggs from the bad ones -- they are blunt instruments.
  • Limiting this plan to people who live in their home is a good thing as it keeps the investors out of the plan.
  • Eliminating those who are already in default makes no sense -- they are even more in need.
  • Likewise, eliminating those with good credit scores, who played by the rules, also makes not sense. A good credit score does not mean sufficient income, just a (previously) careful approach to debt.
  • Many who will qualify took out loans knowing they could not afford the higher reset rates but were told they could refi before the reset date. They took the risk thoughtfully or because they were film flamed -- who knows.  But they did not think their homes would fall in value -- a fair bet based on the past but still... And they did not expect rates to rise. Are they good eggs or bad eggs -- who knows?
• Because it is a "voluntary" program, up to lenders and securitizers and investors, not the government, it will serve far fewer people than the President or the Secretary of the Treasury have estimated. As one Wall Streeter noted, "the President has overestimated the generosity of Wall St."
• How the contracts under which the loans have been sold into the MBS market, and then the CDO and SIV markets, will affect this is still unclear.  Somebody will have to pay the investors to make up the difference. Who? Not yet clear.
• Is it not broad enough or too broad? Probably depends on whether you are a Democrat running for President or a conservative or banker. There is no precedent for this. It is a narrow program but a radical one. There really isn't one program that is the "right" one in my mind, one that will allow just the right people who were flim flamed to be helped. A lot of deserving people -- like those with resets this fall -- are being left out.
• And there is the "moral hazard," as Barney Frank called it -- will it encourage others to take new risks thinking they will be bailed out?
• FHA will never be "modernized" in time to do any good for folks with reset dates in the next couple of years.
• States and localities could be very helpful in refinancing these mortgages with low, fixed interest loans with shared equity provisions to cover the cost of the reduced below market interest rates when the properties are sold someday.

In short, the situation is a mess, this is a messy response that is better than nothing and not as good as it probably should be.

At Last -- the Why of the Sub-Prime Mess on Wall St.

The Wall Street sub-prime meltdown has finally been fully explained in an interview on YouTube. Only the British can explicate the unexplainable.

A Niagara of Foreclosures

Tony Downs of the Brookings Institution has just released his latest book, published by ULI. It's called The Niagara of Capital, an excellent report on the recent huge wave of capital that flowed into the housing markets, among others, and on the housing bubble and subprime debacle it caused. (To view the webcast of a recent press briefing on the book and listen to a podcast featuring Tony Downs and ULI senior resident fellow Steve Blank discussing future trends in capital markets, visit the ULI Web site.)

Well, following the Niagara of Capital is a Niagara of Foreclosures. In fact, the U.S. foreclosure rate is accelerating at breathtaking speeds, according to data from RealtyTrac, Inc..:

• 3^rd quarter 2006: 223,233 homes in foreclosure
• 2^nd quarter 2007: 333,731 homes in foreclosure
• 3^rd quarter 2007: 446,726 homes in foreclosure

Many experts are predicting that this rate will rise to close to 2 million in 2008, a number not seen since the 1930s Depression.

Is there anything that can be done to lower this number, to save the homes of these millions of families?

Creating Financially Viable Workforce Housing

This post was written by The Ground Floor Contributor and ULI director for media relations, Marge Fahey.

Creating workforce housing requires an approach that bridges the gap between what people can afford and what the market can supply.

The housing slowdown may be an opportunity to bridge this gap and still earn a profit, according to industry experts at ULI's fall meeting.

"It's an unfortunate time, but an opportunity," says Pam Patenaude, executive director, ULI Terwilliger Center for Workforce Housing. "We need to engage elected officials at the local, state and federal level to make housing a part of the dialogue."

Patenaude remarked that the Terwilliger Center will build on ULI's strength in communities to work with local and state officials, and will also mobilize the private sector. And, she said, there is legislation in Congress for employer-assisted down payments, and noted that California has 190 employers already providing this assistance.

The Fire Next Time

The San Diego and Los Angeles areas are hit by a raging series of high-impact wildfires -- the worst in the state's history. Many of the blazes coincide with areas already scorched in 2003 by fires that themselves were declared California's worst ever.

But is there any move to move homes away from the areas where a century of firefighting has left many forests choked and overgrown, thick underbrush creating tinder-box conditions? Apparently not. Most homeowners vow that they'll stay in the fire-prone areas, or return to rebuild on the charred foundations of their former homes.

-- Nationally syndicated columnist Neal Peirce

There is one lesson all major disasters teach us -- the first and strongest reaction of local residents is to rebuild what was lost in the same way and the same place. Look at New Orleans: residents of the city's low lying areas that flood frequently have raised such a firestorm of protest at the mere suggestion that New Orleans's land use plan might be rethought after Katrina that rational discourse has been impossible.

Now those who have been burnt out in the San Diego fires vow to rebuild despite the obvious danger that the fires will return once again. Their losses have been tragic, but their commitment to return may be more tragic still.

Gen Y and Housing: R U Ready?

At 75 million strong, Generation Y –- the population group born in the late 1980s through the 1990s -– has the potential to affect the housing market as profoundly as the baby boomer generation, making a mark that is as different as it is powerful, according to industry experts at ULI’s annual fall meeting in Las Vegas.

Some takeaways from this session:

What Gen Y members don’t want: big houses on big lots, isolated from everything.

What they do want: housing that fulfills their need for instant access and convenience.

With the oldest members of Generation Y (those in their mid-20s) starting to enter the housing market, the characteristics of this demanding, strong-willed generation provide many clues to their preferences in living arrangements. For instance, they:

• Favor the quirky, unique and different.
• Seek diversity in all aspects of their lives.
• Prefer urban over suburban environments.
• Multi-task (One observation: "Most don't wear watches because watches only do one thing."

Developers seeking to score points with this generation will offer housing that appeals to their individuality by providing distinct architecture, bold colors, flexible floor space, ample amenities tailored to their interests (think super fitness centers), and which meets their demands for connectivity -- both in terms of wireless hook-ups and transit options that quickly, efficiently get them from one place to another.

One key signal of a housing shakeup resulting from Gen Y: changes in household formation and more single Gen Y women entering the housing market. In the years ahead, look for the decades-long prevalence of married couples with children to be increasingly replaced with single-women households. With more women than men now graduating from college, women in many markets will soon be making more than men, placing women in a position of affluence and authority that will affect housing decisions. Because they will likely delay marriage to pursue careers, their housing choices will be far different than those made by their baby boomer mothers. The likely favorite: close-in multifamily rental or for-sale units in mixed-use communities that emphasize communal space and social interaction. "This bodes well for urban communities," one panelist said.

Housing: what do we do now?

If you're expecting a lot of gloom & doom from this conference, forget it!  While members agree that there are many issues to work through, they are ready and willing to forge ahead, looking to what they can do to best ride out the difficult times.

According to RCLCO's Gadi Kauffman, "we had a bubble and it burst." It's indegestion -- just too much." Kauffman and others believe that it's not an issue of pricing but we need to get back to a balance of supply and demand. Kauffman responds to the question of what is working with this: primary or resort homes that have the right fundamentals, the right location, right product, are fairly priced, and reflect an understanding of the customer. If you have something that's working right now, you're probably OK for the near future.

Other advice: look to up and coming locales outside the U.S., places with good climates and growing wealth, like North Africa, Italy, Spain, the Persian Gulf, and India. Parts of Russia are also ripe for development.

More advice? DMB's Brent Herrington says, "Companies that will be the most successful are those who embrace sustainability as their core strategy." Brooke Warrick of AmericanLIVES says that the market is there, but it's up to the developer to explain his product in a way that grabs the public. Deanna Weber of EDAW explains that it's a matter of legislation, lawsuits, and LEED. Seventeen states have enacted legislation requiring or encouraging addressing greenhouse gas issues, and 52 cities now have green building programs, most based on LEED certification.

The Stabilizing Influence of Fannie and Freddie

This article was written by The Ground Floor contributor and ULI senior resident fellow, John McIlwain.

The sub-prime mortgage meltdown has had a major impact on the difference in mortgage rates between what are known as "conforming loans" -- those which are under $417,000, which can be sold to Fannie Mae or Freddie Mac -- and "jumbos," which are larger and have to be held in portfolio by banks or sold into the mortgage-backed securities (MBS) market (and which is all but frozen right now). A normal spread between conforming loans and jumbos is around 20 to 25 basis points -- around a quarter of a percent. Today, however, with the MBS market shut down and banks recoiling from overly lax credit standards, the spread last Friday was 89 basis points, almost four times the normal spread.

One thing this shows is how effective Fannie and Freddie are when the credit markets are in turmoil. The last time this happened was in 1998 when Russia defaulted on its sovereign debt. Then Fannie and Freddie kept the mortgage markets stable while rates for every other kind of debt skyrocketed. Today, Fannie and Freddie are again doing just what they were created for and pumping less expensive funds into the mortgage markets.

Why, then, should the Administration hold them back? Why not let them buy as many mortgages as there is demand for in the housing markets? The cap on their volume can always be reapplied later when things settle down.

More Effects of the Sub-prime Crisis

This post was written by The Ground Floor contributor and ULI senior resident fellow, John McIlwain.

The new numbers that came out last week finally show that the rise in mortgage defaults and foreclosures are not just a function of a housing bubble or the sub-prime follies.

First, the Mortgage Bankers Association noted that the rise in defaults and foreclosures were highest in two areas: one, in the "bubble" states, such as California, Nevada, Arizona and Florida; and, two, in the Rust Belt states, such as Ohio, Illinois and Michigan, which have been severely hit by rising unemployment. The fact is becoming apparent that flat or falling incomes and rising local unemployment are reducing the ability of homeowners to pay their mortgages.

Second, the jobs report released by the Labor Department at the end of the week, which showed a decline in jobs in August, indicates how falling home prices and rising defaults and foreclosures are reducing the ability of the economy to create jobs.

What Can the Administration Do to Soften the Sub-prime Blow?

This post was written by The Ground Floor contributor and ULI senior resident fellow, John McIlwain.

The announcement by the Administration on Friday that they would allow an additional 80,000 households obtain FHA insured mortgages was intended to be a response to the problems millions of families are facing or soon will be facing. That, and the other parts of the Administration's package -- namely requesting the Congress to change the tax laws to eliminate taxes on income from a lender forgiving all or part of a mortgage in default, and jawboning lenders to forgive or restructure loans in default -- are little more than a political gesture aimed at calming markets and diverting criticism. As one commentator has said, Bernake, the Fed chief, is working with a cannon (interest rates) and the Administration with a squirt gun.

It won't do harm; a few families will be able to refinance into FHA mortgages if they can afford a 6.5% mortgage, which is a big if (it may well be that not all of the authority to make another 80,000 mortgages will actually be used). But there is much more the Administration could do were it not trapped by a theological belief in the "free" market (Note to reader: the real estate markets are the least free, most heavily regulated, of any market in America. It may be that the only truly free market in the U.S. is that in used comic books.)

What could the Administration do? First, they could take the cap off of Fannie Mae and Freddie Mac which were created for times just like these when the financial markets are not working smoothly. This they have so far refused to do. The spread between jumbo mortgages, which Fannie and Freddie can not buy, and the conforming loans under $413,000, which they can, is now almost 100 basis points, four times the normal spread. Fannie and Freddie can keep funds flowing at reduced rates to the market targeted to more moderate homebuyers, the ones in most need of help and most deserving of government assistance.

Thinking Outside the Land Use Box

This post was written by The Ground Floor contributor and ULI senior resident fellow, Bill Hudnut.

How about some thinking outside the box...about how to solve some of our serious land use problems? Here are a few suggestions:

• To create more funds for affordable housing, and enable millions of Americans to claim a tax benefit for home mortgage interest for the first time, which would make owning a home more affordable, follow the advice of President Bush's Advisory Panel on Tax Reform, reporting in the fall of 2005, and replace the mortgage interest deductibility on first homes with a "home credit" in the amount of 15 percent of the interest paid on mortgage debt for that home (no credit or interest deductions would be allowed for second homes or home equity loans);
• To fund infrastructure improvements and new construction at the local and state levels, employ more user fees on the assumption that those who use should pay; and at the national level, establish an infrastructure improvement bank backed by a stable revenue source, i.e., an excise tax on automobiles, a national lottery, or government bonds;
• To do a better job with planning for land use and transportation in a metropolitan area, either sunset Metropolitan Planning Organizations and let the states develop new regional authorities, such as Georgia’s Regional Transportation Authority (GRTA) for the 14 counties around Atlanta, or give the states more responsibility for land use planning and more teeth to enforce their plans, even though "all zoning is local;
• To re-use dead retail space, convert obsolete malls into urban villages;
• To curtail sprawl and address escalating energy costs, create higher density development, especially around transit
• To promote sustainable development, find a market for rehabbing and retrofitting buildings with higher energy efficiency, and create "green" infrastructure, particularly on the fringe; and
• To move beyond outmoded Euclidian (single use) zoning toward more flexible regulations, utilize performance based zoning.

Just some ideas. Some may fly, others may not, but we need to begin thinking creatively about the impact of the changing metropolitan form on the way we develop the land and respond to challenges surfacing today.

Is Gentrification Good?

Does gentrification hurt poor residents by forcing them out of their neighborhoods?

The tantalizing answer found by most researchers who study the question is no.

In fact, research suggests low-income residents of gentrifying neighborhoods benefit from the influx of higher-income neighbors through greater political clout, enhanced municipal services, new businesses, and safer streets. Such findings are enough to convince writers like Richard Cravatts, who claims gentrification to be good for “the poor and everyone else” in a recent article for the American Thinker. Dismissing opposition to a controversial Columbia University plan to expand into West Harlem, he concludes such a plan should be embraced by the community since it will bring economic activity to the neighborhood.

Unfortunately, the research he cites tells a more nuanced story. Although the revitalization of many urban neighborhoods is a positive trend, it is not without downsides. Furthermore, eminent domain, which Columbia has threatened to use to acquire property for their plan should owners refuse to sell, has an entirely different history.

Housing Above Retail: When It Works, When It Doesn't

Concentrated, mixed-use development offered in a pedestrian-friendly environment is often described as the best way to accomomodate growth and conserve land. In fact, mixed-use seems to have reached almost "silver bullet" status as a tool to combat sprawl and traffic congestion.

However, mixing it up -- specifically building housing above retail -- is harder than it looks. By all accounts, when it works, it's great, but when it doesn't, it's a nightmare. Recently, ULI convened a group of housing and retail experts to pick their brains about the pros and cons of building housing over retail. The knowledge shared will be used in the preparation of an upcoming publication on this topic. Although opinions varied on details such as how and where to build parking, all participants concurred upfront that housing-over-retail projects don't fit just anywhere.

Here are just a few of the insights offered by the experts:                                                                    1)Housing in mixed use will thrive in a weak market if the retail is strong; conversely, poor retail will drag down housing;                                                                                                                          2)Housing over retail typically attracts younger people; older, empty nesters prefer to live nearby, rather than on top of retail;                                                                                                                 3) Different retail brands create value and appeal for housing;                                                              4)Parking must be designed and managed for retail convenience and residential security (some participants recommended separate parking, others recommended shared parking);                              5)Design should encourage retail identity at the street, and the housing needs a distinctive identifiable entrance; and,                                                                                                                                                 6)It is difficult to design appropriate amenities and common areas that truly work for residents.

Perhaps the best tip: "Figure out your end game at the beginning." Indeed, this publication is likely to be as valuable a guide on "when-to" as "how-to." In any case, readers will have the benefit of some of the best minds in the industry who have been there, done that, and may, or may not, do that again. 

    

                                                                                                

    

What Were They Thinking?

This post was written by The Ground Floor contributor and ULI Senior Resident Fellow, Bob Dunphy.

I once attended a meeting of a business group advocating the extension of the Washington subway to Dulles airport (a project that seems likely to happen, except not as a subway -- a whole other story). One of the business leaders spoke of his employees' looking forward to having direct access to transit. This company was a major corporate headquarters with a signature building visible from the freeway, nicely landscaped grounds, elegant interiors, and a company cafeteria. But they had moved from a location minutes from downtown Washington by transit, astride two Metro lines. What were they thinking?

Is this simply another example of the standard brokers' rule of corporate location, that the office is located close to the CEO’s home?

More Thoughts on the Sub-Prime Meltdown

This post was written by The Ground Floor contributor and ULI Senior Resident Fellow, John McIlwain.

Yesterday, the mortgage markets roiled Wall Street. The big lenders, heavily leveraged hedge funds, CDOs (which invest in MBSs using a lot of debt) and Bear Sterns all burned the wires trying to decide what to do with a couple of Bear Sterns' mortgage funds that are in deep trouble. At stake are billions of dollars of losses and who gets to eat how much of them. Beyond that is the a game of chicken: if someone loses their nerve and begins dumping the wrong collateral at the wrong time hoping to avoid a bigger loss later, low prices on this collateral could require a revaluation on hundreds of billions of mortgage collateral throughout the system, triggering collateral calls, more borrowing and potential collapses and bankrupcies in the hundreds of billions of dollars.

But how much should those of us outside of Wall Street care about this? It is one more area of uncertainty on the yo-yoing stock market, to be sure. But it is not likely to be the end of the world as we know it.

The Tough Grind of Commuting

A new ULI survey regarding the impact of commuting on consumers and businesses shows that those long drives are taking a heavy toll. The survey, conducted between April 26 and May 1 by Harris Interactive^®, was taken to gauge perceptions by employers and commuters regarding the impact of long distances between housing and jobs on business operations and workers' quality of life.

The survey was first released by ULI Senior Resident Fellow Bill Hudnut at the National Association of Real Estate Editors conference in Philadelphia June 2. On the whole, the survey found that the majority of employees will tolerate living farther away from work if housing is more affordable; but there were noticeable differences in opinion when measured by commute time, income and age.

Those with the longest commutes were the most willing to change jobs for a shorter commute, and the most apt to move closer to their jobs if more affordable housing options were available. Those with incomes of less than $50,000 -- widely considered the "mainstream" workforce -- were significantly more likely to move closer to work if affordable housing were available than those with higher incomes. When measured by age, those aged 18-34 were the most likely to uproot and change jobs, likely reflecting fewer family obligations and fewer ties to their existing neighborhoods.

"You can't take the market for granted"

The indicators are mixed for the multifamily market outlook, but Marcus & Millichap managing director Hessam Nadji is optimistic that things aren't as bad as the housing doomsday sayers believe. Speaking yesterday at the annual ULI/PCBC Multifamily Trends Conference in San Francisco, Nadji quickly dispensed with the bad news (a housing market that is down 20%, an increase in the use of revolving credit by consumers, an inverted yield curve, low builder sentiment) and the good news (job growth, wage growth, stronger exports, foreign investment levels) to spend the bulk of his time discussing the mixed signals that were coming out of the market.

All in all, Nadji believes that we are in a time of "economic downshifting" that will bring the overheated growth levels of the recent economic boom to more normalized and sustainable levels. He thinks we have not yet reached the bottom of the current cycle (contending that it will come at the end of 2007), but that in the end it will not be all that bad.

What You Think: Workforce Housing Challenges

A while back, we asked you, the readers of this blog, to vote in our poll on the greatest barriers to mixed-income, workforce housing development. While the responses were fairly well distributed among the options presented, nearly half of you (46.5%, to be exact) cited rising developments costs as one of the largest barriers, followed closely by NIMBYism (39.4%). The poll results are posted to the right; click on the image for the full-size version. The issue of rising development costs may prove one of the hardest barriers to overcome -- while there are a great variety of funding sources out there to help affordable and workforce housing projects pencil out, taking advantage of those programs requires a great deal of effort and creativity, and is not for the faint of heart. In the meantime, construction of affordable units has not kept pace with the loss of said units. According to the Joint Center for Housing Studies, a 13% drop in the supply of affordable rental units has resulted in a shortfall of 5.4 million units. This is a situation that cries out for a large-scale efforts by both the private and public sectors. We'd like to hear from you as to what you think the best tool is for encouraging such development, so be sure to vote in our current poll, if you have not already.

Some Thoughts on the Condo Market

This post was written by The Ground Floor contributor and ULI Senior Resident Fellow, John McIlwain.

Here are some thoughts on condos today. There is good and bad news. The bad news, as has been widely reported, is that there is an overhang of supply in a lot of places. Southeastern Florida is by far the worst, with a pipeline that could take several years to work through and people walking away from their contracts. Still, even here, there is strong interest in these properties, especially the pricier ones, as money continues to come in from South America (especially as it drifts left) and from Europe with the cheap dollar. In Washington, D.C., the market is softer than in 2004 and 2005 but by no means is crashing. In fact, were it not for the boom of the last few years we would think our current market quite normal. The more generic condos are moving slowest and maybe have lost 5% or so of their value while the upper end condos have held value but not gained much.

Generally, urban markets seem to be doing better than suburban markets for houses, and this is generally holding true for condos.  The pressure to move in from the suburbs, while not universal, is enough to keep the more urban markets stronger than the suburban markets –- there is generally less product in the urban areas relative to demand than in the suburbs.

Homeownership: The Elusive Dream

Fraud in the mortgage market and sub-prime loan scandals have dominated the business news lately, but another sad housing story is starting to pick up steam -- the inability of mainstream workers to afford homes near jobs. Two recent articles in The Washington Post and The Seattle Post-Intelligencer highlight this growing problem, showing that it stretches from coast to coast.

The Post piece profiles the plight of an Arlington County police detective who drives from a distant Maryland suburb to reach his Northern Virginia job. The Post-Intelligencer describes a similar situation faced by a Seattle high school teacher, who tells the paper, "I will never be able to buy a home in the city of Seattle unless things change."

Indeed, something's got to change, and the newly created ULI Terwilliger Center for Workforce Housing is going to push to make change happen. The Center is gearing up in Atlanta, Washington, D.C. and Southeast Florida to get more mixed-income housing built that is close to employment centers, by pushing for public policies and development incentives to support such projects. And those three cities are just a start -- plans are for the Center to expand its work nationwide. It's an ambitious, exciting effort aimed at building better communities. Our police officers and teachers deserve no less. 

Inclusionary Zoning Set for a Showdown in L.A.

Saturday's Los Angeles Times (via ArchNewsNow) brings us word that a developer is battling the city's inclusionary zoning ordinance that requires a 25% set-aside for new development in the Warner Center area of the San Fernando Valley. Inclusionary zoning is a hot-button topic, and it is on the frontlines of the battle over affordable housing development not only in California, but also in many other states across the country.

The lack of affordable housing is a large and growing problem. According to the Joint Center for Housing Studies at Harvard University's State of the Nations Housing 2006, "Between 1993 and 2003, the supply of rental units affordable to those earning $16,000 or less shrank by 13 percent. These dramatic losses increased the shortfall in units available to. . . low-income households to 5.4 million."

Is inclusionary zoning the most powerful tool to spur private sector development of affordable housing, as some people think? Or are there other forces that could better help private developers step up the pace to meet the increased need for affordable units? Let us know by voting in our new poll on the left hand side and by leaving your opinion in the comments section of this post.

Relocating: A Tough Call in Today's Market

For many U.S. workers, now is not the time to pick up and move. A recent article in USA Today reported results from a couple of relocation surveys that illustrate the impact that the housing slump is making on job-related moves. Of the workers who declined relocation offers last year, Atlas World Group says 30 percent attribute their decision to the inability to locate a buyer for their homes and earn enough on the sale to repay their mortgages. (The Richard Florida Creativity Group recently discussed this issue on their blog, noting that the divide between what they term the "stuck" and the "mobile" has great implications for people's future economic success and the success of cities without mobile populations.)

Another 2006 survey by Prudential Relocation found that the housing slump is complicating recruitment efforts for 46 percent of employers. In addition, those workers willing to relocate said they selling at reduced prices, renting out their dwellings, or waiting for their homes to sell while they live for extended periods of time in corporate housing.

And, while some employees have been able to persuade their employers to pay for extras, most companies are finding it difficult to go beyond the usual incentives at a time when cost control is crucial. Atlas reports that the percentage of companies fully reimbursing transferees' relocation costs dropped from 69 percent in 2005 to 58 percent in 2006. During the same period, the percentage of employers offering full reimbursement to newly hired workers fell from 56 percent to 43 percent from 56 percent.

What are you seeing in your market? Under current housing conditions, would selling your home be a "make or break" factor in a job-related relocation decision?  Give us your thoughts.

China's Housing Boom

China's 20 somethings are finding it possible to purchase their own homes and, in fact, according to an article in yesterday's Wall Street Journal, "Property Owners Feel Right at Home in China" (subscription req'd), "China's rates of homeownership are as high as 80 percent in the cities, according to estimates-topping U.S. homeownership rates of about 69 percent."

Pretty astounding considering that prior to housing reform in 1985, "privately owned homes accounted for less than 17 percent of urban housing stock," according to the article. And, a proposed law expected to be passed this Friday will "clarify existing regulations governing