A ‘New Normal’ Takes Shape in Housing

Atlanta Business Chronicle – by Bruce Gunter

Atlanta’s economy has long been fueled by the housing sector and its very shape defined by the outward expansion of suburban housing and, in recent years, by in town high-rise condominiums. With nascent indicators of reaching the bottom, what will the metro area’s housing sector look like post-recession?

At the recent Atlanta Regional Housing Forum, we asked the question, “What will the ‘new normal’ look like?” Will the “pipe farms” in the northern reaches revert to farmland? Will the nearly vacant condo towers in Midtown and Buckhead turn to rental?

What is virtually certain is that demographics, more stringent lending criteria, and changing family composition will spell fewer single-family homes. The home ownership rate peaked four years ago at 69 percent and will almost certainly settle out lower. As subprime loans are gone as a source of mortgage financing, lower-income households most assuredly will find buying a home more difficult. Offsetting these trends to some degree, housing prices may remain at lower levels, with a return to relative affordability a silver lining of the carnage.

Demographics are a primary driver of housing markets. As has been widely reported, the traditional American household — two parents with children — now constitutes fewer than half of all households, and that percentage is falling. On the other hand, the aging of the “echo-boomers” should reinvigorate the housing market as they begin to form households. Driving up rental demand are the aging baby boomers as their housing preferences change with their incomes.

The net result? Over time, the combination of pent-up demand from deferred household formation and lower levels of home building will reduce the level of excess inventory and finally send housing starts upward again.

In addition to demographic drivers, the rental sector will benefit from the shift away from the emphasis on home ownership. Rental will gain market share vis a vis for-sale housing, both in upper-end units to renters by choice and at the lower end of workforce and subsidized housing.

As a “new normal” takes shape, the cost of energy and the environment have emerged as permanent factors in the housing market.

“Compact development” will be the new norm. The success of these efforts will depend on creating more densely settled, transit-oriented and mixed-use communities and on encouraging businesses to expand in or relocate to these areas. Remember when Atlanta was a poster child of sprawl? We may have witnessed the high water mark of sprawl here, as both public and private economics rein in outward growth in favor of denser development.

However, perhaps the biggest housing challenge facing Atlanta is how to create housing for the workforce, which now accounts for more than 65 percent of all households in the core metropolitan region. Workforce households are spending an astonishing 61 percent of their disposable income on housing and commuting. Putting workforce housing where the jobs and transit are located should be a priority of any land use policy.

Being one of the lowest density cities in the world and with the promising Beltline concept making steady progress, Atlanta is well-situated to emerge strongly from the recession.

When growth does reappear, there will be winners and losers: bet on intown, sell the exurbs.

Gunter is president of Decatur-based Progressive Redevelopment Inc.

The Second Generation of Georgia Planning

When the Georgia Planning Act was adopted in 1989, few local governments in Georgia had a comprehensive plan. Thus, much of the state began to undertake a thoughtful consideration of community needs and the future for the first time in the early 1990s. By mid-decade most local governments in Georgia had completed a comprehensive plan.

Georgia DCA planning rules only require a full plan update every 10 years. So, beginning around 2003, many local governments began the required update of their initial comprehensive plan. During the 10 years that passed from the adoption of the Georgia Planning Act to the early part of this decade, planning changed significantly across the U.S.

The concepts of Smart Growth, New Urbanism and linking land use and transportation strategies gained widespread acceptance. National organizations, federal, state and local governments began to accept that the prior decades of investment and development decisions were not sustainable. The private sector began to respond to a growing number of home buyers and renters who wanted living standards unique from a suburban home and commute. Mixed-use development became economically feasible in many areas. In the late 1990s, Post Riverside and the City of Smyrna began capturing planners, elected officials and the private sector’s attention.

During the past five years, most city and county governments in metro Atlanta have updated plans to the “second generation” of Georgia comprehensive plans. This is an important milestone. This second generation of planning has brought vast and significant positive changes to local development policy. Many counties, like Gwinnett, have produced plans that are truly cutting edge linking housing and transportation investments. These new local government plans have considered growth scenarios, fiscal impacts and rural land protection. Many cities, including Decatur and Atlanta, have undertaken planning to build livable neighborhoods with a diversity of housing, shopping and travel choices.

During the past two decades frenzied population and economic growth, largely a result of national migration trends, dominated metro Atlanta planning. Planners spent most of their time and effort processing rezoning applications, subdivision plats and site plans. And there continues to be major stumbling blocks that could undermine our planning and progress in Georgia. Georgia does not enforce rules to make local comprehensive plans consistent with zoning and development regulations. Therefore, zoning rules will not change automatically to enact the second generation of comprehensive plans. It will take years of ordinance revisions, rezoning changes, overlay codes and other actions to change the primary rules that implement our comprehensive plans.

Why will it take so long? At least two good reasons exist. First, local government attorneys, elected officials and planners in Georgia undervalue the substantial authority that they possess to guide growth. Almost 100 years of law in the U.S. and Georgia have provided authority for local governments to zone land and change rules to implement well-conceived growth strategies through a comprehensive plan. Local governments can uphold and enact many changes to improve our plan implementation. However, developers and attorneys spend many waking hours trying to undermine the reality of zoning law and the home rule authority of local governments in Georgia. Substantially more discussion and education is needed at all levels regarding the ability for local governments to implement plans.

Somewhere over the last decade many developers and builders became “speculators.” The market was flush with bank funding for new subdivisions and mortgages. But times have changed and the fallout from the recession and foreclosures could substantially alter future development patterns. Metro Atlanta currently has a record high inventory of available lots, and even with a 75-to-90 percent decline in building permits in metro counties, the inventory of lots still seems to be rising. Many developers are gambling that their projects will be ready when the market returns and local governments still appear willing to allow their communities to be the target for land speculation.

Eventually the market will soak up the current housing and demand will come back. But with aging baby boomers, fewer jobs and traffic congestion, there are many uncertainties about where demand will occur and for what housing products. Local governments must know three things: 1)what housing is currently built and available, 2) what housing will be needed and 3)what type of housing are current regulations going to allow.

Now is a good time for local governments in Georgia to show leadership and implement the second generation of comprehensive plans that we have produced. This includes seeking to truly understand and zone land to address community housing needs for seniors, young families and single professionals. And it means making the right public investments for transportation to maintain a strong Georgia economy for the long term.