Matrix Blog

Affordability, Affordable Housing

Build Them And They Will Go Rental

February 10, 2006 | 12:34 am |

The National Association of Home Builders (NAHB) reported in their press release [NAHB] that Builder Optimism Rises For Rental Apartments, Declines For Condos At Year-End 2005.

There are two points that can be made here (I know this is just a press release) regarding the real estate market and whether someone is going to write a check to the mortgage company or the landlord:

  • Rental Apartments – As mortgage rates rise, rental rates rise. Potential buyers that are on the fence as to whether they would qualify for a mortgage are bumped from the bubble (sorry – sort of the analogy that is used at the Indy 500. The slowest racer of the day sits on the bubble and can be bumped off by the next racer that runs a faster time.) As these people are bumped, they become renters, which drives up the rents due to increased competition. The current housing market has come largely at the expense of the rental market. Builders made the transition from rental to condo developments in about 2003 but may return back to rentals if mortgage rates rise this year.

  • Condo Units – Condo units are entering the market at an increasing pace. However, one of the driving forces of the housing boom has been the adjustable rate mortgage. In contrast to the fixed mortgage rates, which have actually fallen since the fed changed its stance on the market by raising short term rates, rising short term rates have priced out many buyers who would have used the 1-arm mortgages.

For an interesting explanation of the rent versus buy decision, see Houses: Buying Versus Renting by Margaret Smith, Professor of Economics, Pomona and College Gary Smith, Professor of Economics, Pomona College.

She writes:

Comps can help us judge whether the price of a particular house is high or low relative to the prices of other houses, but they tell us nothing about whether housing prices are high or low in any absolute sense. First-time homebuyers invariably ask, “Is now a good time to buy?” Clients who already own homes often ask if trading up is a good investment or if downsizing is a smart financial move. We have also had clients ask if we are in a housing bubble and if they should sell their house and rent until sanity returns.


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Sprawled In The Suburbs, There Is Hope For The New-Urbanist

February 8, 2006 | 12:01 am |

National Geographic has a really cool image gallery that compares New Urbanist and Sprawl suburbs [NG]. Wait a sec…National Geographic? Here’s a cheesy interactive page of the same info [NG].

Here’s more discussion from the City of Austin:
-Residences far removed from stores, parks, and other activity centers
-Scattered or “leapfrog” development that leaves large tracts of undeveloped land between developments
-Commercial strip development along major streets
-Large expanses of low-density or single use development such as commercial centers with no office or residential uses, or residential areas with no nearby commercial centers
-Major form of transportation is the automobile Uninterrupted and contiguous low- to medium-density (one to six du/ac) urban development
-Walled residential subdivisions that do not connect to adjacent residential development.

I was specifically interested in National Geographics definition of the residential components and how they differ between the two types of suburban growth:

New Urbanism

  • Different housing types—apartments, row houses, detached homes—occupy the same neighborhood, sometimes the same block.

  • People of different income levels mingle and may come to better understand each other.

  • A family can “move up” without moving away—say, from a row house to a single-family home.

  • Property values don’t necessarily suffer when housing types are mixed. New-urbanist neighborhoods are generally outselling neighboring subdivisions, and some of the United States’ most expensive older neighborhoods—Washington, D.C.’s Georgetown, Boston’s Beacon Hill, for example—are marvels of mixed housing.

Sprawl

  • Developers often fill whole subdivisions with one type of residence—say, $300,000 ranch houses.

  • Zoning often outlaws apartments and houses in the same development.

  • Sequestered in a narrow sliver of society, people may develop or maintain intolerance of those outside their ilk.

It seems logical that New Urbanism is more appealing (to me on first glance anyway) based on the points made above, but look at the discussions raised Suburban Dystopia[Polis]. Suburbs are experiencing a renaissance [LA Times]. Actually I think nearly every fad or movement in housing is being seen now. When the market is as strong as it has been, more expensive alternatives gain in popularity. Here’s another California pro-Suburb article that came out on the same day. [SF Chron]

The correction of a 50 year old housing pattern is not so easy. In addition, restrictions on use, such as zoning, transportation, building codes, etc. tend to drive the prices up. The move toward New Urbanism means a potentially better living experience but at higher prices.

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Apparently Mobile-homes Need To Actually Be Mobile In A Housing Boom

February 3, 2006 | 12:02 am |

In a market Q&A story Mobile-home land grab riles new homeowner [MW] a reader submits a question about the rights of park owners to evict their tenants in order to re-develop the land.

Rapidly rising real estate prices over the past 5 years have caused many to pause and reflect about whether the asset, in this case a mobile home park, is being used to its full potential.

Its not so much the details of this situation I find so interesting, but its the whole concept of alternative or highest and best use.

  • Trailer Trash Talk — In the case of the trailer park, many are on leased land and if the landlord chooses to sell the property for development, the landlord simply refuses to renew the leases.

Recent posts on this topic in Matrix


Watergate Hotel Conversion To Condo, But No Break-in Necessary

February 3, 2006 | 12:01 am |

One of the casualties of the housing boom has been hotel capacity in major metropolitan areas as hotel owners compare the returns of hotel uses versus condominium conversion. In the article, Putting out The Ritz: When hotels go condo Hoteliers in New York are converting grand old inns to condos. Now Washington has joined the trend, and more will follow suit [CNN/Money]. this phenomenon is discussed.

The trend has, so far, been mostly confined to New York City, where the world famous Plaza, the recently remodeled Drake, the Mark and the Stanhope will soon undergo a condo conversion.

For cities like New York, the loss of rooms can translate into lost revenue for the city. About 1,100 rooms per year are currently being constructed in Manhattan yet more than that are being converted to condo for a net loss in inventory. Tourists bring needed revenue to the city and need to be adequate to attract large conventions. Its a problem with no obvious solution unless the housing market cools, thereby slowing these conversions.

There is already a glut of condos on the market in Washington DC [CNN/Money]. Washington is starting to see this activity on the relative scale that New York has been seeing this for several years. A renowned landmark in DC is catching a lot of attention for this very reason.

_Conversion or “Break-in” [sorry] of Watergate_

“Watergate” is a general term used to describe a complex web of political scandals between 1972 and 1974. The word specifically refers to the Watergate Hotel in Washington D.C.

The phrase eventually morphed into a suffix for scandal “####-gate.”

“On June 17, 1972, police apprehended five men attempting to break into and wiretap Democratic party offices. With two other accomplices they were tried and convicted in Jan., 1973. All seven men were either directly or indirectly employees of President Nixon’s reelection committee, and many persons, including the trial judge, John J. Sirica, suspected a conspiracy involving higher-echelon government officials. In March, James McCord, one of the convicted burglars, wrote a letter to Sirica charging a massive coverup of the burglary. His letter transformed the affair into a political scandal of unprecedented magnitude”[InfoPlease].

But did you know that a portion of the Watergate complex was comprised of co-op residences? Now the hotel portion is being converted to condominium because it is up to 3x more valuable to its owners.

In 2003 the co-op portion of the complex wanted the hotel owners to convert the hotel to co-op [WE Guide] instead of condos. Now in 2005 [WW], the conversion to condo is actually taking place. Actually, I always thought that the complex was on leased land but that would make condo conversion difficult or unlikely since the condos could not be owned in fee simple …but this is to be saved for a rainy day discussion.