Will Olympians buy a condominium when they can afford a house?

If you attended the PPS forum, any city council meeting, or have drawn a breath from the air circulating within Olympia’s city limits, you’ve certainly heard about downtown and mixed use housing. It’s the third rail of our comprehensive plan; the crux of downtown development; and the defensive line from which the advocates of ecological sustainability fortify their worldview. So where is the housing?

The Olympia Planning Commission (OPC), as part of the Imagine Olympia process and the focus groups that have followed, attempted to meet with members of the development community on July 18, 2011. The minutes for that meeting are available here. Jason Robertson of J.R. Company who you might remember as the moderator with the focus meetings gathered some information and produced a memo that he submitted to the planning commission in lieu of the meeting. (This nugget from the minutes is all we have of the reasons: “A list of 10 people was identified to participate on a panel. They were contacted multiple times and were unable to attend.”)

My remarks here assume familiarity with the paradigm through which I view development within a limited geographic space that I described earlier.  Before I get into the meat of the document, it should be noted that I am looking at this issue because developers are generally the parties that undertake the nuts and bolts execution of any comprehensive plan. In most cases, they are not responsible for creating the communities, but they ultimately do create the physical components on which resilient and vital communities develop over time. As I’ve mentioned previously, developers are necessary in the social, economic, and political organization under which we live. In some cases, residents and municipalities have undertaken development projects themselves but those situations are rare enough that I’ll leave them out of this particular discussion. There are also loads of examples of a professional developer working in his or her own community which blurs the paradigm I’m striking here, but the economic model to which they are beholden doesn’t make much of a difference in where they live. In short, developers are necessary for desirable communities and so it is necessary to pay attention to engage them if residents want to build a desirable city.

J.R. Company’s memo contains four questions were posed to several developers whose names for obvious reasons I hope, were not disclosed. The first question was:

1.)    What is it going to take to generate interest and/or help pencil out mixed use development in the downtown and along Olympia’s (designated) high density corridors?

Of the seven answers, I can form two general groups: demand issues in five responses; and feasibility issues in two, but one of the latter could also be lumped back into lack of demand. Notice someone suggested that Olympia’s code is too complicated and should be simplified (feasibility). While there are certainly plenty of consultants and lawyers who can admirably navigate Olympia’s land use and development regulations, they do expect to be paid for their work which certainly cuts into any developer’s margin.  If we peel back that layer of the onion, we’re probably ultimately looking at a market issue on this answer too. If transaction costs eat away the margin, profit must be found elsewhere, and obviously no developer is going to push a project forward if it would need to hand over its surplus to its lawyer. Said otherwise, that means that the demand for the product offered is not sufficiently cultivated at the market prices the developer (and its bank) would need to ask.

Thus we’re left with the demand problem as the dominant consideration in the responses to this question. This is perplexing in all the forms and angles described in the document.  For example, we see a recurring theme: there is developable land elsewhere in Thurston County, and much of our low density areas (e.g. Martin Way, Harrison, and Pacific) are not underdeveloped from a financial standpoint. That means that the owners and financiers are receiving sufficient returns on their investments in those areas so they are not inclined to risk those revenue streams on projects, at least in the current economic configuration. In effect they are saying: “We’re getting plenty of rental income on the office park so we’re not going to demolish it to build a mixed use building.”

It should go without saying by now that they would certainly demolish those low density buildings if they felt that something else would create an even larger rental income, at least if that income were sufficient to risk the interrupted income that would occur during the construction and sale/leasing of the new building. Thus I present to you, the Demand Problem.

One response articulated the demand problem very clearly—it is perhaps the most serious affront to the goals of the comprehensive plan’s objective of mixed use and downtown housing:

“We have fewer high income earners willing to live in an urban environment. It’s just easier to build/buy a $250,000 new home in Lacey or unincorporated Thurston County.”

This statement has several interesting wrinkles so I’ll try to iron them out. By high earners, does that mean people who don’t work for government? What is an annual salary of a high income earner? I assume that means relative to Seattle, Bellevue and its environs, Tacoma, Vancouver (WA), and perhaps Everett. The phrase “willing to live”: is also an interesting. I personally am a huge fan of our downtown, but I do believe it is somewhat of a stretch to call it an urban environment at least relative to the cities I mentioned. The use of “willing” makes me believe that the respondent doesn’t personally appreciate the benefits of an urban environment because “willing” in this context almost smacks of sacrifice or settling. I do believe that Thurston County’s collective conceptualization of the positive aspects of urbanism leave something to be desired (e.g. paid parking controversies). That is likely one of the reasons that people choose to live here as opposed to other cities that have a greater urban orientation in both physical character and the general mental conceptions of its residents. To summarize, this respondent probably thinks people move to Olympia to escape the city and in doing so those people want the traditional notion of a convenient and accessible suburban lifestyle.

Having isolated the demand problem in theory, let’s examine it more deeply in practice: let’s say that someone is faced with the option of seeking a condominium or a house in Thurston County. I chose a listing from Zillow, not at all concerned with whether it’s still live. Notice here there are several condominium listings available. It appears by these listings at least that prices start from the $120,000 for a 2 bedroom, 1.5 bath in a neighborhood that is somewhat walkable to Capitol Lake and lots of offices, and the courthouse nearby. Except for the lounge and restaurant at the Red Lion Hotel, and the convenience/gas store, there are no other notable urban amenities. Next, examine the Westside neighborhoods on Zillow. Notice further that most houses that are even close to move-in ready are roughly twice the cost of a condominium on Evergreen Parkway. Now for those who are looking in a $200,000 thousand dollar range, there are few alternatives to the single family house. Unless you want to go into the higher range of $350,000-500,000 and up for luxury view condominiums, or take an efficient condo on Evergreen Parkway, you are probably going to be in the market for a detached house. It seems from the developer’s comment that the respondent does not consider a condominium to be an alternative to a single family house. There are some people who would prefer the condo—some want a new home and want it full of new appliances and granite countertops. On that vein of course, there is Hawkes Prairie. There you find a huge diversity of neighborhoods and prices. After you cross from one neighborhood to another the houses inside are eerily similar the entirety of which is completely isolated in a suburban cocoon. In cities with an urban core you’re typically looking at condos or apartments the closer in to the center—you trade yard and size for urban amenities. That is not the case here. In Olympia, most condominiums are in an isolated area with minimal urban amenities and the single family houses are closer to the downtown. (Hawkes Prairie is nowhere near an urban environment so is excluded from this comparison.)

These are your basic options: if you don’t want a house, you’ll still actually be paying pretty close to the cost of house for a condominium and closer to downtown, all things considered. Further, in today’s residential finance scheme, you’ll most likely quality for a house if you’d qualify for a condo. (If you have a minimally stable salary, chances are, you’ll qualify for the low end of both housing options.) So if you live in Thurston County, work at a reasonably stable salary, you’ll most likely find that a house, not a condominium is the most reasonable purchase. Each individual has their own considerations—something to do with the relative cost of each, the desirability of our urban environment, or simple preference for a suburban/rural environment plentiful in Thurston County. It’s likely that parts of each and other reasons for every person faced with this decision. I can’t answer for all the consumer preferences of those who live in Thurston County, but I can clearly enough see that a prospective developer doesn’t have the requisite assurance that there is demand in Thurston County for the kind of housing options that people say they want when responding to public comments about the comprehensive plan.

Contrast this with the dense urban environment in Seattle where mid-priced non-view condominiums are the basis of the housing stock: a recent excursion found a starting price of $199,000 for a 1 bedroom, 1 bath in Ballard up to $279,000 for a 1 bedroom + den, and 1 bath. On the other hand, a three small bedroom, one bathroom house nearby was going for $479.000). These figures are typical, but more extreme in neighborhoods like Capitol Hill which lose more houses each year to redevelopment into multi-family housing. It’s easy to conclude that a stable condominium market, for both a buyer and a producer, requires a significant, perhaps at least 50% asking price reduction from a house to a condominium for the latter to be a viable housing option in the given community.

Now, I have completely left out the discussion of apartments which are a necessary component of a range of housing options. While it was not part of the equation as to whether to buy a condominium or house, apartments are quickly becoming much more of an option for people who are turned off by the long term and lately questionable financial commitment that a mortgage has become. We’ll save that for later, except for my own personal experience.

When my family and I moved from Capitol Hill where we rented for several years to Olympia, we wanted to move downtown, but our 80 pound dog was not welcome in any apartment we could find, and ultimately, we realized we wouldn’t save anything by renting an apartment instead of a house. We settled on the eastside and ended up with close to the same proximity to desirable amenities and in a reasonably walkable neighborhood on bus lines that we would have had downtown. Coincidently, the OPC learned earlier this year in a TRPC presentation that developers had discovered a trend in 2000-2005 that for the first time in Thurston County’s history, 20-35 year olds were moving to Olympia who were seeking an urban environment. That trend certainly contemplated us, but has not convinced the development community in general that the trend would resolve the demand issue articulated in the answer I discussed above.

The comprehensive plan however currently provides that the downtown core and high density corridors of Olympia should become different places (almost unrecognizable by today’s environment) including mixed use buildings, a range of housing options of size and choice, and a much denser built environment. Those primarily tasked with creating that environment, justifiably expecting a return for the capital they risk, told us in this document that they cannot foresee a future in which that will happen. If we accept that paradigm as the current and foreseeable reality, we have some options: 1.) Change the goals and policies as they exist in the comprehensive plan; 2.) Change the market realities; 3.) Wait and see. There has been likely will continue to be much discussion on whether this should remain a comprehensive plan policy. Your input is critical.

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5 Responses to Will Olympians buy a condominium when they can afford a house?

  1. Thad Curtz says:

    The video at the ends raises an issue you don’t mention – how does having kids affect where in town people choose to live? I think that wanting a yard for small children to play in, and wanting one or another neighborhood school, are both strong reasons against living in a mixed-use building downtown for a lot of people.

  2. Mark Derricott says:

    Which video?

    If a family cannot afford a house, children aren’t a factor. Around here, I think that it’s simply another justification for doing what’s economically more reasonable in the first place, not often a reason by itself. Should the dynamics of the housing market change to become more like Seattle, I think that will become a much more prominent consideration.

    There are loads of people with kids in Seattle living in condos. Eventually some move to Kent or Lynnwood to accommodate the kids, but I don’t think that’s the same as buying a house because it’s $25,000 more than a house and having kids three years later.

  3. Great post. In my mind, solutions [for Olympia] could look like this:

    Consumers incorporate, forming a nonprofit development company and lease land from the Port; in contrast to real estate speculation by private developers that require outright land purchase: nonprofit management of buildings lower costs & good design ensures value.

    Design matters: create favorable lease environment for businesses at the street level by offering downtown residential units in a mixed-use design that includes interior arcades, off-street connectors & green-spaces (residential units anchor retail spaces).

    Plan public campuses that reflect the design of universities: schools, libraries and community services can share a common plaza and benefit from shared systems like parking and restrooms. Benefits include future-proof facilities and shared positive externalities like safety & civic space.

    Consumers that plan together, succeed: residential land trusts, community farm trusts, buy-local campaigns, and community planning can accomplish many positive changes.

  4. One of the aspects that I think you don’t include is the idea that downtown could hold something else then condos. Dense 3-4 story row-houses would be amazing for families and I would love to move my family downtown if that would be available. Alas, I gotta build it myself.

  5. Mark Derricott says:

    I’m referring to a condominium as an ownership structure not a building type–a condominium is just as easily a row house as an apartment building. You pay for the space between your walls and an HOA into which you pay takes care of any common areas even if it’s a duplex-type townhouse with a common fund. I don’t think the basic analysis changes either way–people will still get into them or avoid them for the reasons I’ve articulated. Townhouses, for example, don’t offer much of a yard or garage, and if people want that personal space, they’ll look for a detached house.

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