Is the affordable housing market in El Paso in jeopardy? Maybe, and here's why.
This week the City Council approved the subdivision ordinance that contains "smart growth" principles. The new ordinance had been in the works for more than a year and was recently completed after an issue arose with the Northeast land sale involving the PSB and Hunt Building Corporation. The outcome has pleased many, angered others and got me to thinking.
The need for the change came from the community's displeasure with current and past housing developments. Locals were not thrilled with the confusing layout of the streets, lack of parks and roadways that encouraged highway speeds instead of school zone speeds. The new ordinance appears to address most all of these issues. What it doesn't do is guarantee that homes in new developments will continue to be within reach of average El Pasoans.
Our desire for better looking neighborhoods with more functions geared toward the family forgot to take into account the costs associated with achieving that goal.
Developers develop land and sell the lots for a profit. Builders buy lots and build houses for a profit. Both developers and builders will cease doing what they do when they can no longer make a profit. Nobody works for the fun of it these days.
The builders and developers would have been more than happy to have started building neighborhoods in the manner specified by the city if the market had demanded they do that. After all, market forces are what drive diversification, ingenuity and the overall pursuit of profits. If nobody had bought a single house in a subdivision with no parks, I think the developers and builders would have included a park in their next endeavor. The fact remains, El Pasoans have actively and knowingly bought houses in subdivisions lacking the requirement set forth by the city's new ordinance. The market didn't dictate a needed change.
It's important to remember that when housing prices rise on high demand and short supply that we are seeing markets work naturally. When prices rise because production costs are unnecessarily increased we are seeing an unnatural interference with the market. This could lead to an outside party (the government) screwing up a perfectly functioning market and the results can be devastating. Just look at the price of certain commodities these days.
The new ordinances will have an effect on the price of developing raw land. That will be passed on to the builders when they purchase their lots and once again when the consumer purchases a home. All of a sudden the $100,000 home of yesterday becomes the $130,000 of today. How many El Pasoans can afford the increase? If a person gets a 30-year fixed rate loan with nothing down that's a difference of $300 a month on their mortgage payment. With expenses the way they are these days that's the difference between buying that home or continuing to rent.
When builders find that the market for houses costing more than $100,000 isn't there anymore they will stop building houses. When builders stop buying lots to build houses on, the developers will stop developing. In a very short time you will realize that we have a shortage of affordable housing. So who will benefit from the subdivision ordinance change? Well, the rich.
Developers and builders will change their strategy given the new rules for subdivisions and start building houses for the folks who can afford them – the rich. Our desire to see better neighborhoods will only insure that the rich folks enjoy the changes.
If you are thinking for a minute that a developer or a builder is going to forego profits in order to keep housing affordable for El Pasoans, I've got some ocean front property in Canutillo I'd like you to come look at.
With impact fees making their way onto the City Council's agenda very soon there's even more reason to believe that developers and builders are going to stop doing what they do – building and developing. You can only pass on so many costs to the consumer before you price the consumer out of the market.
So, what is all this going to mean for El Paso?
A very good thing about El Paso is that even though we have a low median household income compared to other cities, we have a very reasonable amount of home ownership. Check out the census data here. As you can see, we are a tiny bit below average in Texas when it comes to the percent of people who own homes. The entire state is at 63.8 percent and El Paso County is just below that at 63.6 percent. Take in consideration that our reported median household income is more than $9,000 behind the state average. Our local housing market has been able to adapt to our income deficiency and make affordable houses available to El Pasoans.
To compare El Paso's numbers you might check out these others major Texas counties.
-- Harris (Houston)
-- Bexar (San Antonio)
-- Travis (Austin)
(Note that we make less money than each county above, but tend to own houses at a higher rate. I used the county data instead of the city data for each example because the information is more current. Each county and city resembles El Paso's dominance of the entire county.)
We've been able to have a high home ownership percentage because our previous ordinance allowed for developers and builders to produce lots of affordable houses. I think homeownership is a good thing even if your subdivision lacks "connectivity."
Why do I think owning a home is so important? At the least it's a smart financial decision over renting and the basis of building good long-term credit.
I'm going to go out on a limb here and say that at least one successful businessperson in this city started out by borrowing against the equity they had in his or her home. A Realtor® from Alabama used to tell me, "I bought a house in 1976 so I could go into business for myself in 1986." How many future employers of El Pasoans will we stop before they get started by pricing them out of the market today?
I fret when I think that the new ordinance aimed at building nicer neighborhoods will end up being the thing that prevents all new neighborhoods, nice or otherwise, from being built. We have to be careful what we wish for.
I see a scenario where El Paso builders either slow down or stop building affordable houses after the double-whammy of a new ordinance and impact fees. This would leave El Paso in a bad position. With tens of thousands of troops headed this way we're going to need to make sure that we have enough places to put them.
A nightmare scenario for low income El Pasoans would be a situation where the lack of new development leads to far greater demand for housing than there is supply. That would lead to the kind of market that inflates the prices of not only homes to buy, but homes to rent as well. We could in effect price our lower wage earners out of the city. I saw this exact scenario unfold during my stay in Arlington, Va.
The next steps the developers, builders and the city take are going to be critical to either the future success or failure of this city. Each side must clearly and honestly state their needs so that they can be dealt with quickly and judiciously.
I would ask that the council consider tempering their requirements for building the ideal subdivision a little. Give them back the ability to put in cul-de-sacs. It's a fact that those lots and the houses built on them sell at a price that allows the other houses to be priced cheaper. I would also advise council that when you increase your expectations you're going to have either pay more for that product or get less of it. Think about it like a diamond. As you require better clarity and color expect to either pay more for what you want or settle for something smaller.
The developers and builders need to include some more open space and parks. If all of you had found a way to include them and still make a profit years ago, you wouldn't be facing the problems you are now. Your image and credibility took a hit, but you have the opportunity to now recover from that.
I ask the community to be more discriminating when buying a home in a new subdivision. Expect more from the developer and builder, but also expect to pay more. We the consumers have the most power when it comes to changing the way things are done.
Also, back off of the impact fees. I know you don't want to pay for new development. New development doesn't want to pay for you either. Good arguments can be made for both sides, but in the end it comes down to the purchasing power of many vs. a small few. When those folks move into their new neighborhood you paid to have water and sewer and run to, they'll be the new income for the PSB that allows them to start updating the sewer and water in your neighborhood.
El Paso must learn to compromise or face never leaving this rut. Instead of bad guys and good guys in this fight we should all act as El Pasoans. The sooner we respect each other's individual wants and needs the better off we'll be as a whole.
katie
May 13, 2008
Your article echoes the many objections that have been voiced, but without thinking about the real opportunity the changes give us. Consider the following:
1. Increasing land prices (including market forces, impact fees and common requirements) generally cause developers to build denser housing. This could significantly revitalize our central city AND improve the economics for transit (and biking and walking). As it was, the City has been subsidizing developers to build further out...where we have to build new schools, roads, and services. It's double jeopardy for the new homeowner who in the name of "affordability" gets to drive long distances and pay high taxes.
2. Building affordable housing 10-20-30 miles from work actually decreases the affordability of housing substantially. It's equal to $30 to 50,000 of home price (or mortgage).
3. Parks and common open space, neighborhood services, etc. all contribute to neighbors getting to know each other. This is the single most significant indicator for a low crime rate (at any price level).
4. Connectivity (aka the ability to walk places) could significantly improve our general health. One subdivision approved this past year had a school adjacent to it, but it required almost 2 miles of roadway to get to it from the adjacent lots.
You are generally an insightful reporter. There have been many unintended consequences from the existing city and county regulations. Let's encourage smarter and more sustainable growth. It will be more affordable and our taxes won't be subsidizing sprawl and auto dependent growth. I also know that our development community is smart and sharp enough to figure out how to make the new regs work. They just want to know the rules...and have an even playing field with the competition. They will make it work...and maybe improve upon it.
joe
May 13, 2008
Low income El Pasoans will not enjoy the benefit of the overpriced homes here in our city, the Builders make sure of that. Every time a house is built the builder will persure the city apraiser to increase the price of the new house therefor creating consequences not just for the everage buyer but the homeowner that happens for live nearby in an existing nieghborhood. The square footage on the new home compared to the nearby resident wil increase the Tax rate fort them and we all know were that leads to. I have seen the way new homes are built nowadays and they would not withstand a minor tremor.The exorbitant prices which are made a priority by the builders only lends to the imperative and immediate change needed to combat the outrages tax rates imposed on us.The builders claim that the materials have gone up in price, granted but
build them right the first time and you'll avoid all those law suits which of course lends you suseptible to convey your costs to the
entire community. If only the Central Apraisal would resist the absurd requests from the builders and consider the credibility of the source our taxes would maybe decline to the point where maybe more low income families would be able to afford this outrages prices.
Jerry Kurtyka
May 13, 2008
"We've been able to have a high home ownership percentage because our previous ordinance allowed for developers and builders to produce lots of affordable houses. I think homeownership is a good thing even if your subdivision lacks 'connectivity.'"
Our previous mode of development also shortchanged the city on parks, libraries, open space and other amenities that make for a pleasant living environment, e.g., arroyos. At some point, policy makers have to ask themselves, "What kind of city to we want to leave for our kids and grandkids? What kind of people do we want to attract and retain here - low income or upwardly mobile?"
The developer/builder answer to that question is a city that is profitable for them or has been, as they can't go on forever laying out grids to the horizon. It is the role of elected officials to lead and also to take the concensus of the people. I think this is a good step in the right direction for El Paso.
Just take the Southwest flight from San Diego back to El Paso on a Monday morning. You'll see where the developers actually prefer to live (e.g., La Jolla) because the plane is full of them. They're not trekking to work from Lee Travino and, if they vote with their money, they prefer to live in places that place a high value on "connectivity."
David K
May 13, 2008
All very good points so far. I want a better El Paso, but I'd like to try and make sure we have affordable housing for those that want to buy.
Will
May 13, 2008
Some people in this city seem to be under the delusion that every human being is by natural right entitled to home ownership. A lot of economic research has questioned the cost/benefit of owning vs. renting, especially in recent years.
I think El Paso has been on a several-year long sprawl to the East, which has resulted in miles and miles of future ghettos, especially in the Joe Battle area. Those houses are only a few years old and they are already taking on the familiar symptoms, including undeveloped landscaping and cars parked in yards. Home ownership is not a NECESSITY, and hopefully these stricter building codes will result in aesthetically pleasing neighborhoods, better infrastructure, and a refocus on infill development in the existing neighborhoods of the city.
Affordable housing is a good thing, and an economic attractor, but it shouldn't come at the expense of adequate streets and poorly planned developments.
expat Al
May 14, 2008
I don't think your arguments pan out. The new ordinance may make developing and building more expensive, but that doesn't mean there will only be housing for the rich.
If that truly described the market in El Paso builders and developers in it for the profit would be building exclusively for the rich. Common knowledge is that there is more profit to be made in one $1 million home than in ten $100,000 homes. That "wealthy" market simply does not exist in ELP the way you suggest. Look at your own Census Data. Developers build affordably because they have no choice if they want to build in El Paso at all . Affordability will come in new stragegies (like denser housing).
Secondly, there is too much reliance placed on incoming troops, many of which will see their involuntary move to and stay at Ft. Bliss as only temporary. Most military dependents I know can't wait to leave. Like all bases, its here one day, gone the next...not a good long term proposition.
Lastly, "markets" are not self-generated, all knowing, nor all benevolent. There is imperfect knowledge. People, the masses, don't always "know" what they want. They have to be educated, brought kicking and screaming into progress if necessary. And someone with a product can be just as responsible for creating its "market." If markets were to rule absolutely, then drugs would be legal.
David K
May 14, 2008
Expat Al,
You must not know much about the housing industry. Cookie cutter track homes in the $100,000 range are the most profitable to buiild. Bulk materials plus repetitive plans = lots of room for profit. Home builders who want to make huge profits build bulk. Custom home builders are a different animal most all of them love the new requirements.
You are leaving out of your equation that there are minimum lot size requirements. The builders have no place to cut costs in order to keep profits up with the new subdivision ordinance.
As someone who works in the industry I can tell you that developement is coming to a grinding halt. 18 months from now the rest of the city will notice.
Doug Wright
May 14, 2008
katie gets it.
Steve Hicks
May 16, 2008
This artical is fair and balanced. El Pasos' elected officials have allways played to what sounds best to the voter, not whats best for the voter. The new subdivioion ordinance is no different, The polititans have again come out with something that sounds good, but may in reality end up costing the new home buyer thousands in the long run. Credit should be given for all the new property on the tax rolls each year thanks to the new homes that are built. This extra money collected by all tax enities is more than enough to pay impact fees. Impact fees is just another name for more tax. TAXES BY ANY OTHER NAME IS STILL TAXES. You are correct when you say the developers and builders can no longer sell their products because the market cant support the price they will stop building. Everywhere this has happend across the country that market lost percentage of home ownership and new develoments. Creating a false market for existing homes drving the prices up even higher.