Cooling Market Taking Toll on Housing Projects

A lot of downtown condo developers in my neck of the urban woods are having second thoughts about proceeding with projects as the housing market -- especially in the luxury high-end -- cools.

Tuesday's second-quarter numbers from the Office of Federal Housing Enterprise Oversight showing home prices increasing at a 4.7 percent annual rate, the slowest since the fourth quarter of 1999, won't help steel their courage.

So far, only three developers in my market have abandoned ship. Since only about half of all proposed projects are built anyway, it wasn't much of surprise. I'm surprised that there haven't been more, but as one economist told me, developers always couch their plans in hard-to-fathom euphemisms.

Some of the projects are being squeezed out by rising construction costs. One developer of a 31-story luxury high-rise told me that when the hole was dug for his project 16 months ago, building costs were running $400 a square foot. Today, the costs are $700 a square foot.

In my market, condo prices range from $300 to $2,000 a square foot, depending on location and amenities, and since the developer is getting the higher figure for most of his units, he's not worried.

A reason for his success is the fact that he's local. A number of the shaky projects are out-of-town productions, and if you aren't intimately familiar with the market you are targeting, it's tough to build quickly enough to keep costs low and sell in an up market.

One major stumbling block in both city and suburbs is neighborhood opposition. A number of high-rise projects in my city have been delayed by lawsuits -- usually from people who bought their buildings for the view of something, such as a square, park, river, or city skyline -- and now face the prospect of the view being blocked.

A project here has been delayed for four years by people whose townhouses will be in the shadow of the high-rise -- great for air-conditioning costs in the summer, lousy for heating bills in the winter, and terrible if you want to have something other than impatiens in your window boxes.

It's not much different in the older suburbs. In my community, a couple sold their house after unsuccessfully suing a neighbor for adding a third-story to his two-story bungalow.

I'd have sued for aesthetics (ruining the lines of a bungalow), but they went to court because they had a prize-winning flower garden that was no longer going to get sun.

Over the last 20 years at least and for a variety of reasons, the not-in-my-back-yard, or Nimby, attitude has become standard operating procedure in the suburbs and is now taking hold in the city as the novelty of urban redevelopment begins to wear off.

There are some differences in the reasons, of course. In the suburbs, the problems are taxes and schools, increased traffic and disappearing open space.

In the city, aesthetics play a large role, but so do fears by older residents that development will raise their taxes beyond affordability. Too many developers don't recognize these fears, and look upon their opponents as troublemakers who don't know what's good for them.

In both suburbs and cities, developers who learn to compromise and accommodate usually do well.

As a people, we appear to be more accommodating when it comes to housing than our British cousins, according to a survey by the Saint Consulting Group of Massachusetts.

Saint polled 1,000 Americans and 1,000 citizens of the United Kingdom and found that the British are more likely to oppose new housing than Americans (33 percent versus 13 percent).

In fact, single-family housing is the most supported land use in the United States, with 75 percent of Americans saying they would support new housing in their communities -- though not much else.

One in five homeowners in both countries appears willing to fight to protect the character of their communities and the value of their investment in their homes.

In the United Kingdom, 19 percent of the population has opposed a planning application, compared with 21 percent of the United States respondents.

Americans surveyed are more cynical about the process and the politics of development. Saint reported that 70 percent of Americans believed the relationships between elected officials and developers make the approval process unfair, compared with 50 percent in Britain.

Supermarkets constitute the second-most acceptable land use in the United States (63 percent approve), while they are opposed by 57 percent of Britons polled.

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