Tuesday, October 29, 2013

Laveen's Delicate State of Housing, Density, and Growth

This site plan for a new subdivision at the corner of Baseline and 43rd is causing quite a stir, depending on your social circle. This site plan is otherwise known as Case # Z-152-03-7(8) in the city of Phoenix's planning department. There is a rather vocal group of Laveen residents headed to the Phoenix City Council meeting this Wednesday, October 30, 2013, at 3:00 PM, to oppose this site plan (agenda item 74, in case you're interested).

For the record, I spoke at the PHO hearing a couple months ago, partially in favor of this project and partially opposed to it. I really can't decide if I'm energized enough about this to attend the upcoming council meeting. And here's why: What I hear being described as the most contentious part of this site plan is the housing density (we're still talking single family, here).

Firstly, I don't mind higher density single-family homes. I own a home very close to this property, where my family and I once lived. We intentionally bought small and wanted to be situated between the shopping centers at 51st Avenue and Baseline and the beautiful park/school/library complex at 39th Avenue and Baseline. That brings me to a related point, which is that I think there should be more density in such an area as this. And further, when I think about density in this area, the first thing that comes to mind is the 80-unit community of duplexes that already sits directly adjacent to the subject property, known as Vistas Montanas (a part of the Cheatham Farms subdivision).

In thinking through this mental image of the area, I immediately went to google maps to try and settle my cognitive dissonance. No such luck, and here's why: When I look at the map, I immediately remember several other medium to high-density single-family developments in this vicinity. Many of the builders who built subdivisions along Baseline Road, both north and south, combined lower and higher densities together, which has proven an overall good strategy for most of them. In this image, I have circled all of those in the immediate area:

Here's a list of the communities by name, as well as the total number and percentage of lots in each that are less than 6,000 square feet -- generally an agreeable cutoff size for small versus medium residential lots.

The total number is 2,081 in the surrounding subdivisions. The total number of residential lots under 6,000 square feet in all of Laveen (85339 only) is approximately 3,633, which means that they tend to be concentrated in this area. This makes sense to me, given those amenities that I already mentioned and the common sense notion that we should want to concentrate populations nearest shared amenities like parks, schools, libraries, and such. But it doesn't make sense when I hear my friends who are opposed to this project say that the density was never supposed to go here and that the general plan is the holy grail. Oh how I want to agree.... I too have fought in favor of the general plan as a static instrument in the past.... But I can't. I sincerely think the GP could use an update -- in part because of this very area and this contentious issue!

Remember a few years ago when we fought Berkana? That turned into a pyrrhic victory if ever there was one! We fought density at 27th Avenue and Baseline only to find out a few years later that Valley Metro was moving forward with a transit facility at the same intersection. Generally speaking, transit = density (or it should, anyway). While that experience made me feel a little disheartened by the process of challenging proposals such as this one, it also forced me to reconsider what I think are the most important concerns related to city planning and when we should intervene in the planning process on someone else's private property.

Should we be concerned about small lots, small houses, cheap houses, or any of that stuff? That's what I wanted to know, and particularly with regard to this area. This means it's time to test some assumptions, starting with density. One claim that I've heard is that higher density means more rentals, but then we could say the same about smaller homes and cheaper homes -- the latter two being set aside momentarily by the builders' claims that they plan on building market-priced average sized homes on these smaller lots. Whether you think rentals are good or bad for a neighborhood probably depends on your perspective, but it's sort of a foregone conclusion in this debate. 

Here's what I found when I ran some rudimentary statistics on tax-record data available through a web-based database program called Imapp, comparing various homes built in Laveen (85339 only) after "the year 2000" (yeah, that's a gratuitous Conan reference):
  • Of all lots that are less than 6,000 sq ft, 1,497 or 41.2% are rentals.
  • Of all lots that are at least 6,000 sq ft, 1,854 or 27.8% are rentals.
  • Of all homes that are less than 2,200 sq ft, 2,113 or 36.9% are rentals.
  • Of all homes that are at least 2,200 sq ft, 1,238 or 27% are rentals.
  • Of all homes that sold for less than $180,000, 2,742 or 38.6% are rentals.
  • Of all homes sold for at least $180,000, 599 or 18.9% are rentals.
*2,200 sq ft and $180,000 were selected as dividing lines based on the recent average size and price of homes sold in Laveen.

From what I can tell based on that information -- and if there are any statisticians who disagree, please let me know -- it looks like price is a better indicator for whether properties will likely become rentals. Only a multiple regression analysis would likely indicate the strength of any one variable, but this makes sense to me based on common sense.

So what if "we" lose the battle for low density, which in my mind amounts to a spurious concern for this particular area based on the information above. Why not focus on something else, like the quality of construction, that directly influences the builder's bottom line and can more meaningfully impact the surrounding community? After all, this is the excuse given for why we don't mind the adjacent duplexes -- "But they're pretty nice!" we say. This is also how we agreed to let another developer adjust its site plans to allow patio homes as a part of the planned Carver Mountain subdivision -- they look like they'll be beautiful (and I'm a fan of patio homes in many cases). This is why I maintain that this fight ought to be about the characteristics of the construction, specifically the 4-sided architectural focus and other elements of landscaping and overall design that are mentioned in the approved stipulations.

When I combined price and lot size in my analysis of past sales, guess what I found? Small lots (under 6,000 sq ft) that have sold for at least $180,000 resulted in 184 rentals, or a rate of 27%, which appears to be an improvement on lot size or building size alone. So can we encourage this to happen? Yes, I think so, and I'm sure the builders do as well or else they wouldn't be building again. For data support, let's look to current market activity for new homes in Laveen only:

According to MLS data as of today, of all the homes built and sold since 2011, the average size is 1,980 sq ft, average sale price is $180,630, and the average price per sq ft is $92.35. Pending listings have jumped to an average sale price of $222,650, based on an average increase in size to 2,107 sq ft and an average listed price per sq ft of $106.43.

You can see that the active listing numbers have slipped a little bit for Laveen on a slight reduction in the listed price per sq ft to $99.73. It makes sense based on the fact that the Cromford Report shows Laveen having already entered "balanced" territory as of early this month, with a contract ratio of 102 (down from 191 last quarter) -- meaning that demand has slowed and fewer new listings are being sold as quickly (note the increased days on market). After the last couple of years, this should be expected; buyers tend to seek value in Laveen. Home values have increased dramatically during the almost seemingly savage pricing recovery that we've enjoyed, thanks in large part to those controversial institutional investor purchases in the last year. This is likely to scare away some buyers temporarily, as mortgage rates have increased over the same period and negatively impacted housing affordability.

Another indicator that I like to use when looking at Laveen for contextual market performance is to compare it to the nearby 85042 ZIP code, located slightly east of Laveen in South Mountain Village. As has been the norm lately, 85339 lags 85042 by about 30% in price per sq. foot. That said, the recent monthly median price of $172K (as reported by Cromford for October 1st) is identical between the two ZIP codes, which further validates the value-seeking motive behind sales in the 85339 ZIP code. As does the fact that more resale transactions are still happening in Laveen, as distressed inventory continues getting bought up.

This looks to me like a generally healthy point for the market to take traction -- especially considering that Laveen's sales activity, more than other areas, has temporarily slowed as cash investors have started disappearing from the Phoenix market. The fact that buyers once again have some negotiating power, as reported here, likely bodes well for a continued housing recovery.

So please do not be afraid of density, Laveen -- at least not for density's sake when we're comparing similar new subdivisions of single-family homes. None of these are really comparable to the "old Laveen" that consists of ranch ramblers and lush green open spaces. If you want to talk about Laveen's rural character, that's a different discussion -- one that is very worthwhile, as Laveen faces something of an identity crisis in light of future development plans. One thing is certain: We are not seeing any indicator of a trend away from new HOA developments, which tend to be far more similar within the subset of newer communities than when compared with the older low-density neighborhoods in Laveen. And that ship has sailed anyhow -- most large tracts of farm land in Laveen are already platted for new subdivisions, some with different characteristics than others, but still very different than what you see now when you drive down the older neighborhood streets in Laveen. By going to battle over slight modifications to these plans, we're looking at the potential for little more than another pyrrhic victory. 

10/31/2013 Update: The Laveen residents who opposed this developer have won their case, on a council vote of 7-1. 

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