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HomeMy WebLinkAboutHastings Villas Project Final-to City submitted by Todd Rapp Villas of Wyndham Hills – Market Analysis By David Arbit, MCRP September 2018 The “Macro” Environment The residential housing market is drastically undersupplied—that’s why prices are rising, homes are selling in record time and inventory is so low. The Twin Cities is near a 20-year low for active listings. That means our region desperately need additional housing of all types— particularly for millennials and baby boomers as they’re the two largest generations. Low interest rates and solid economic growth combined with rising rents have encouraged more people to buy property. Interest rates remain low, job growth solid and we expect this to support a strong housing market moving forward. But we direly need additional supply of all types. The “Micro” Environment The Hastings area is unique in certain ways and not unique in others. The city offers a unique feel on the edge of a growing metro area. That said, the city is suffering from the same chronic under-supply of housing as the rest of the metro area. So while Hastings is unique in many ways, it’s not unique in the sense that current and future residents desperately need more homes on the market. Housing is a critical component to regional and municipal growth, development, financial stability, tax base, quality of life and more. Absorption rates are very low in Hastings—even lower than in Dakota County. With 1.0 month of supply in Hastings, there is strong demand but very weak supply for this product type (interactive: http://northstarmls.stats.10kresearch.com/infoserv/s-v1/Pmiw-rST). This indicates more construction of this product is needed in the marketplace. As a result, homes in Hastings and the surrounding county are selling in record time without delay (interactive: http://northstarmls.stats.10kresearch.com/infoserv/s-v1/PmiU-vKR). To alleviate this imbalance between supply and demand where homes are being absorbed in record time, more construction is needed. Prices for both single-family and detached product with associations in Hastings have appreciated since the housing crisis and there’s no evidence to suggest that’ll change in the near term (interactive: http://northstarmls.stats.10kresearch.com/infoserv/s-v1/Pmi6-so6). The “Not a Comp” Argument The same way neighbors in the image above are not “comparables” for each other, condos or villas are rarely included in single-family Comparative Market Analyses (CMAs) done by real estate professionals. In other words, the surrounding single-family market really isn’t impacted by villa development nearby, since they are unique and distinct market segments. In fact, the surrounding single-family community could benefit from villa development if the project is done artfully and with good curb appeal. That could actually encourage some buyers to spend more on the surrounding single-family homes. Fieldstone builds a quality product and does it right, so there’s more reason to believe this development would help surrounding values than hurt them. Additionally, housing is a spectrum. The more residential variety and choice the city offers, the more residents will stay in Hastings throughout all life stages and the more in-demand the city will be (indicating stable and rising property values). The “Locational” and “Lifestyle” Arguments The greater Hastings area plays a key role in our metro’s ongoing growth and development. Located on the river, on the Wisconsin border and in the rapidly growing east metro, Hastings stands to benefit massively from both the residential and economic development of our vibrant and growing region. Hastings offers somewhat of a small-town feel but with the conveniences and opportunities of a major metropolitan area nearby. That is an important lifestyle option for Twin Cities residents as our population continues to grow. Both millennials and baby boomers— the two largest home-buying generations—appreciate the quality and mix of housing for various life stages along with the ease of not worrying about maintenance and landscaping needs. Demographic Dynamics The population in Hastings is 10 percent older than that of the Twin Cities and slightly older than the median age for the state. As such, a lot of residents in and around the area will be downsizing now and in the coming years. Detached villas that offer single-family flexibility and privacy with no maintenance are a great fit for aging baby boomers. This trend will continue and the need will only increase in the future as the boomer generation continues to age. New Housing is Good for Everyone Not only does new housing development contribute to the job and wage growth of our region, it also spreads out the tax burden. Cities need a certain amount of tax revenue to fund its operations. With additional tax-generating housing parcels, Hastings can effectively keep the tax rate flat while expanding the tax base to cover growing costs. Without additional development, that growing tax burden will be born solely by existing residents. So not only does a new home offer an opportunity for a new or existing Hastings resident to invest in their home and their community, it also has a significant “spin-off” or “multiplier effect” that ripples throughout the community and can help to spread out rising municipal costs. Overcoming “Nimbyism” It’s tempting and somewhat within human nature to want to preserve what we already have and keep others out. But imagine if all the farmsteads in Dakota county refused to sell to the developer that developed your home. We’re all members of a growing metro area with a bad and worsening housing shortage. We also have a serious labor shortage—particularly for skilled workers. They need roofs over their heads. Successful and competitive cities and metros must offer sufficient housing choice to compete for jobs and investment and continue to grow. Moreover, and as this analysis will show, some of the concerns from the community—while well-intentioned and understandable—simply aren’t rooted in market reality. Owning vs. Renting This project allows for individuals to own real property in Hastings instead of renting. There’s lots of evidence that homeowners tend to be more active, engaged and invested in their community. Owner-occupied homes tend to have better curb appeal and are better maintained. The alternative to this project may be a rental development—which could raise even more concerns among residents. Specific Case Studies Perhaps the most effective way to alleviate development concerns from neighbors is to demonstrate that surrounding values have in fact not declined in the surrounding community. In fact, values perform quite well—in some instances even better than the county or metro. Cobblestone Lake (Apple Valley) Cobblestone Lake is a master planned, mixed-use development in Apple Valley built in phases between 2005 and 2018. There are larger single-family properties, smaller villas and apartments on the site. Above is an aerial image centered on the lake itself but highlighting the variety of product in the development. Small-lot “villas” are one of the product types offered and they’re in the northwest corner of the above image. The chart above uses MLS sales data (source: NorthstarMLS) and custom geographies to examine changes in new home values over time across multiple areas. Cobblestone Lake reflects only that development area while the 2-mile radius extends from the center of the development outward into the surrounding community. Interestingly, similarly-sized homes in the surrounding city showed stronger appreciation than the development area. This directly contradicts the notion that surrounding property values would suffer because of a similar development in Dakota County. Dancing Waters (Woodbury) Dancing Waters in Woodbury began development in 2003 and features several builders including Pulte, Hans Hagen and Pratt. The development features a wide-range of housing products, including single-family and detached villas ranging from $250,000 up to $1,150,000. The circular cul-de-sac in the satellite image on the right (above) shows the detached units that are very similar to the proposed Hastings development. From the trendlines above, it’s clear that existing home values within 2 miles of the development and in the city as a whole did not decline as a result of the project. In fact, home values within 2 miles of the subject area performed better than the city. In other words, homes closer to Dancing Waters actually had higher prices than in the rest of the city. This shows that home values close to small-lot or “villa” type developments do not decline as a result of the development and can actually rise more quickly and even outperform the city and county. Going a step further, the chart above also demonstrates that homes within 2 miles of the development did not take significantly longer to sell and did not see their market times rise as a result of development. When homes linger on the market, sellers typically lower the price slightly to entice more buyers. This hasn’t been the case here. Going further still, sellers in the city and within 2 miles of the site actually saw their ratio of sales price to list price rise even when it was decreasing in the subject development. Higher sales price to list price ratios means sellers are yielding a higher share of their asking price (an even 100% in Woodbury). This is consistent with a strong seller’s market. If values were declining and the surrounding market was softening, buyers would be offering a shrinking portion of the sellers’ asking price, and that’s simply not happening. This once again directly refutes neighbors’ concerns over surrounding property values. Villas at Twenty-One Oaks (Woodbury) Pratt Homes was again one of five builders chosen to participate in the development of Twenty- one Oaks. The villas offer a maintenance-free lifestyle with all the benefits of living in a master- planned community within a major metro area. Residents get all the benefits of a well-managed association but with the privacy and feel of single-family. Amenities, recreation, shopping and dining are all nearby. The chart above shows home prices in the three geographies over the last 10 years. Again we see property values in both the immediate vicinity and the host city rising at a rate comparable to the Twin Cities as a whole. As with Dancing Waters, surrounding home values close to the Villas at Twenty-one Oaks actually outperformed those in the broader city. In other words, property values closer to the development were higher than those in the city as a whole. This once again directly contradicts the theory that small villas bring down surrounding property values. Summit Heights (Hastings) Summit Heights is a small development on 14th Court W. in Hastings. It was built in 2003 and features similar compact villa-style detached homes with an association as the current proposed plats in Wyndham Hills (see court near center of image above). The above chart again demonstrates that opposition to villa-style homes is misguided and unfounded. Values in the surrounding community did not decline faster than the city as a whole during the downturn. In addition, the area within 2 miles of the development actually performed better than the broader city as whole. Beginning in 2006 (with a few exceptions), values for homes within the 2-mile radius actually exceeded those in the entire city. Put another way, properties close to this development enjoyed stronger appreciation than the market as a whole. Brandtjen Farms Brandtjen Farms came online in 2007 and is located in Lakeville near the intersection of Apple Valley, Rosemount and Farmington. The development incorporates the old family farm as a centerpiece and gather space and includes amenities and winding trails. This project offers a variety of housing types and is adjacent to other single-family subdivisions. The median sales price graphic shows how homes within 2 miles of Brandtjen appreciated at the same rate as those in the City of Lakeville. The green and red trendlines track together almost perfectly, despite what’s happening with the development itself. Conclusion This analysis has provided numerous examples of how small-scale villas and mixed-use development within single-family residential areas has little or no bearing on surrounding property values. While the concern among surrounding owners is understandable, it’s simply not borne out in the data. Detached villas very rarely serve as “comps” or “comparables” for single- family homes. This project is timely and very much needed. The Twin Cities has a severe housing shortage and first-time home buyers as well as downsizing baby boomers need more housing options. Hastings is in a key location and is likely to continue to experience development pressure. That can either lead to antagonism and division, or expanded tax base, more workers, jobs, income, accessibility, mobility, opportunity and resident satisfaction. Changing demographics in and around the city and region also support this and similar projects. Council and residents of course have a role to play in community and development matters; their voices are valued and appreciated. Hopefully the facts presented here can provide an empirical and analytical foundation that drives decision-making in an unbiased and unemotional manner. Fear of something unlikely to happen is not sufficient justification to table important residential development like that proposed in Wyndham Hills.