John Brezzo, a former City of San Jose planner and a builder for more than 20 years with DKB Homes, reports that competition for lots in the ring of communities that forms the "inner" Bay Area has increased to a fever pitch in recent years. And while competition for land has always been tough there, it is the recent arrival of more national builders with deeper pockets that has really heightened the situation, he says.
"There were not a lot of Pultes, Rylands and Lennars in our market area until about the last seven years when the recession in California ended," says Brezzo. "The end result is that when a piece of land comes up, it is extremely competitive - even infill."
But competition for land is not just a Northern California phenomenon. Hoping to strike while the iron continues to be hot, builders are bidding up land prices in Boston, Los Angeles, Denver, Atlanta, Seattle, and Washington, D.C. You name a major urban job center and land prices are on the rise.
The trick for small and medium sized builders in this market is finding ways to use local knowledge to out-hustle the competition. Some smaller builders have specialized in working with difficult pieces of land such as those on hillsides or Brownfields. For DKB, its long-time focus on building affordable housing in urban areas has worked to its advantage. This expertise recently gave DKB a leg up in winning a project to build 92 market-rate three and four bedroom homes in the heart of the Silicon Valley along with 22 below-market rate homes. The project, Summerfield in Milpitas, Calif., is featured in this issue on page 60. And DKB is by no means alone in finding profits via this market niche.
Larger builders like The Olson Company, San Diego, have also profited from building infill projects that often require affordable components. In San Diego and Los Angeles counties, Olson has earned accolades for a series of projects it built within walking distance to transportation, shopping and workplaces.
But, as most builders know, affordable home building has its share of headaches. Most deals have an unusually large number of project partners, increasing time spent negotiating details. Then there are the complex financial arrangements that go hand-in-hand with affordable housing. These intricacies must be understood on a case-by-case basis if profitability is to be correctly ascertained. And finally, there is the need for public outreach to sway any opposition that is sometimes encountered by affordable proposals.
The principal advantage that the urban-affordable niche offers is the ability to partner with local government. Builders of affordable homes, (typically defined as homes targeted to buyers earning below 80% of median income), are often seen as problem solvers. Today, more than ever, local government officials are under pressure to ensure housing viability for all incomes and builders are in a position to help.
There are also some fundamental reasons why, in a larger sense, demand for new homes in urban infill locations is expected to continue its rise during the next decade. Data from the Department of Housing and Urban Development, in its recent report "The State of the Cities 2000" shows that:
- job growth in urban areas is very strong in comparison with job creation in outer areas;
- a continuing surge of immigration favors urban infill as most immigrants settle in large cities; and,
- average commuting times have increased precipitously in most metro areas since 1992, increasing the need for homes near work and transportation.
In the following pages, three affordable, infill projects are profiled to highlight the way affordable housing projects are funded and developed. The profiles also demonstrate how small and medium sized builders can leverage their experience in affordable home building to acquire land and enhance their profitability. And most importantly, each project is an example of how home builders are addressing todayÆs critical need for a wide range of housing.