Urban Land Instituite explores in-town housing development

U.S. Census statistics show downtown populations are increasing

Despite the sluggish economy, the market for in-town housing remains stable in urban areas nationwide, with the highest demand for owner-occupied units in the mid-price range, according to industry experts at a recent Urban Land Institute housing conference.

The event, held Sept. 30-Oct.1 in Chicago, focused on factors driving development of market-rate, in-town housing, including downtown population increases and changing demographics. Examples of successful projects were featured, as well as predictions about future demand for in-town housing.

According to the U.S. Census Bureau, several metropolitan areas experienced downtown population increases between 1990 and 2000.

Houston, Seattle, Chicago, Denver, Portland (Ore.), Atlanta, Memphis and San Diego all experienced far greater increases in population in their downtown areas than as a whole.

For instance, Houston's downtown population grew by 69 percent, while the city's entire population rose by 20 percent. Some other cities, including Cleveland, Baltimore, Philadelphia and Detroit, experienced population increases downtown while losing population as a whole. Moreover, the Census Bureau predicts that over the next two decades, the number of U.S. households without children is expected to grow by 87 percent, with childless households constituting as much as 70 percent of the total population.

The rising population of downtown areas, coupled with the rise in childless households, suggests that the market for in-town housing is "growing beyond a niche," as more people seek pedestrian-friendly, mixed-use, live-work-play environments, said Conference Chairman Ronald Ratner, president of the Forest City Residential Group Inc., in Cleveland.

The in-town housing demand is being driven primarily by a continued influx of young, childless professionals and empty nester couples who have not yet retired, and who want to live closer to employment and urban entertainment centers, he said. Both groups the 20-to-35-year-olds, and those over 50 are seeking "culture and convenience" seldom found in traditional suburbs, Ratner said.

Rick Holliday, president of Holliday Development in Emeryville, Calif., noted that the in-town housing movement is the result of "new technologies that are allowing people to take control of their lives."

A growing backlash against urban sprawl and its related problems, including traffic congestion and loss of open space, suggests that demand will be long-term, he said.

Conference participants pointed out that because there are rarely "obvious sites" for in-town housing development, assembling the land and pulling the projects together often requires the ability to recognize the potential of unlikely sites, such as a boarded-up warehouse, school, or railroad station.

Pres Kabacoff, chief executive officer of Historic Restoration Inc. in New Orleans, listed several places within an urban market that could have unused or underutilized properties with possibilities such as a warehouse district, blocks of skyscrapers built prior to the Great Depression, blocks of office buildings built in the 1960s and 1970s, or public housing sites near city centers. Historic Restoration has transformed several unlikely prospects for residential use into highly sought-after rental and owner-occupied housing throughout New Orleans, contributing to a resurgence of the surrounding neighborhoods, he noted. "Reviving the city's center benefits the entire region," Kabacoff said.

While the sluggish economy has hampered sales of high-end units in some areas, demand remains strong for more moderately priced in-town housing, with low mortgage rates making ownership more affordable, participants said.

According to J. Michael McGwier, group managing partner for Trammell Crow Residential Services in Atlanta, units priced below $200,000 are selling "like crazy," to the detriment of the rental market. As a result, the company is focusing on smaller (two-bedroom maximum) rental units, to appeal to those not yet ready or able to buy, he said.

In-town housing in lower Manhattan continues to feel the effect of last year's terrorist attacks, said Marilyn Kramer Weitzman, president of The Weitzman Group, Inc., in New York. Prior to Sept. 11, the company had planned an upscale project in Battery Park City, with rentals up to $6,800 per month targeted to affluent couples and families with pre-school children. Following the attacks, 25 percent of the households (mainly families with children) in Battery Park City left, and rents fell as much as 35 percent, forcing the company to quickly "rethink its plans" and cut back the number of larger, more expensive units, she said.

However, in downtown Chicago, demand has remained steady for high-priced housing, said Christopher T. Carley, chairman of The Fordham Company in Chicago, which specializes in upscale units.

The luxury units including a few as high as $15 million are being purchased primarily by buyers 55 and older who have accumulated substantial equity in their suburban homes and are applying it to downtown housing, he said.

While these buyers are seeking maintenance-free living, they still value some elements of suburban life, such as cars and ample living space, Carley said.

"They want full service maid service, room service, car service. We sell amenities and lifestyle as much as bricks and mortar," he said.

Conference participants concurred that residential development has, so far, remained the sector of downtown real estate least affected by the weakened economy.

"We have cranes downtown (in Washington, D.C.) but they are for new residential development, not office space," said David Mayhood, president of The Mayhood Company in McLean, Va. Still, despite the steady demand, Mayhood and other conference participants predicted that in-town housing development will at best remain stable through next year, then pick up steam in 2004.

The Urban Land Institute's mission is to provide responsible leadership in the use of land in order to enhance the total environment.