Urban development: what is the appropriate limit on density?

By Deborah Goonan, Independent American Communities

 

Several readers have contacted me over the past several months, sharing concerns about overdevelopment of multifamily housing, mixed used urban development, and recently approved master planned communities.

One reader from Virginia laments that vintage single family and row homes are being demolished to make room for much taller condominium and apartment buildings.

Readers in Arizona and California tell me that their adjacent former golf courses, open spaces, and green common areas are being redeveloped as townhouse communities and affordable apartments.

It seems every major city in the U.S., having weathered the most recent recession, and having tapped out the luxury home and condominium market, is now focusing on multifamily and commercial real estate for the first-time buyer and the working class.

There is much talk about affordable housing, but very limited public and private investment to meet actual demand.

Except for the tiny house fad – for which the market is limited due to a shortage of land zoned for such small homes – it has become increasingly difficult to find moderately sized and priced detached, single family homes.

Some adventurous home buyers are willing and able to purchase an older home and renovate the property. But many do not have the time, skills, or bankroll to take on a fixer upper.

These housing consumers are left with a choice between continuing to pay high monthly rent, or purchasing a condo or townhouse in an association governed community, where they will also have to pay assessments to a homeowners’, condo, or co-op association.

Neither choice is particularly appealing for households seeking personal space, reasonable physical separation from neighbors, and the freedom to live in, decorate, and improve their homes the way they see fit.

A major frustration in the housing market: there are virtually no new, detached single family homes under 1800 square feet.

 

You can see the trend from U.S. Census Survey of Construction, in the window above.

Smaller new homes tend to be limited to apartments, condos, or townhouses.

In my view, there are three main causes to the supply-side driven housing market that exists today.

  1. A nationwide, even worldwide push for housing density, which began with the “new urbanist” movement in the 1990s.
  2. Onerous local zoning policies regulating lot sizes and minimum home sizes, making it unprofitable for developers to build new communities with modest cottage or bungalow sized homes with usable – but not enormous – private lots.
  3. Zoning restrictions and/or deed restrictions that severely limit or prohibit conversion of single family properties to 2 or 3-family properties, restrictions against back yard cottages or garage apartments, or other options that could provide housing for extended family members, or rental income to offset costs of homeownership.

This article focuses on the push for density, and its unanticipated consequences.

What is housing density?

Urban Land Institute (ULI) defines “density” in its publication Higher-Density Development, Myth and Fact.

Density refers not only to high-rise buildings. The definition of density depends on the context in which it is used. In this publication, higher density simply means new residential and commercial development at a density that is higher than what is typically found in the existing community. Thus, in a sprawling area with single-family detached houses on one-acre lots, single-family houses on one-fourth or one-eighth acre are considered higher density. In more densely populated areas with single-family houses on small lots, townhouses and apartments are considered higher-density development. For many suburban communities, the popular mixed-use town centers being developed around the country are considered higher-density development.

Source:

Haughey, Richard M. Higher-Density Development: Myth and Fact. Washington, D.C.:
ULI–the Urban Land Institute, 2005.

To read all 38 pages, simply download the PDF file:

http://uli.org/wp-content/uploads/ULI-Documents/HigherDensity_MythFact.ashx_.pdf

 

The document goes onto list 8 myths about higher density development. The writers attempt to dispel misconceptions in an effort to sell local government officials and concerned citizen groups on the virtues of squeezing more residential and commercial property onto relatively small land parcels.

 

ULI drives the push for housing density

For readers who may be unfamiliar with Urban Land Institute, see the following  description written by ULI for their website.

ULI, the Urban Land Institute, is a 501(c) (3) nonprofit research and education organization supported by its members.

Founded in 1936, we now have almost 40,000 members worldwide, representing the entire spectrum of land use and real estate development disciplines working in private enterprise and public service.

A multidisciplinary real estate forum, ULI facilitates an open exchange of ideas, information, and experience among industry leaders and policy makers dedicated to creating better places.

Members say we provide information they can trust, and that ULI is a place where leaders come to grow professionally and personally through sharing, mentoring, and problem solving. With pride, ULI members commit to the best in land use policy and practice.

Source:

https://americas.uli.org/about-uli/

 

ULI describes its mission as priorities follows:

The mission of the Urban Land Institute is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.

Organizational Priorities

Advising communities in need
Deliver the experience and expertise of ULI members to communities facing critical land use challenges

Shaping cities and regions
Foster the planning and development of vibrant, competitive metropolitan areas through sharing global best practices and promoting effective relationships among business, government, and community stakeholders

Developing excellence through education
Create learning experiences that develop professional expertise and personal leadership skills in support of the individual, the community, and the real estate industry

Driving innovation in real estate and urban development
Analyze the evolution of real estate market demand, changing technology, policy trends, and investment patterns to help identify opportunities, develop creative responses, and manage risk

Building sustainably
Clarify the connections between responsible use of resources, the built environment, and long-term environmental health, and demonstrate a compelling business case for resource efficiency

Connecting capital and the built environment
Ensure the attractiveness of real estate to global allocators of capital by understanding and explaining the dynamics affecting real estate value

Source:

https://americas.uli.org/about-uli/mission-priorities/

 

Note that ULI prefers to promote development of multifamily apartment housing, condominiums or cooperative housing, and mixed use communities that integrate commercial real estate with residential real estate.

ULI contends that its mission is to create “smart growth” and “sustainable” communities in “walkable, vibrant” neighborhoods.

In short, ULI’s stated mission is real estate industry code for creating higher density housing, and combining residential and commercial uses in the same “mixed use” community.

Residents don’t always benefit from higher density

Don’t get me wrong. Land conservation and environmental stewardship are worthy goals. And shorter commute times, old-fashioned town center designs, and creating communities that  welcome local small businesses are appealing qualities that initially attract new residents.

However, the reader needs to recognize that “Higher-Density Development: Myth and Fact” was produced as a public relations effort, and written prior to the real estate crash that occurred a few years later.

From a housing consumer perspective, the push for denser and denser residential and mixed use community development is mostly about concentrating real estate wealth in redeveloped urban and new suburban centers, while minimizing financial committment and risks for real estate developers, investors, and local governments.  This is accomplished by socializing financial investments and liabilities, shifting costs of new construction, as well as ongoing maintenance and management of infrastructure and services, to a relatively small group of property owners.

Specifically, in higher-density communities, homeowners and business owners are obligated to pay HOA, condo, or co-op assessments, and may also pay taxes for one or more overlay taxing districts.

Tenants generally pay these additional costs indirectly, with higher monthly rents. Taxpayers help to defray these added costs for a small percentage of tenants who receive rental assistance (such as vouchers or Section 8).

Increasingly, I hear from home and condo owners in maturing mixed use communities that they are compelled to pay higher and higher assessments that are used to upgrade commercial units and highly visible common areas in their association, while maintenance on residential portions of the community has been indefinitely deferred.

An ongoing lawsuit in Celebration, Florida, once a shining example of New Urbanism, is but one example.

Of course, sometimes the opposite is true. Condo owners make a litany of complaints against business owners or tenants – griping to their Association about excessive noise, foul odors, parking issues, and the appearance of signs, among other things. Pressure from owners in the Association sometimes forces these business to relocate or fail altogether.

The point is, higher density is only beneficial until it reaches a tipping point, where overcrowding taxes economic resources, becomes a public nuisance, creates an unnecessary financial burden, and, in some cases, a becomes downright hazardous to personal health and safety.

 

ULI’s impact on housing policy

You may recall that ULI was one of the organizations that helped to establish Community Associations Institute (CAI) in 1973.

Although today the two organizations have somewhat different mission statements, ULI and CAI share the goal of promoting common interest communities, despite persistent problems that plague these communities – problems so deep that they defy a resolution.

And while CAI wields considerable political clout in state legislatures, ULI exerts its heavy influence on housing and urban development fiscal policy at the federal level.

New townhouses (Pixabay.com free image)

Who are the members and leaders of ULI?

To better understand any organization’s priorities, examine who serves in leadership roles.

The Global Chairman of ULI:

Thomas Toomey is the global chairman of ULI. A longtime ULI member, ULI Trustee, and ULI Foundation Governor, he is serving a two-year term from July 1, 2017, to June 30, 2019.

Mr. Toomey is Chief Executive Officer, President and a Director of UDR, Inc., a $15 billion S&P 500 company; having served in these capacities since joining the Company sixteen years ago. Over his tenure, Mr. Toomey has been instrumental in repositioning the Company’s portfolio, including the acquisition and disposition of over $17 billion in multifamily communities, which has led to an above average annual return of 13% for the Company’s shareholders. As of December 2016, the Company owned or had an ownership interest in 49,907 apartment homes in select markets across the U.S.

Source:

https://americas.uli.org/about-uli/leadership-governance/chairman/

More than 150 Global Trustee members, and 17 members of a Global Board of Directors, include executives of some of the largest corporations and financiers of the real estate industry:

Ackerberg Group, Mitsubishi Estate Company of Japan, Abu Dhabi Investment Authority, Canadian Pension Plan Investment Board (CPPIB) of Toronto, Goldman Sachs, Tricon Capital (Toronto), Billingsley Company, Berlyn Hyp (Germany), and many more developers, global real estate investment companies, and financial institutions.

Board of Directors representing ULI Americas hail from:

Cabot Properties, Hyde Street Holdings (Raleigh, NC), Silverstein Properties (NYC), PNC Bank, EDENS Bethesda, and others.

 

More density = more profit

Although a portion of ULI’s mission may be academic or philanthropic, it’s clear to see that nearly every member of ULI also reaps substantial economic benefit from real estate development.

Simply stated, higher density construction almost always results in higher overall revenue for developers, and a greater return on investment for stockholders, investors, and financial institutions.

The industry will argue that per unit cost of dense housing is lower than it would be if density were lower.

And, initially, the purchase price might be low compared to a scarce supply of single family homes and estate properties.

However, the more housing that is crammed onto a smaller plot of land – such as in major cities or fast-growing suburban zones – the more expensive it becomes to buy into its convenient location. And when that happens, lower-income housing is often converted to additional housing for the affluent, displacing long-time residents who can no longer afford to live in their hometowns.

Local governments tend to enable this transition, calling it economic development After all, higher income households can more easily afford rising property taxes and they generate higher sales tax revenue.

Ironically, owners of new luxury urban condos or townhouses tend to prefer less densely packed housing. Luxury units often exceed 2000 square feet, with sale prices in the millions of dollars.

Wealthy city dwellers are certainly not crammed into high-density “affordable” or market-rate apartments or condos, most of which are constructed with paper-thin walls and floors that transmit every noise and vibration from neighboring units or ground floor commercial tenants.

In other words, in “world class” cities, only the wealthy can afford the best of both worlds – living in the heart of a vibrant urban core, while still retaining plenty of elbow room and privacy at home.

 

What about the rest of us?

While some residents of urban centers and walkable suburbs truly appreciate proximity to restaurants, shopping, entertainment, and night life, many others tire of the hustle and bustle, and, if given the choice, would prefer to escape to a more peaceful refuge.

After more than two decades of New Urbanism, public perception is ever more skeptical of the relentless push for higher density neighborhoods.

 

Pixabay.com free image of urban development

I am collecting articles and reports on high density and mixed use communities on the following page:

https://independentamericancommunities.com/higher-densitymixed-use-communities/

If you have an article or comment you would like to add to the list, please email me at debgoonan@icloud.com

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