Thursday, August 26, 2010

The Urban Umbilical Cord -

I have always been a proponent of the electric car - especially in urban areas. It provides transportation, moves goods and services and rarely needs to go more than forty miles in a 24 hour period. It is only a car with a different engine – that’s it. In the city there is available power, maintenance systems and support and there is a growing market. In time, I believe it will be the primary vehicle of choice for urban and most suburban dwellers, and can be recharged at home, just like your iPad.

What galls me is the need by the government to get involved in their creation and maintenance. Put aside the GM thing and other “stimulus” excuses; if the product can compete in the market - it will succeed. Ask Steve Jobs if he needed a grant to force the iPad (or iPhone for that matter) down the throats of the consumer. If the product is wanted, and resonates with the consumer – it will succeed.

Recent announcements and news articles:

The feds have allocated over $37 million dollars to build charging stations for electric cars across the country. And about half of the charging stations will be installed free - in your own home - if your buy an electric car (installation guessed to be $2,000 each – taxpayer money). There are also federal tax credits being discussed for both the car and the charger. As the old Tubes song goes: “a herd of Winnebagos we’re giving’em away,” especially if they are electric.

The state of California has approved $1.9 million (your money) for a company to update 600 of the old inductive chargers (some from the 1990s), many of these are in Costco stores and at Best Buy and its Geek Squad of electrics – they and other private businesses will also benefit from this state money (your money).

A battle is well underway between companies that want to supply the service of charging your vehicle and those that sell those companies the electricity. It is being fought at the California Public Utilities Commission. The major power companies in the state want these under the state’s control (and the future control by the utilities themselves!).

From the “Where do they get the money file?” The Bay Area Air Quality Management District has approved $5 million dollars (your money) to “support” the development of an electric vehicle charging infrastructure in the Bay Area.

Barack Obama, in early July, visited a factory in Kansas City that makes electric trucks. The plant’s capacity is to be upgraded with $36 million in “stimulus funds” and a matching $36 million in private funds. They expect to build 500 trucks – based on these numbers their street value is $144,000 each – buy two, there is probably a grant and tax credits in there somewhere.

And for those that want a little more gov’ment help, go to, they are there so your neighbors can help make you feel better about yourself.

Please! If this product is wanted by the consumer, like the iPad, Kindle, the toaster oven, and the Starbucks’ half-caf, skinny, no foam, iced lattes, they will buy it. But if it is padded and subsidized (and all the costs hidden behind grants, “stimulus monies,” sweet deals for manufacturers and suppliers, fed and state rebates, quasi-governmental controls, and the “if you fund it they will come” mentality) - it will fail.

I believe that the urban market wants the electric vehicle to happen. But the electric car is so hidden behind these false costs and “magic” that it is confusing the consumer. A confused consumer is one that will not buy – especially a $40,000 science experiment. The consumer is wary of something that is pushed this hard by the federal and state bureaucracy. They will stand on the sidelines until there is clarity. They want to feel responsible as long as the car is durable, pretty, well designed, easy to understand, modern, has a bit of a status about it, and affordably cool. Like the iPad.

Friday, August 20, 2010

Part 4 – The Death of the Master Planned Community

A few notes questioning my numbers from last week. I noted that the projected residential development this year (ownership and rental) is estimated at 1.17 million units, the source was the National Association of Home Builders (NAHB) – May 18, 2010. Some readers (thank you) have pointed out that we will be lucky to build half of that amount (and two months later so has the NAHB). That may be, and during these days it is safe to assume there is no shortage of hope at the NAHB, both due to their dwindling membership numbers and wishful dreams. The underlying point is that whether it is 1.17 million or six hundred thousand units it is woefully below the need. This is exactly the same problem in America between 1930 and 1946 where virtually no support for the housing needs of Americans was met. In the 1930s there were feeble governmental attempts with the greenbelt communities but there was none due to World War II. This back-up will continue until it becomes a very serious problem, both economically and socially.

Last week I announced the death of the Master Planned community for a number of reasons: lack of institutional financial support (some are just gone from the scene, i.e. Lehman Brothers)), high state and local fees, approval costs, entangling environmental reports and issues, fundamental problems with loans to homebuyers, capital sitting out the current economy, and a general lack of cultural support for these communities in the current literature. What developer would jump over these hurdles to try and build the next Shaker Heights, Park Forest, Illinois, Country Club Village in Kansas City, Columbia and Reston? As it normally is, it is the third or fourth owner that makes any money anyway. Seldom do the original founders of the idea survive the vagaries of the economies that they must pass through to complete these fifteen and twenty-yearlong projects. And today? Why would you even consider the opportunity or possibility?

The future? One reader noted the potential for a more rational and focused type of development, the Master Planned Neighborhood (MPN). There is much to this argument and type of project. It is a development that as they say “one can get their arms around.” Peripherally urban, densely suburban, built into the current fabric of streets and utilities, and broadly mixed with rental and for sale; these projects can deal with the vagaries of the market – and most can be completed from design to last move-in, in less than five years. There is little about these that make them TODs (Transit Oriented Development) though some may take advantage of these stations or lines, or TNDs (Traditional Neighborhood Development) with their myriad rules and regulations trying to be all things to few people. These developments must be flexible, buildable, marketable and above all burdened with few fees and costs to the residents. They cannot solve the economic woes of the surrounding community.

We are entering a time where there will be little aid from the cities and state and you can forget the feds. They cannot afford to be surrogate landlords, managers, policemen, arbiters, tax collectors and superintendents to large communities of disconnected and often culturally unrelated owners. The builder will leave a community to the residents that may be too expensive to maintain with HOA dues, too hard to operate because of complex environmental restraints and regulations, and complex social structures defined in the required documents and manuals.
During the next few missives, I will try to explore some ideas as to what these MPNs are, how they differ from TODs and TNDs (don’t you just love the acronyms), and where they can be applied in our need for housing.

Stay tuned . . . .

Friday, August 13, 2010

Part 3 - Are Master Planned Communities Dead?

Bear with me a moment. Let’s assume a middle of the road MPC. It is 2000 acres of interesting land: a couple of creeks, marginal farmland, small woods, and good access. Nearest major city and region has over 500,000 people and expects to grow over the next fifteen years, the land is 40 minutes from downtown.

The net developable land is 1600 acres. The other 400 acres is in parks, open space, preserved habitat, major roads, schools and other extractions. The potential project will have an average net density of 4 units per acre. The project will contain 6400 units (avg. price $450,000). It is, when completed, worth over 2.5 billion dollars of value to the region. Sounds great, right?

But the cost to entitle this project can go like this: fees for engineers, architects, land planners, landscape architects, the environmental impact report (EIR), general plan changes, annexation issues, specific plan production, zoning changes, soil reports, new environmental carbon estimates, fees for this and that and that and that, and marketing. All of this is before the regional utility connections are built, the two new free interchanges are constructed, the regional sewer plant is upgraded, and road intersections, miles from the community, are completed. And much of this has to be funded before the project can start. Some bonds, some cash.

It is reasonable safe to assume that the professional fees could exceed $10 million, the city’s fees could be as high as $80,000 per unit (or higher), utility hook-ups (if available) $25,000. Still look good? The average house has to be at least 2400 sf. Off-site costs are $100 million ($15,600 per unit). The only way this can work, with any profit, is to build the house for $100 a square foot – I do not think so. (oh - by the way I did not put in the cost of the land).
The realities of the current market cannot support homes in the $750,000 range. And this will not change for at least 10 years. Maybe the market will support a few but not the thousands needed to make a MPC work. And, in fact, the average home-buyer in our current marketplace cannot even support $450,000, the new norm is somewhere in the $250 to $325 K range.

Where is the developer going to find the $20 to $30 million needed during the entitlement process when there is no guarantee that there will even be customers after the five year approval process is complete? What bank or institution today would wait that long without a return (that old ROI thing and that old what have the banks done for you recently thing)?

But we still need homes and houses and they will not all be in the infill lots scattered around the old urban cores; they will have to be in planned neighborhoods –smaller and more compact, more efficient and cost effective. The coming demand of the next 100 million Americans will require 30 to 40 million new homes. We have 118,000,000 residential units in the United States for 301,000,000 Americans. We are currently building 1.17 million units a year, well below the 1.85 million that is considered needed to sustain the current demographic trends.

With these numbers in mind, one inescapable fact stands out – there will be a serious push again in the cost of housing at some time in the future – and it may be as strong as the past trend of the 2001 to 2007 era. I predict it may start in the 2014-2015 period when we may be short 4 million housing units. And the greatest demand may be in rental housing.

How does this impact MPC’s and their potential rebirth? For the short term – MPCs are dead. No sane person would try to develop in this high fee and assessment burdened market – even if money was free (as it almost is). When rates rise and money and financing can be found again, they will push pricing upward and may allow profits to return. Maybe! The next hundred million will not be older, wealthier citizens; they will be younger with families and will be trying to carry as little debt as possible. They will have learned, like their grandparents of the 1930s, to be frugal: rent their vacation houses– not own, buy smaller homes, purchase in neighborhoods that do not have homeowner associations. They will still look for good school districts that are in communities with fewer older people – more families mean better schools. They will not be looking at high cost resort communities – there are hundreds existing today that will cycle those who wish to live with, and pay for, those amenities. For the coming population they will have less meaning.

But in another thirty years - watch-out.

Friday, August 6, 2010

Part 2 - Is the Master Planned Community Dead?

A Bit of History

Over the next few weeks I will try to put some context into the question: Are master planned residential communities dead and never to rise again? As I noted last week, there is some sympathy for this belief. Land, costs, energy, local and federal approval policies, and long term financial backing and guarantees for large new town communities all pose very difficult and expensive components. Each will derail a project.

What size? What sets a master planned community apart from the usual “big” subdivision? I will go out on a short, yet strong, limb here and give you my opinion – but like all opinions they are just that. A master planned community should be under one management group or owner, be at least 620 acres (one square mile), have a range of residential densities (the market will choose the regional need and mix), have defined entries and boundaries, offer a complex package of recreational facilities, include a center for service retail for the resident’s needs, include other possible land uses such as office and commercial space, and feature a central land use that may define the project; these amenities could be golf courses, lakes (man-made or natural), natural features, extensive interconnecting parks and trails, or other unifying theme. There; now argue.

We are all familiar with small master planned communities of a few hundred to a few thousands of acres – remember that places like Reston, Virginia was built around a small village and distillery is over 17 square miles and has over 55,000 residents, Columbia, Maryland is over 14,000 acres and has over 90,000 residents, and others such as Stapleton, Co., Summerlin, Nv., and the grandest Irvine, Ca. have all set very high and expensive benchmarks (and for most: successive owners, each trying to make them work).

As I noted in my new book America’s Original GI Town, Park Forest, Illinois (3,000 ac. and 24,000 people - today) the history of planned American communities goes back to the mid-nineteenth century:

The new community that Klutznick (developer) described for Sweet and Manilow (partners) was a manifestation of planning concepts and designs for communities aggressively designed and built between 1900 and 1939-communities that shared many of the same planners, visionaries, and theorists. Even more revealing is that many of these new communities could trace their lineage back to the Chicago area of 1869. Five great planners would be the grandfathers for Park Forest-whose careers extended over almost one hundred years of planning for human settlements. They were Frederick Law Olmsted, Ebenezer Howard, Henry Wright, Clarence B. Stein, and Elbert Peets. All five, through their visions for new towns, would build on one another’s work in an effort to create better and more successful places for people to live.

In 1868 Emery E. Childs, a Chicago developer, asked the noted American landscape architect Frederick Law Olmsted and his firm, Olmsted, Vaux and Company, to design a “suburban village” on his sixteen hundred-acre property twelve miles west of Chicago. The plan for Riverside was revolutionary in its concept and breadth and unlike anything else in country. Olmsted and Vaux created a residential community along the banks of the Des Plains River, with a hierarchical plan of lot sizes, separated by generous open spaces and parks. Not designed to the current trend of the time, the grid pattern of streets in mid-American cities, Riverside’s residential roads curve in generous sweeps and meet with soft tangents at well-landscaped intersections. The only portions of the village that which did not curve were the business streets that paralleled the Burlington Railroad. “In the highways,” said Olmsted, “celerity will be of less importance than the comfort and convenience of movement . . . we should recommend the general adoption, in the design of your roads, of gracefully-curved lines, generous spaces, and the absence of sharp corners, the idea being to suggest and imply leisure, contemplativeness and happy tranquility.”

Although its early days were financially troubled, the village’s overall design is a testament to the genius of the concept and the thoroughness of the execution. The automobile, thirty years in the future when the plan was completed, has not destroyed the village. Garages are placed in the rear of the lot, driveways are narrow and the streets not overly wide. The design is still an example of melding the plan to the topography of the land. Riverside changed one of the fundamental concepts of town design more than any other American community: the integration into the standard grid pattern of streets curving streets with deep residential setbacks. Olmsted wrote that a well-designed suburb is “the most attractive, the most refined and the most soundly wholesome form of domestic life, and the best application of the arts of civilization to which mankind has yet attained.”
The completeness of Riverside can not be overlooked. It has stood unchanged in both plan and substance while, during the last hundred years, the area around it has grown, suffered, and deteriorated. The village’s strongest defenders are the current residents.

From this one community, developed after the Civil War, American community planning has evolved, changed, died, been reborn, and without a doubt, has never had universal professional agreement as to what it is, what it should be, and where it is going.

From Olmsted’s Riverside, to the Van Sweringen’s Shaker Heights east of Cleveland, to Stein and Wright’s Radburn, New Jersey, to the Country Club District of Kansas City, to the Greenbelt fiascos of the Roosevelt administration and the post war market driven communities of William Levitt; they all laid the groundwork for the Watercolors, Summerlins, Ladera Ranches, Rancho Santa Magaritas, and Celebrations of today.