Friday, February 23, 2007

How To Cram Every Nook And Cranny With Homes

From an article in todays Bulletin:
Public hears plans for subdivision

Brooks' subdivision is only one of a handful of large subdivisions that are sitting on drawing boards in developers' offices, waiting for the city to expand its boundaries, but it would certainly be one of the largest.

To the west of the city, the Miller family wants to build a mixed residential and commercial subdivision on the 445 acres of land it owns west of NorthWest Crossing, complete with new schools.

Also to the west, landowner Matt Day and his Tumalo Creek Development company want to spread a subdivision across the 370 acres he owns to the south of Shevlin Park Road.

To the northeast, the city of Bend is still putting touches on plans to develop the 1,100 acres of land it owns for industry, housing, offices, commercial and higher education.

To the east, the Oregon Department of State Lands has plans to develop more than 600 acres it owns east of 27th Street north of the Knott Landfill, and a host of developers have plans to start building on various lands to the northeast.

It's obvious that Bend has grown enormously for the past few years. There's all sorts of reasons why put out there: Bend is beautiful. Retirees will never stop coming here. Californians love to run down the locals in Hummers. Bend is dirt cheap compared to downtown San Fran penthouses. And so on.

But let me put forth that Bend is not totally unique throughout the Universe. Granted, Bend is nice, but so are a lot of other places. And I guess the upshot of this ultimately is the weird idea that Bend Might Not Grow At Abnormally High Rates Forever Like Virtually Every Developer On The West Coast Thinks It Will.

I think Bend will do OK in the future, but there seem to be a large number of people who think they can convince an even larger group of extremely rich people to haul their life savings to this backwater and blow most of it in a high density, very expensive subdivision plot with a fairly average house. I'm not sure that can be done in quite the volumes they're dreaming of.

Besides the planned subdiv's stated above, there are city-doubling developments planned for Prineville and Madras. And every Prop 37 claimant thinks They will just plotz out a subdiv way out in the middle of nowhere, so they can easily and conveniently make they $5-6 million they'll need to retire.

It may not seem like it, but all that empty land is starting to mysteriously become available for development, despite the widespread idea that there is a land shortage in Central OR. Of course there's not. We might not have a lot of things, but land isn't one of them. It's everywhere.

There's probably going to come a time when Bend isn't as "hip" with the in-crowd as it once was. We are the It Town now, but the It Town has a way of not being the It Town after awhile. It becomes passe, not cutting edge, or the effects of being the It Town ruin the place. I would guess there will come a time soon when Bend doesn't grow, and in fact shrinks.

The Price:Income ratio here is completely skewed. 92% of the homes are beyond the financial reach of people making 120% of the cities median income. If I were to come to Bend today, look at homes and then look at jobs, the decision would be made for me: I'd love to live here, but I can't, it's financially infeasible. That sentiment is spreading, and has also been covered in the local paper. Working people can't make it in Bend.

We will reach some sort of crisis point soon: Either Bend will begin shrinking down and will reach a population point much smaller than it is now and become a resort town, or Price:Income ratios will begin to adjust. I wouldn't look to incomes to come up. There is every reason in the World for them to be going up now, and they aren't. This leaves prices to fall and fall dramatically. Home prices will need to shrink 40-50% in real terms to make Bend a viable place to live. But this could take 10, 15 or even 20 years.

I think we'll suffer a little of both: Bend will start shrinking soon, to the dismay and shock of those trying to build out every square inch of empty land. Plans will be revised down. Homes will go up for sale, but there'll be no one buying. Price will begin a slow but inexorable march down. They'll stall, and everyone will call a bottom, but it'll just be a pause before things go South again. It seems like Bend shrinking and falling real estate demand are two paradigms that no one even thinks is within the realm of possibility, but both seem like an economic certainty.


Anonymous said...

Or in other words the market will control the growth. Imagine that.

Anonymous said...

Interesting PLAN, but lots of subdivisions are PLANNED and never built. If BRC DOES go through with building it soon, it will be at lower prices, bringing everything else down. It's still more expensive than Portland.

Thomas Ware said...

I've been waiting a long time to see that "in print".

Anonymous said...

Keep in mind that Brooks' subdivision and all the others mentioned in the story would be planned for 15 to 20-year buildouts. Not unreasonable, probably, given some reasonable assumption of growth rates. Say, 5 percent per annum.

Of course, if growth stops altogether, so will the development.

IHateToBurstYourBubble said...

Of course, if growth stops altogether, so will the development

But what happens to these development companies? They have this inventory of land that only produces revenue when they sell it off in little chunks with houses, or they sell the whole thing lock stock & barrel. Will they simply reconcile themselves to zero revenue?

What happens after they wait a year, and the markets still no good? Then 2 years? Then 5? Pretty soon they have to sell *something* or they're not really even a company anymore, they're just land speculators.

Say, 5 percent per annum.

Exactly. They have growth built into projections that are actually a fair bit above the national avg. I'm saying 5% per year may be very optimistic for the next 20 years. 0% over a couple of those years seems likely.

Or in other words the market will control the growth. Imagine that.

Yes. That's exactly the point. Re-read & you'll see that's what I wrote. I'm FOR it. I appreciate your 100% total agreement.

Anonymous said...

>>Or in other words the market will control the growth. Imagine that.

Actually, that would be a nice change. In 2005, builders could overbuild as much as they liked and the supply would be snapped up by a seemingly limitless supply of flippers and investors.

If the market now means "people who actually want to buy and live in the house" or even "people who invest in houses and can make the money back from renters," then that makes sense to me.

If the market means "people who buy the houses but then can't sell for a profit or rent to cover the costs," then we're back in 2005--an untenable situation.

Anonymous said...

The price to income ratio you're talking about is even more extreme in many areas of California, but there does not seem to be any massive exodus there. It's been solved by a newfangled idea called RENTING...