Improving the Housing Stock by Reducing Inventory

The theory is that if you can demolish the lowest prices, homes in the worst condition you effectively eliminate the lowest price point option and drive up the average home price. Without low cost options investors will be drawn to consumer owned homes. In the donation process banks effectively shift the Demolition costs, which begin at $10,000, to the municipality. In an ideal scenario they will be able to sell the lot  to home builders in better economic times and recoup the demolition costs through the sale and future property taxes.

Impacting Local Markets

This strategy is dependent on the municipalities absorbing the upfront costs and there is a defined ROI to their investment. Removing blighted homes reduces eyesores and hazards.  There are efforts going on now in Cincinnati to remove blighted real estate and improve the safety of neighborhoods. Including bank-returned properties could accelerate this type of urban reclamation effort, but only if there is funding available from the municipalities.

There is positive news this week as additional construction in Over The Rhine add mixed income real estate into the Cincinnati market. While the market is down, nearly all of the units (8/11)in Phase 1 have been pre-purchased according to yesterday’s newscast on wvxu.  The development group 3CDC continues to lead the charge in redeveloping the neighborhoods adjacent to Downtown, providing new options for those looking to purchase Cincinnati real estate in the heart of the city.

The best news is that this project is mixed income and this shows the continued commitment by 3CDC and the city to include residents of all income levels and not just those who can pay premiums for newly renovated construction.  It is important for the vitality of the city that these efforts to provide affordable ($160,000 for over 1,500 SQFT of new construction) continue. An additional 11 units are planned and the Over-the-Rhine Community Housing is a partner in this project. They are providing special financing on five of the 22 units, making them affordable for low to moderate income buyers.

Thanks to Urban Cincy for the coverage.

Cincinnati.com highlights a common practice that allows land developers to form LLC corporations to protect their interests so that in the case that the development fails they can still walk away without major financial loss.

Meanwhile the initial homeowners who purchased the first homes have to live in a partially finished subdivision with little prospect of seeing the remaining lots developed into homes. Vacant overgrown lots, they say, are having a  negative impact on their home values making it difficult to sell their homes.  One consideration when purchasing a home is how many open lots are there? This fact can have an impact on your home value for years to come if it is not built on.

The home builders have not been purchasing and developing land for building. In addition construction loans are very difficult to obtain, both factors that will delay the launch and completion of new homes. It looks like the home shortage will be most severe in areas already tight on land (New York, San Francisco) and less severe in markets with lots of extra inventory (Miami, Las Vegas).

The recession has had an impact on new home construction in Cincinnati. Homearama 2010 was even relocated out of the suburbs to Northside. A few local builders have gone out of business, and the ones that remain are facing increasing legislation designed to minimize environmental impact. As Cincinnati continues to grow and attract new residents we look to both our city master plans and local builders to create outstanding neighborhoods for our new residents.

Are you relocating to Cincinnati? Call me for information on Cincinnati neighborhoods and housing 513-518-1140.

A group led by Tishman Speyer Properties gave up the 56-building, 11,232-unit Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan, turning the properties over to its creditors after defaulting on some $4.4 billion in debt.   Wall Street Journal. The $5.4 billion acquisition in 2006 was the single biggest residential property purchase in U.S. history. It’s now worth an estimated $1.8 billion.

“We basically walked away from it,” said Clark McKinley, a spokesman for the California Public Employees’ Retirement System [CalPERS],  one of several investors in the venture, wrote off its $500 million investment, McKinley said. “It’s underwater, anyway, so we’ve lost it,” he added. “We took our medicine, and we’re learning from it.”

Sadly lenders are fighting the stay off a mass of foreclosures. If homeowners start walking away from their mortgages en masse, there’s little doubt the housing market will collapse and take the economy with it.  The New York Times has a list of proposals to help home owners reduce their principals. What is critical is that we need to reestablish stability in the market to prevent a second wave of the housing crisis.

What is frustrating to many home owners is that financial institutions are doing everything that they can to prevent Homeowners from foreclosing, while large developers are simply handing the keys back over to the banks when thier properties become too much of a financial liability.

RealtyTrac continues to track the increasing number of short sales and foreclosure and the problem continues to weigh down the housing market. As the economy slowly recovers it is my hope that the unemployment rate will drop and with it, the number of families facing foreclosures. The Federal Government continues to put pressure on lenders to modify mortgages through the Making Homes Affordable program, and the program is slowly helping to relieve pressure on families that qualify.

The CRA should bring new businesses to the township which will add additional economic diversity to the area.  At the moment there are three business taking advantage of the program: ‘All About Kids’, Grand Sands, and Cornell Crossing. Apply for the Symmes Township CRA by following the link and completing the application.

However government has used Eminent Domain to secure land for private development of office buildings, and hotels. In Cincinnati we saw Eminent Domain enacted on a number of residents near the RookWood Commons plaza. In 2005 the Supreme Court ruled on a case involving Pfizer and a local government enacting Eminent Domain to condemn and seize property for a research park. After 10 years of tax abatement and special treatment from the local government Pfizer has moved out leaving a blighted neighborhood where a strong community once stood.

The story represents the caution and care that government must exercise when using Eminent Domain for non-public works projects. When private developers create proejcts there is often the danger that they may abandon the project at any point in the development.

Move forward to today, Fall 2009, and condo buildings are selling out in 6-8 weeks … at $200 sqf.  Peter Zalewski, a real estate broker who runs the Condo Vultures, explains that the Miami Condo market’s price reset has sparked interest in Latin American and South American investors. They seem to be cash buyers and feel that the current prices are a relative bargain.

The challenge that is preventing more buyers form purchasing is that financing is very hard to obtain in these new construction condo buildings.  Fannie Mae and Freddie Mac are denying loan applications to well qualified purchasers simply because there is such an over-suply of units that reselling a unit could prove a dauting challenge.

The lesson we all need to learn here is that to sell real estate ANYWHERE you need to price it correctly for today’s market. If you are interested in a condo, or a home in the Cincinnati area contact me today!