Housing-News-Report-March-2018

NAMED THE NATION’S BEST NEWSLETTER BY NAREE

MARCH 2018 VOL 12 ISSUE 3

MY TAKE THE RISE OF INFILL DEVELOPMENT P10

SPOTLIGHT: HOUSTON A RISING TIDE IN HOUSTON P14

BIG DATA SANDBOX TO FINANCE OR NOT TO FINANCE HOME FLIPS P21

DATA IN ACTION MARKETS WITH THE MOST ENVIRONMENTAL HAZARD RISK P22

Contents

FEATURED ARTICLE

A paucity of affordable housing that threatens to inflame a burgeoning homelessness crisis and trigger an exodus of well-paying jobs is forcing local governments to consider creative solutions to this intractable problem. One such solution is to streamline the development of accessory dwelling units, a solution that many believe holds much promise but others warn comes with numerous pitfalls. P1 THE PROMISE AND PITFALLS OF ACCESSORY DWELLING UNITS AS AN AFFORDABLE HOUSING PANACEA Civil engineering firm MFKessler is riding the wave of rising infill development, which in the wake of the Great Recession has become the new urban planning, according to company principals Ali Monshizadeh and Mark Fotohabadi, who explain how infill development has returned to downtown areas, outline the mixed acceptance of infill development and ultimately provide a strong case that infill development provides a promising future for markets such as California where every square foot of property counts. P10 MY TAKE: THE RISE OF INFILL DEVELOPMENT The Houston real estate market took a licking in 2017 thanks to Hurricane Harvey, but it’s apparent that housing kept on ticking in the nation’s fifth most-populated metro area. After a sharp drop immediately following the storm and flooding, home sales have held steady, and home prices have continued to post consistent year- over-year gains. Meanwhile moratoriums have so far held back a potential flood of foreclosures, which may be coming in 2018. P14 SPOTLIGHT: A RISING TIDE IN HOUSTON Nearly 35 percent of all homes flipped in 2017 were purchased by the flipper with financing, a nine-year high. While financing flips may be attractive given that — in theory — it allows investors to leverage their capital to get a better return and do more flips, that theory does not quite work out based on the data. P21 BIG DATA SANDBOX: TO FINANCE OR NOT TO FINANCE HOME FLIPS

P1

P10

P14

P22 DATA IN ACTION: MARKETS WITH THE MOST ENVIRONMENTAL HAZARD RISK

ATTOM Data Solutions analyzed 8,665 U.S. zip codes with sufficient housing trend data for risk related to four environmental hazards — superfund sites, brownfields, polluters and poor air quality — to determine which markets have the highest risk and to evaluate housing market trends based on environmental hazard risk. An interactive heat map allows readers to zoom in to their specific market and get that environmental hazard numbers there.

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LEAD ARTICLE

The Promise and Pitfalls of Accessory Dwelling Units as an Affordable Housing Panacea

BY DAREN BLOMQUIST, EXECUTIVE EDITOR

A paucity of affordable housing that threatens to inflame a burgeoning homelessness crisis and trigger an exodus of well-paying jobs is forcing local governments to consider creative solutions to this intractable problem.

units (ADUs) in the hopes that real estate developers and single-family homeowners can create more affordable housing inventory one granny flat at a time. A trio of California laws that took effect in January 2017 is one example of such an attempt to streamline ADU development. The laws (SB 1069,

AB 2299, and AB 2406), encourage cities to ease some of the common hurdles to the permitting and building of accessory dwelling units (ADUs) — also known as granny flats, in-law units or just second units — most notably parking requirements, setback requirements, and utility connection fees.

One such solution is to streamline the development of accessory dwelling

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STATES WITH INCREASING ADU BUILDING PERMITS 2017 YEAR-OVER-YEAR PERCENT CHANGE IN ADU BUILDING PERMITS

CALIFORNIA

63%

HAWAII

31%

TENNESSEE

25%

WASHINGTON

22%

ILLINOIS

14% 14%

MARYLAND

OREGON

13%

PENNSYLVANIA

10%

FLORIDA

7%

NORTH CAROLINA

6%

SOURCE: BUILDFAX

An Accessory Dwelling Unit Memorandum published in December 2016 by the California Department of Housing and Community Development claims that these “changes to ADU laws will further reduce barriers, better streamline approval and expand capacity to accommodate the development of ADUs.” The legislation certainly appears to be accomplishing its goal of accommodating the development of ADUs. Statewide in California, building permits for ADUs increased 63 percent in 2017 compared to 2016, the biggest increase among 20 states with at least 100 ADU building permits issued in 2017, according to an ATTOM Data Solutions analysis of building permit data from Buildfax. Nationwide, building permits for ADUs were unchanged in 2017 compared to 2016.

“As affordability worsens, the incentive for homeowners to build ADUs becomes greater. But the cities just have to let them. That’s the only barrier.”

HOLLY TACHOVSKY CEO, BUILDFAX AUSTIN, TEXAS

with 4,352, followed by Oregon (1,682), Washington (1,110), Florida (944) and Maryland (872). “As affordability worsens, the incentive for homeowners to build ADUs becomes greater. But the cities just have to let them. That’s the only barrier,” said Holly Tachovsky, CEO at Buildfax, who noted that the rise in ADU building permits in some inventory- and affordability-challenged cities reflects a larger trend she has noticed in remodeling in the wake of the Great Recession. “Americans are now spending more money remodeling homes than they are building new ones.

This flipped in 2009 and it has stayed flipped since then. The previous trend in all of recorded data before that — decades and decades — was new construction dollars were more than remodeling dollars.” A “Ton of Money” in ADUs Among 30 California metropolitan statistical areas analyzed, the biggest increase in ADU building permits was in Santa Barbara (up 314 percent). Three other Southern California cities posted increases in the top five among the state’s metro areas: Oxnard-Thousand Oaks-Ventura (up

California had the most ADU building permits issued in 2017 of any state,

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179 percent); Los Angeles-Long Beach- Anaheim (up 127 percent); and San Diego (up 71 percent). One Southern California developer smells opportunity for a new niche in real estate development thanks to the state’s legislative changes. “I think there’s a ton of money to be made in these ADUs,” he said, asking not to be identified by name in the article to prevent other investors from copycatting his strategy. “It’s sort of like a gold mine. You don’t want to tell the other miners where to look.”

outline of his strategy to the Housing News Report. He said he dove into the legislation and determined which type of streamlined ADU would work best for him as a developer and then identified cities that have a large number of properties with good potential for that specific type of ADU and are most accommodating to ADU development. “Go where they are going to roll out the red carpet for you,” he said, noting that some cities have resisted the statewide legislation. He highlighted Inglewood as one city that refused to issue any ADU permit in 2017 — confirmed by the ATTOM analysis of building permit data from Buildfax.

“There are other cities that actively want this type of development. Go do development there.” The ADU Advantage Focusing on ADUs provides real estate investors a competitive advantage on several fronts, according to the Southern California developer. First, it provides a less risky alternative for investing in a housing market boom that has overstayed its welcome. “We are far closer to the top of this real estate cycle than we are to the bottom … how can we get in and out of things quickly so if the party ends we aren’t left holding the bag,” he said, noting that ADU development allows for this because it typically involves little or no actual addition of square footage. “The envelope is already there so the construction time is relatively short compared to adding square footage from scratch.” Secondly, because most homeowners and other investors aren’t familiar with the law, they often undervalue properties that are prime for ADU development. “Most developers don’t know the ADU law exists. Homeowners don’t know it exists … it isn’t priced into the home,” said the Southern California developer, adding that most flippers avoid oversized homes, but those overdeveloped homes could now be good candidates for a streamlined ADU. “You can’t just keep doing the

The Southern California developer was willing to provide a general, high-level

“I think there’s a ton of money to be made in these ADUs. It’s sort of like a gold mine. You don’t want to tell the other miners where to look.” SOUTHERN CALIFORNIA REAL ESTATE DEVELOPER WHO ASKED NOT TO BE NAMED TO PREVENT OTHER INVESTORS FROM COPYCATTING HIS ADU INVESTING STRATEGY.

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METROS WITH INCREASING ADU BUILDING PERMITS 2017 YEAR-OVER-YEAR PERCENT CHANGE IN ADU BUILDING PERMITS

“ADUs are a unique opportunity to address a variety of housing needs and provide affordable housing options for family members, friends, students, the elderly, in-home health care providers, the disabled, and others.” ACCESSORY DWELLING UNIT MEMORANDUM PUBLISHED IN DECEMBER 2016 BY THE CALIFORNIA DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT

SANTA BARBARA, CA

314%

VENTURA, CA

179%

LOS ANGELES, CA

127%

SAN DIEGO, CA

71% 70%

HONOLULU, HI

SAN FRANCISCO, CA

56%

DALLAS-FORT WORTH, TX

53%

BALTIMORE, MD

42%

TAMPA-ST.PETERSBURG, FL

36% 36% 35%

ASHEVILLE, NC

ORLANDO, FL

SOURCE: BUILDFAX

same thing all the time and expect the world is going to remain the same.”

by the California Department of Housing and Community Development.

“It could allow some people to get into neighborhoods that they otherwise could not afford,” he continued, noting that as of January 1, 2018, Freddie Mac will allow income from an ADU to be counted when qualifying for a mortgage. “When you’re done with it you’re going to have two properties to rent rather than one.” The promise of more affordable housing inventory with streamlined ADU development was echoed in the December 2016 memorandum published

Addressing Affordability Lastly, the Southern California

“ADUs are a unique opportunity to address a variety of housing needs and provide affordable housing options for family members, friends, students, the elderly, in-home health care providers, the disabled, and others,” the memorandum reads. “Further, ADUs offer an opportunity to maximize and integrate housing choices within existing neighborhoods.”

developer also believes the end-product of a home with an ADU will be in high demand in highly unaffordable housing markets such as Southern California. “In certain demographic pools, multi- generational housing is common and coveted. … Now we’ve just given them a legal way to do it,” he said.

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Going a step further, Los Angeles County last year launched a pilot program to incentivize homeowners to build ADUs to house the homeless. The program, approved by the LA County board of Supervisors in August 2016, allows qualifying homeowners to receive up to $75,000 to construct an ADU — as long as they agree to rent to formerly homeless individuals, according to Curbed Los Angeles. ADU Pitfalls in Portland But the promise of ADUs as a solution to homelessness or even affordable housing has fallen flat further up the coast in Portland, according to local real estate investor and developer Justin Grubb. “Portland is one of those cohesive love- thy-neighbor, liberal type of towns. Let the homeless guy live in your backyard. But there was a certain naivete to

letting someone live on your property,” said Grubb, managing partner with Bulldog Capital, a real estate investment firm based in Portland. According to Grubb, Portland made a big push for more ADUs about three to five years ago, promoting them as a way to create more affordable housing in the city. “They discounted the cost for permitting the ADU. … They really were encouraging them,” he said, noting that

his firm initially jumped on the ADU bandwagon. “We were doing them, we were putting ADUs in the basement; we weren’t ever doing stand-alones.”

But then some realities hit for homeowners and real estate developers — particularly in

predominantly single family residential areas attractive to families, according to Grubb, who said that because single family homes in Portland tend to fall on the smaller side, it severely limits the

“Portland is one of those cohesive love-thy-neighbor, liberal type of towns. Let the homeless guy live in your backyard. But there was a certain naivete to letting someone live on your property.”

JUSTIN GRUBB MANAGING PARTNER, BULLDOG CAPITAL PORTLAND, OREGON

METROS WITH MOST 2017 ADU BUILDING PERMITS

1,540

1,475

1,027

1,007

845

534

352

321

308

291

PORTLAND, OR

LOS ANGELES, CA

WASHING- TON, DC

SAN FRANCIS- CO, CA

SEATTLE, WA

PHILADEL- PHIA, PA

SANTA BARBARA, CA

BOULDER, CO

NEW YORK, NY

AUSTIN, TX

SOURCE: BUILDFAX

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STATES WITH MOST ADU BUILDING PERMITS IN 2017

4,352

1,682

SOURCE: BUILDFAX

1,110

944

872

691

552

548

429

409

405

CA

OR WA FL

MD NC PA TX

VA CO AZ

size of the ADU that could be built given that an ADU cannot exceed 30 percent of the existing home’s square footage. “If I have a 1940s home that is 900 square feet, there’s not much you can do,” said Grubb, adding that homeowners with children quickly cooled to the idea of having a stranger living in their backyard, even if that stranger represented a source of rental income. “A lot of people may see it as a rosy upside, but you don’t want to deal with it every day; especially if you have children you don’t want strangers living in the backyard. “People thought they could Airbnb these things, but then they found out that this wasn’t legal to do or if you did it you had to pay hotel tax, and that kind of wilted it a bit,” he added. “It all depends where your home is and who your client is. As far as homeowners building ADUs on their lots, I think it’s more of a nice-to-talk about sort of thing.”

The continued popularity of ADUs in select parts of Portland is evident in the building permit data from Buildfax, which shows ADU building permits in the greater Portland metro area increased 21 percent in 2017 compared to 2016. Portland’s 1,540 ADU building permits in 2017 were the most of any metro area nationwide, ahead of Los Angeles, Washington D.C., San Francisco and Seattle. Still Hopeful in Seattle Building permits issued for ADUs increased 20 percent in Seattle in 2017 to 845, according to the ATTOM Data Solutions analysis of Buildfax building permit data. Bryan Copley would like to see at least two zeros added to that ADU building permit number. Copley, CEO and co-founder of CityBldr, a company that identifies underdeveloped properties for

Grubb recounted that he recently acquired two similar properties, one with an ADU and one without. The one without an ADU sold quickly for $775,000; the one with an ADU is still on the market listed at $759,000. “Three years ago people were asking for ADUS. Now three years later I have an ADU and I can’t sell it,” he said. Grubb noted that ADUs continue to be popular in parts Portland that already have more dense development and cater to younger, creative types. “They absolutely do want an ADU. There are two different types of generations. The families, they don’t want it. Those in the gentrifying areas, they want the ADU and they want top rent for the ADU,” he said, recalling a recent property with an ADU that he sold. “The one I did was four stories high, ADU behind the back. Those areas have always been must- have ADUs.”

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homeowners and developers, estimated that about 10 percent of the approximately 762,000 properties his firm has analyzed in the Seattle area are good candidates for streamlined approval of ADUs. “The goal here is to look at every single home … you have homes that have a big back yard and you can put accessory dwelling units in that,” he said, explaining that CityBldr is in the midst of a pilot initiative in Seattle to streamline the creation of ADUs on a larger scale by using data to quickly identify “single family homeowners with a lot that we can automatically approve … we are looking at parcel Copley said the initiative, which he has dubbed Add a Unit, rose out of talks with local governments about how to solve the problem of housing affordability without taxing developers or requiring developers to build a certain amount of affordable units — a policy which often backfires by pushing developers to build elsewhere. “As prices go up and the margins on developable land goes down, we’ve got to create market-based solutions, and I think one of the best market- based solutions are ADUs,” Copley said. “It’s great for the property owner; it’s great for the city because we are creating new homes, and these ADUs are kind of a good bridge to homeownership.” Tachovsky, the Buildfax CEO, said she was part of a housing council in her shapes, topography, distance to transportation, things like that.”

hometown of Austin, Texas tasked with finding solutions to the affordability crisis there. The council landed on ADUs as one of the best solutions. “In order to keep the soul of our city, we had to figure out how to address affordability in our city,” she said, acknowledging that ADUS are a fairly “narrow solution to the affordability crisis. … (but) I think it’s the best solution I’ve heard of out of any of them because it’s a market-based solution which is usually better than government-based solutions.”

visitors to the CityBlder website own properties that don’t have zoning for multi-family, limiting the development options for those properties. But ADUs are one option still available for single family zoning. “(Streamlined ADU development) could drastically increase the housing stock in places like Seattle, Portland, LA, the greater Bay Area … all of those are great areas for creating ADUs,” he said. “I could see this as being the next housing revolution.”

Matthew Gardner, chief economist with Windermere Real Estate in Seattle,

Zoning Roadblocks Copley noted that three of four

“As prices go up and the margins on developable land goes down, we’ve got to create market-based solutions, and I think one of the best market-based solutions are ADUs. It’s great for the property owner; it’s great for the city because we are creating new homes, and these ADUs are kind of a good bridge to homeownership.”

BRYAN COPLEY CEO AND CO-FOUNDER CITYBLDR SEATTLE, WASHINGTON

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agrees that zoning limitations are a hurdle to more affordable housing inventory in the region. “Without a doubt Seattle has an issue,” said Gardner, noting that 68 percent of the city is zoned as single family. “That might have been appropriate in the 1980s. Is it appropriate now? Absolutely not.”

which he noted the city of Seattle is proposing — will significantly solve the housing inventory and affordability problems the area is facing. “If it offers any help at all, it’s going to be de minimis. Every little bit helps but I don’t see it as any form of panacea,” he said, adding that more aggressive zoning changes that allow for much denser housing development is more likely to make an impact. “You can put five or six single family homes on an

acre if you can find it. Or you can put 18 to 22 townhomes. … We’ve got to densify the land.” Stacked Development in Portland Justin Grubb, the Portland real estate investor and developer, said market forces have pushed him to denser development. His company started out several years ago with fix-and- flips of existing properties, then moved to new construction, tearing down properties and rebuilding them as luxury homes. But he found the nearly million-dollar price points on those homes were getting too rich for buyers. “When you sit on a million-dollar property for a few months waiting for a buyer, you get a little nervous,” he said, noting that he was building on lots zoned R-1, which allow for as many as 1 unit for every 1,000 square feet.

But Gardner doesn’t believe streamlining ADU development —

“Every little bit helps but I don’t see (ADUs) as any form of panacea. You can put five or six single family homes on an acre if you can find it. Or you can put 18 to 22 townhomes. …We’ve got to densify the land.”

MATTHEW GARDNER CHIEF ECONOMIST, WINDERMERE REAL ESTATE SEATTLE, WASHINGTON

SINGLE FAMILY SHARE OF TOTAL PROPERTIES

76%

ATLANTA DETOROIT MINNEAPOLIS-ST.PAUL PORTLAND DALLAS-FORT WORTH

70% 70% 70%

69%

68% 68%

PHOENIX SEATTLE RIVERSIDE-SAN BERNARDINO SAN FRANCISCO ST. LOUIS HOUSTON PITTSBURGH

67% 67%

66% 66%

64%

63%

LOS ANGELES PHILADELPHIA NEW YORK TAMPA WASHINGTON, D.C. CHICAGO U.S. TOTAL BOSTON MIAMI

62%

61%

60%

58%

57%

55%

54%

46%

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“I’ve got all these great lots, we’re not maximizing density and it really was looking like the market was saying this was too much money.” So Grubb pivoted his strategy and started focusing on building smaller complexes of up to 15 units, depending on the lot size. “I think stacked development makes sense,” he said. “We’re doing three- story, four units on each level. I’m trying to get as large of units as possible … nobody wants to live in IKEA. … The goal is just to make smaller and smaller pieces and make it more affordable. “Put in a little less house and a little more building in there; we could still hit our numbers,” he continued. “You’ve got to be able to pivot.” Densify or Die? That evolution from fix-and-flipper to full-fledged real estate developer is a common trajectory in recent years, according to Ross Hamilton, CEO with Connected Investors, an online community for real estate investors. “A lot of fix-and-flip real estate investors are going to become builders. …not necessarily because they want to but out of necessity,” Hamilton said. “There is a lot less competition to get a lot and to build on it. And the profits are a lot more predictable.”

“A lot of fix-and-flip real estate investors are going to become builders. …not necessarily because they want to but out of necessity. There is a lot less competition to get a lot and to build on it. And the profits are a lot more predictable.”

ROSS HAMILTON CEO, CONNECTED INVESTORS

looking to cash out of their investment properties there started contacting him.

development. But he warned that thinking could lead to harmful long- term impacts for the region. “At what point do we become too expensive? At what point do companies say I can create my widget in Boise, Idaho, where it is significantly cheaper,” he cautioned. “Both from a demand standpoint as well as from a demographic standpoint, zoning should not be the same as it was 30 to 40 years ago. … The world is changing.”

“We started getting 1031 money contacting us like crazy,” he said. “They are able to buy a lot more here than they are in other areas. Maybe I roll out of a duplex in LA or San Francisco. I have enough money from that rollout that I can buy a new construction multi-unit building that I’m building (in Portland).” Gardner said “classic NIMBYism thinking” is keeping Seattle from a bigger push toward denser housing

A bonus to Grubb’s new strategy: investors in higher-priced markets

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MY TAKE The Rise of Infill Development

BY ALI MONSHIZADEH, P.E. & MARK FOTOHABADI, PH.D. MANAGING PRINCIPAL AND CO-FOUNDER OF MFKESSLER

The need for development is on the rise. Whether it’s in the form of a need for more housing, more commercial space, or more retail space, there is always a need for more development. The question has always been, “Where is it best to develop?” A common phenomenon we are witnessing in densely populated settings across America is infill development. From a technical

daily basis, and have been providing engineering consulting services to visionary infill developers since the early 2000s. The most common concept of infill development is converting low-density residential and commercial space to high-density residential and mixed-use spaces. This inherently causes a chain effect. Industrial space is then converted to commercial space, retail space is strategically placed within

standpoint, land is continuously being re-utilized to be used more efficiently. As cities and urban areas have morphed from the turn of the century, more eager residents have flocked to urban areas. Urban settings are being re-engineered to become more inviting to residents, especially to younger adults.

At MFKessler, fortunately, we get to witness this sort of infill planning on a

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these new developments, and then industrial space is pushed further outside of the cities. This cyclical nature of real estate development is what helps build sustainable communities for us all to enjoy. Infill Development is the New Urban Planning There was a time when planned cities were all the rage among urban developers. The sheer success of places such as Canberra in Australia and Irvine in California fueled the expectations of urban planners who learned from the painful lessons of Brasilia and the Chinese ghost cities of Ordos Kangbashi; however, the collapse of the American real estate economy in 2008 presented a new challenge as these suburbs were becoming less affordable. In the midst of the American real estate bonanza that started shortly after the year 2000, master-planned

residential developments provided homeowners with suburban paradises often located far from commercial centers, and this was not much of a problem back then; household earners did not mind spending hours each month driving back and forth from work, schools, parks, malls, and movie theaters. With this lifestyle, suburban sprawl was not a concern since developers believed that prosperity would continue unabated, thus prompting future zoning and construction of commercial districts, office parks, schools, and infrastructure. Infill Development Returns to Downtown Areas Opportunities ripe for infill development were noticed during the exodus from the suburbs to urban centers. As population started moving into more urban settings, local housing markets became constrained due to low supply. Commercial developers noticed

urban centers becoming repopulated with a younger demographic.

In some downtown districts infill development has consisted of luxury condominium towers, some of them with mixed zoning provisions that allow merchants to set up shop on the lower levels. Elsewhere, historic districts near downtown areas have adjusted their zoning so that owners of renovated homes can operate cafés, boutiques and art galleries. In some places old car dealerships are converted to condominium projects with retail elements fronting major streets. These are examples of infill development initiatives that strike a commercial and residential balance, as they should in urban centers, and planners have preferred this kind of development as opposed to looking for greenfield opportunities that may be more affordable to develop, but that in the end will only contribute to sprawl outwards. “As population started moving into more urban settings, local housing markets became constrained due to low supply. Commercial developers noticed urban centers becoming repopulated with a younger demographic.”

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State. The problem in California is that a 2017 study published by Berkeley University suggests that the need for 1.9 million housing units could be solved by infill development; however, the carbon footprint of such a massive construction projects become a concern in a state where greenhouse gas emissions are subject to considerable restrictions. Still, when considering the carbon footprint of sprawl coupled with the increased driving that suburban and exurban neighborhoods would create, infill development is becoming more welcomed by communities in California. The Dynamics of Infill Development As municipalities, developers, and residents are looking towards a more effective utilization of land, the responsibility falls on the designers, architects, and civil engineers to make this work. Though the concept of infill development seems simple, the

“As municipalities, developers, and residents are looking towards a more effective utilization of land, the responsibility falls on the designers, architects, and civil engineers to make this work. Though the concept of infill development seems simple, the dynamics are quite complex. What should be noted about these types of infill projects is that they present greater complexity than building a new-gated community in the outskirts of town.”

Acceptance of Infill Development What is interesting about the current wave of infill development is that it is being embraced with enthusiasm in many urban centers. Planning committees are very active fielding objections from neighbors and local business owners. Some municipalities, especially those with historic character, often require developers to maintain that character throughout the transformation. Municipalities offer bonuses for developers who build affordable housing into their

projects. Most municipalities require a public use element within the new development. Residents often become welcoming of such developments. There is always the inconvenience of construction, but neighborhoods are revitalized, property values rise, and local businesses prosper. Positive reactions to infill development may be a bit more difficult to elicit in housing markets such as California, and this is despite the desperate need for housing solutions in the Golden

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dynamics are quite complex. What should be noted about these types of infill projects is that they present greater complexity than building a new-gated community in the outskirts of town. Municipal planning for such changes requires years of planning, and studies. These projects are being developed in the midst of code amendments and new zoning schemes. Studies on architecture, zoning, infrastructure, and environmental elements take years and require great expertise. It pays to have the right team on your side in the development of infill projects. It takes more than a vision to ensure that infill projects succeed. Deciphering development codes, presenting an architecture that works with the environment, while ensuring there is sufficient infrastructure to support the project, all while reducing environmental impacts of the project, are key aspects a great design team evaluates. Where land prices are astronomical, every square foot of property counts. The complexity of design in metropolitan settings brings the need for experts who have dealt with such municipalities. Civil engineers like MFKessler are tasked with fitting these new developments within the confines of previously developed land and to the complex municipal standards that govern such developments. Concepts such as mapping and boundary issues, traffic elements, and infrastructure to serve these new developments are complex.

Over the years, our firm has helped many developers design and build these developments into cities across California and Nevada and we have assisted them in navigating the maze of overseeing agencies. Whether carving out a hillside to allow for a multi-story apartment complex, converting an abandoned car dealership center to a vibrant mid- density neighborhood, replacing a

concrete box parking structure in downtown Los Angeles with a sleek multi-component mixed-use high-rise, converting an asphalt parking lot in San Diego to a mid-rise residential development, or replacing single family homes with luxurious low-rise condominiums in Santa Monica and Newport Beach; we see a promising future for infill development projects in the urban planning landscape.

ALI MONSHIZADEH, P.E. & MARK FOTOHABADI, PH.D.

As Managing Principal of MFKessler, Ali Monshizadeh, P.E., is a registered Professional Engineer in California and Nevada with over 15 years of experience, overseeing the firm’s engineering and surveying talent, day-to-day business operations, and clients’ needs. Co-Founder and fellow principal, Mark Fotohabadi, PhD, is a multidisciplinary hands-on entrepreneur and educator, responsible for business development and overall strategic growth of the firm.

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A Rising Tide in Houston SPOTLIGHT: HOUSTON In November 2017 the Houston Astros won their first World Series championship since the team was founded in 1962. It couldn’t have come Harvey, year-end numbers from the Houston Association of Realtors (HAR) came in strong, revealing a record year in terms of home sales and rental activity. BY JOEL CONE, STAFF WRITER

working tirelessly to rebuild their lives after Harvey, but overall, this clearly illustrates the incredible resilience of the people and the economy of Houston, Texas.” Dr. Ted C. Jones, chief economist and senior vice president at Stewart Title Guaranty Company, who produces the annual economic forecast for HAR, agreed that the area’s overall economy continues to be strong despite the temporary setbacks caused by Harvey.

at a better time for the city — and its residents — raising the collective spirit that was dampened just three months earlier when the flood waters from Hurricane Harvey left more than 137,000 single family homes in the Houston metro area either damaged or destroyed.

“No one could have imagined 2017 turning out to be a record-setting year for the Houston real estate market, which had weathered the effects of the energy slump only to have Harvey strike such a devastating blow,” said HAR Chair Kenya Burrell-VanWormer in the association’s January 2018 news release. “We know that many are still

Considering that affected homeowners are still in the recovery process from

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MARCH 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

A RISING TIDE IN HOUSTON

HOUSTON MSA HOME SALES DIP FOLLOWING HARVEY

SINGLE FAMILY HOME SALES (TRAILING 12 MONTHS)

ANNUAL PCT CHANGE

70,000

30%

60,000

20%

50,000

10%

40,000

0%

30,000

-10%

20,000

-20%

10,000

-30%

0

as home prices, inventory levels and rents. Despite the effects of its recent natural catastrophe, Houston’s economy is well positioned to venture forward into a positive future. “Overall it’s still a growth city. A thriving melting pot,” said Thomas Mouton, owner and commercial director of RE/MAX Exclusive in Bellaire, Texas. “The secret is out. Recently there’s been a lot of foreign investors coming here to buy investment properties.” Since the Census Bureau began keeping track back in 1850, the city of Houston, Harris County and the Houston-The Woodlands-Sugar Land

“All told we have a very healthy housing market in Houston. Last year (2017) we sold more homes than anytime in history with a 2.4 percent growth rate in the sale of single family homes. Sales of homes for $1 million and up were up 11 percent for the year.”

DR. TED C. JONES CHIEF ECONOMIST, STEWART TITLE GUARANTY COMPANY HOUSTON, TEXAS

“All told we have a very healthy housing market in Houston,” said Jones, who focuses in on the metro area’s four most active counties — Fort Bend, Galveston, Harris and Montgomery. “Last year (2017) we sold more homes than anytime in history with a 2.4 percent growth rate in the sale of

single family homes. Sales of homes for $1 million and up were up 11 percent for the year.” A Growth City A diverse economy, job opportunities and a growing population are just as essential to a healthy housing market

CONTINUED ON NEXT PAGE 

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A RISING TIDE IN HOUSTON

MSA have all steadily gained in population.

from ATTOM Data Solutions, in 2015 millennials accounted for 24.8 percent of the population in Harris County. “Houston also outperformed the nation in job growth. Houston added 45,000 jobs in the past 12 months despite losing 27,500 jobs due to Harvey,” said Jones.

that payroll employment for 2017 reached a new peak for the region at nearly 3.1 million people. Houston is home to the corporate headquarters of 20 Fortune 500 companies such as Phillips 66, Sysco, Conoco Phillips, Halliburton, Waste Management and Occidental Petroleum. Besides the oil and gas business it is known for, the region is home to one of the nation’s largest ports, as well as the Texas Medical Center, the largest medical complex in the world for medical research and applied life sciences. CONTINUED ON NEXT PAGE 

As of July 2016, the city of Houston ranked the fourth highest population behind only New York, Los Angeles and Chicago at roughly 2.3 million people. At the county level Harris County totaled nearly 4.6 million people in July 2016, the nation’s third highest. With 6.77 million people, the greater metropolitan statistical area ranked the nation’s fifth highest.

For December 2017, the Bureau of Labor Statistics reported that

unemployment for the Houston MSA declined 1 percentage point from the year earlier to 4.3 percent. If it were a country, the MSA’s economy would rank 24th in the world, reports the Greater Houston Partnership, which also noted

Texas in general, and Houston specifically, are seeing an increase in millennials. According to data

HOUSTON MSA MEDIAN HOME PRICES

ANNUAL PCT CHANGE

MEDIAN SALES PRICE SINGLE FAMILY HOMES

$250,000

70%

60%

$200,000

50%

40%

$150,000

30%

20%

$100,000

10%

0%

$50,000

-10%

-20%

$0

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MARCH 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

A RISING TIDE IN HOUSTON

“I just helped a client with a six-month temporary lease while his house is being remodeled. There are still a lot of people affected by Harvey. I think overall the market, for how devastating the hurricane was, I still think we have a very healthy market.”

THOMAS MOUTON OWNER RE/MAX EXCLUSIVE BELLAIRE, TEXAS

As of the 2010 census numbers released by the Census Bureau, Harris County had a 56.8 percent owner-occupied housing units with the remaining 43.2 percent renter occupied housing units. Within the city limits, Houston residents have a median age of 32.7 years and a median household income of $47,010, according to the 2016 American Community Survey conducted by the Bureau. Investors Scared Off In its 2013 Housing Profile for the Houston metro area, the Census Bureau counted nearly 2.4 million housing units in all, 55.6 percent of which were owner-occupied 34.4 percent-renter occupied units. Less than 10 percent of those were either destroyed or damaged by Harvey, noted Jones.

Fortunately, the stock of Class A apartment buildings were overbuilt in Houston. “We have 70,000 Class A apartments that prior to Harvey had never been lived in. We were fortunate to have those units because they had to be temporarily occupied,” he explained. Realtor Mouton has experienced firsthand the aftermath of Harvey, as have many other real estate professionals. “I just helped a client with a six- month temporary lease while his house is being remodeled. There are still a lot of people affected by Harvey. I think overall the market, for how devastating the hurricane was, I still think we have a very healthy market.”

ATTOM reported at year-end 2017 that the Houston metro area had a 5.4 percent growth in median home price compared to the year earlier, up to $214,000. For January, HAR reported the median price rose to $218,000 from January 2017 with a 3.3-month inventory of homes, down from the over 4-month supply before Harvey hit. The amount of time homeowners in the metro area are staying put in their homes has risen steadily quarter by quarter since the second quarter of 2016 to 7.88 years for the fourth quarter of 2017, a 3 percent increase from the previous quarter and up 7 percent from the same quarter the year before, according to ATTOM.

Prior to Harvey, real estate investor Aaron Amuchastegui, principal of

CONTINUED ON NEXT PAGE 

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MARCH 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

A RISING TIDE IN HOUSTON

HOUSTON MSA FORECLOSURE ACTIVITY

FORECLOSURE STARTS

BANK REPOSSESSIONS (REO)

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

don’t have a way to get it right all the time. We decided it’s not worth the risk,” he explained. Considering that Fannie Mae, Freddie Mac and the FHA granted Houston metro homeowners a 90-day foreclosure moratorium after Harvey, it comes as no surprise that investors were skipping the auctions. Data from ATTOM shows Houston foreclosure activity dropping sharply immediately following the hurricane. In September 2017, foreclosure activity in the metro area dropped 46 percent from August and was down 61 percent year- over-year. The year-over-year increases have continued through January 2018, although there was a month-to-month spike of 188 percent in January — an indication that lenders may be ramping back up on foreclosures.

“After Harvey a lot of those investors who used to buy on the courthouse steps stopped buying. The biggest reason, you buy a house but the only thing you see is on the outside. Now you don’t know if it’s vacant because it was flooded or because it is a foreclosure.”

AARON AMUCHASTEGUI PRINCIPAL HOMEROCK LLC

HomeRock LLC had Houston set on his radar of places to invest.

the number of foreclosures up for bid, as well as the number of bidders attending the trustee’s sales has gone down noticeably. “After Harvey a lot of those investors who used to buy on the courthouse steps stopped buying. The biggest reason, you buy a house but the only thing you see is on the outside. Now you don’t know if it’s vacant because it was flooded or because it is a foreclosure. Investors are saying they

“We had a plan to have over 100 houses over 24 months. Now we don’t expect to acquire any,” Amuchastegui said. “We were just getting heavily into Houston when it happened. Since Harvey there’s been a lot of big market changes.”

One of those big changes he noticed on the courthouse steps were that

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MARCH 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

A RISING TIDE IN HOUSTON

While many homeowners who want to move out of their flooded homes and can afford to move are leaving, there are still many who want to move but stay because their mortgage is underwater and they can’t afford to leave. Year-end data collected by ATTOM show that the number of homes with seriously underwater mortgages (loan-to-value ratio of 125 or more) in Houston rose by 3 percent from the third quarter to the fourth quarter for the metro area as a whole — although the number was still down by 24 percent from a year ago. But one of the big ticket items that really changed Amuchastegui’s mind about investing in Houston was the

rising cost of flood insurance — as much as $500 a month per home for someone like him who takes out a commercial loan to purchase as many as 10 homes at a time. “It makes it no longer feasible for us from a rental investor standpoint there,” he said. “Some of my friends are still buying there but they aren’t buying where there’s a chance it might flood.” While individual investors may buy one at a time, repair and sell, HomeRock’s usual buying strategy is that for every 10 homes they buy they sell two or three on the open market through the Multiple Listing Service. The rest of the homes they keep as rental properties.

An ATTOM buy-versus-rent analysis for 2018 shows that the affordability to rent a three-bedroom property in Harris County — the most populated county in the Houston metro area — will worsen as the average rent for a three-bedroom home rises 9.3 percent Builder Confidence High Despite the overstock of apartment buildings in the area, there is new construction proceeding, with both mixed use and strictly residential high-rises in the downtown district. But there are also new single family homes under construction in the metro area. CONTINUED ON NEXT PAGE  to $1,565 a month while average weekly wages decrease slightly.

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MARCH 2018 | ATTOM DATA SOLUTIONS

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A RISING TIDE IN HOUSTON

According to Metrostudy, homebuilders are on track to build 28,000 new homes in 2018, a slight increase over 2017 and a 10 percent increase from the most recent bottom in 2016, keeping the Houston metro area with the second highest number of new home starts in the country, “It’s generally positive. Not gangbusters positive but not negative,” said Lawrence Dean, Metrostudy’s Regional Director in a Houston Chronicle article from February 2018. “We want it to be 32,000 a year.” Still, builder confidence in the area remains high, according to Mike Dishberger, CEO and co-owner of Sandcastle Homes. “We’re still very optimistic for the year. The oil jobs are coming back. The traffic’s been good. There’s some pent-up demand,” said Dishberger. “Harvey hit and for two to three months sales weren’t there. People are now deciding not to rebuild and selling for land value only to someone who will build up.” Metrostudy reported in November 2017 that Harvey was basically a resale market phenomenon due to the locations of most of the flooding. Overall, construction activity in the Houston metro is expected to be lower than in 2017, according to the Greater Houston Partnership’s report titled “Economy At A Glance.” All told, even with moderate growth in industrial and new home

Inner Loop neighborhood since 1995. As he explained it, the company tears down existing warehouses and homes, subdivides the lots and builds condominiums and townhomes in their place. While buyers can still get a home in the $200,000 price range in Houston, Sandcastle sells its homes in the $450,000 price range — a move-up type of home with 2,500 to 3,000 square feet, three bedrooms, two baths and a two-car garage.

construction this year, it is not expected to totally offset the slowdown in office and multi-family construction. “Houston does not have zoning. That’s why it’s building real fast. When it comes to permits the city of Houston has a viable program. Unlike California in Houston there’s only one permit per driveway. It’s the wild west compared to California.”

An in-fill builder, Dishberger’s company has been building inside the city’s

“Harvey hit and for two to three months sales weren’t there. People are now deciding not to rebuild and selling for land value only to someone who will build up.”

MIKE DISHBERGER CEO SANDCASTLE HOMES HOUSTON, TEXAS

HOUSTON 2018 HOUSING FORECAST Provided by Ted C. Jones, Chief Economist, Stewart Title Guaranty Company

Existing home sales

Up 2%

Existing home prices

Up 3.6%

New home sales

Up 9.2%

New home prices

Up 4.1%

30-year mortgage rates

Up to 4.7% to 5.3%

Refinance share of loan volume

Down to 25% from 35%

Commercial sales

Down 15%

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MARCH 2018 | ATTOM DATA SOLUTIONS

BIG DATA SANDBOX

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MARCH 2018 | ATTOM DATA SOLUTIONS

DATA IN ACTION

Markets with Most Environmental Hazard Risk

ATTOM Data Solutions analyzed 8,665 U.S. zip codes with sufficient housing trend data for risk related to four environmental hazards — superfund sites, brownfields, polluters and poor air quality — to determine which markets have the highest risk and to evaluate housing market trends based on environmental hazard risk. A total of 12.6 million U.S. single family homes and condos with a combined estimated market value of $3.4 trillion were in zip codes in the top quintile for environmental hazard housing risk. The average market value of those homes was $268,585 compared to an average market

“A total of 12.6 million U.S. single family homes and condos with a combined estimated market value of $3.4 trillion were in zip codes in the top quintile for environmental hazard housing risk.”

value of $329,217 for all 66.2 million U.S. single family homes and condos analyzed for the report. Markets with the most combined value of homes in zip codes in the top quintile for environmental hazard risk were Houston, Texas ($415 billion); Riverside-San Bernardino, California ($344 billion); Portland, Oregon ($254

billion); Washington, D.C. ($161 billion); and Chicago, Illinois ($134 billion).

Zip codes with the 10 highest total Environmental Hazard Housing Risk Index values in 2017 were in Denver, Southern California, Portland, St. Louis, Burlington, North Carolina, Tulsa, Oklahoma and Houston.

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MARCH 2018 | ATTOM DATA SOLUTIONS

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