New Developments: Time to Update Location, Location, Location?
By Thom Amdur
4 min read
Mark Twain famously recommended, “Buy land, they’re not making any more of it.” Forget that he lived contemporaneously with the filling of Back Bay in Boston (and not that far away in Hartford, CT) where they did in fact make more of it, the observation is generally true but not especially good investment advice. Not all land is built the same – to quote another old real estate proverb, “There are three things that matter in property: location, location, location.” Whether you are developing apartments or a shopping center – knowing your market area and where you sit in it is essential for success.
Of course, lots of other things matter too, such as purchasing at the right price, financing at favorable terms and operational efficiency, but we’ll leave those as subjects for future columns. This month’s issue of Tax Credit Advisor focuses on siting multifamily projects successfully, and there is a lot to consider as the economy restructures and consumer preferences change.
COVID-19 has (potentially) upset a number of our long-held assumptions about market and site selection. For example, with the large parts of the economy transitioning to remote work, perhaps permanently, is it as important to consumers to live near job centers? Will consumers pay a premium for walkability to groceries and retail now that they have become accustomed to UberEats and Door Dash? Will public transit attract the same level of ridership or will commuters prefer to continue to ride their bikes or drive their cars? Now more than ever, developers, underwriters and funders should be investing in high-quality market analyses to ensure their development sites meet the needs of the post-pandemic economy.
The answers to many of these questions may break down by whether the apartment is income-restricted or conventional.
Dr. Lisa Sturtevant of the Virginia REALTORS recently pointed out at the National Council of Housing Market Analysts (NCHMA) Virtual Annual Meeting on December 8, the U.S. economy appears to be on the path of a “K-Shaped” recovery, where different parts of the economy recover at different rates (The COVID Housing Economy, p. 18). This is in contrast to a “V-Shaped” or “U-Shaped” recovery where all parts of the economy recover more or less in tandem. This dynamic is likely to exacerbate income inequality, perhaps for years to come, and increase the need for affordable housing along with the numbers of lower-income Americans who are left behind in the recovery.
Note, I did not say no-income Americans in need of affordable housing. A recent study in Ohio also found that labor force participation of residents of affordable housing exceeds that of the national average. While there are certainly many seniors on a fixed-income and non-elderly disabled residents in affordable rental housing, most residents of Low Income Housing Tax Credit housing are workers and their families. They tend to have jobs in retail, restaurant services, health services, etc., that cannot be done remotely. While higher-end white collar renters may be able relocate anywhere in the new economy, proximity to job centers is an important draw on the affordable side of the spectrum. Similarly, while UberEats and Door Dash are great conveniences, they are luxuries that many lower-income Americans, particularly those impacted by pandemic job loss can ill afford – so proximity to grocery stores and affordable dining options should still hold a premium.
In the end, we know that finding a quality home with an affordable rent can be like winning the housing lottery. Residents of all stripes prefer great locations but will travel far and wide to find the affordability. In a competitive housing market, rent advantage is ultimately the number one project amenity and the affordable housing developer’s ace in the hole.
