May 13, 2008
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.