How bigger houses tend to increase gentrification
LETTER OT THE EDITOR
Last night I was invited by the Village West Homeowners and Tenants Association to present some thoughts on what is happening in the Village West Grove community. I took the opportunity to provide my thoughts on why “Bigger New Houses Help Cause Increased Gentrification,” i.e., displacement of less affluent residents by new more affluent ones.
I started by pointing out that the dozen or so new 3 BR/2BA detached single family residences (SFR’s) built by my company Wind & Rain back in 1994-2005 had an FLR (Floor area to Lot size ratio) of only 0.24 (1,200 sq. ft.). These houses on 5000 sq. ft. lots were all sold to working families in Village West Grove with Adjusted Gross Family Income (“AGI”) of around $24,000 (as mandated by HUD’s requirement that only 30% of AGI should be spent on housing cost). Most of the families who bought these homes for under $100,000 are still in them today, despite being offered as much as $350,000 by developers wanting to knock them down and build bigger ones.
HERE’S WHAT IS DRIVING THE DISPLACEMENT OF EXISTING RESIDENTS (while acknowledging I’ve simplified the math):
I. Assume Construction Cost (“sticks and bricks”) of $150 per square foot (psf) of building whether in Village West Grove or elsewhere, even though finishes might vary tremendously).
A. Village West on 5000 sq. ft. lot T-3 R SFR lots
1200 sq. ft. X $150 psf = $180,000 (0.24 FLR) Wind & Rain Homes
2500 sq. ft. X $150 psf = $375,000 (0.50 FLR) Max size allowed today
B. North/South Grove on 6000 sq.ft. lot (lots tend to be larger)
3000 sq. ft. X $150 psf = $450,000 (0.50 FLR)
II. Assume Average Sales Price of New Home per square foot. I call this “Houses by the pound” since realtors tend to track house sales in each area by their psf price, with Village West Grove lagging behind the rest of the Grove).
A. Village West
1200 sq. ft. X $300 psf = $360,000 3 BR /2 BA
2500 sq. ft. X $300 psf = $750,000 4 or 5 BR/ 3 BA
B.North/South Grove
3000 sq. ft. X $400 psf = $1,200,000
III. SUBTRACT I. FROM II. and you get “PROFIT” AVAILABLE TO BUY THE NEXT LOT
A. Village West
$750,000 - $375,000 = $375,000 (there are no remaining property owners willing to sell for $180,000 so I’ve used the higher number. However, a T- 3 O “Duplex “ zoned lot would still be cheap at $375,000 on Day Avenue since the lot cost is cut in half psf for each new duplex built).
B.North/South Grove
$1,200,000 – $450,000 = $750,000
IV. NOW ASSUME the FLR is raised to 0.60 (60%) in Village West which would allow a new house to be 3000 sq. ft. on a T-3 R Single family zoned lot.
SALE PRICE 3000 sq. ft. X $300 psf = $900,000
LESS CONSTRUCTION COST 3000 sq. ft. X $150 psf = ($450,000)
________
“PROFIT” AVAILABLE TO BUY THE NEXT LOT = $450,000
SUMMARY: You can correctly say that lot cost (along with all “soft costs” such as permit, brokerage, legal and architectural fees) should be deducted from “Profit” if you were developing just ONE house, but once you are developing multiple houses/townhomes sequentially, you then have “Profit” available to buy the next lot, and the next, even as lot prices increase PROVIDED you can build larger and larger houses/townhomes. While you can certainly make the “Property Rights” argument that each existing property owner—and developer-- is entitled to sell for the greatest amount achievable in a free market, there is no doubt that zoning which allows larger and larger houses drives lot prices upward, with resulting increased gentrification in less affluent but desirably located communities.
Anthony R. “Andy” Parrish, Jr.
Coconut Grove
I started by pointing out that the dozen or so new 3 BR/2BA detached single family residences (SFR’s) built by my company Wind & Rain back in 1994-2005 had an FLR (Floor area to Lot size ratio) of only 0.24 (1,200 sq. ft.). These houses on 5000 sq. ft. lots were all sold to working families in Village West Grove with Adjusted Gross Family Income (“AGI”) of around $24,000 (as mandated by HUD’s requirement that only 30% of AGI should be spent on housing cost). Most of the families who bought these homes for under $100,000 are still in them today, despite being offered as much as $350,000 by developers wanting to knock them down and build bigger ones.
HERE’S WHAT IS DRIVING THE DISPLACEMENT OF EXISTING RESIDENTS (while acknowledging I’ve simplified the math):
I. Assume Construction Cost (“sticks and bricks”) of $150 per square foot (psf) of building whether in Village West Grove or elsewhere, even though finishes might vary tremendously).
A. Village West on 5000 sq. ft. lot T-3 R SFR lots
1200 sq. ft. X $150 psf = $180,000 (0.24 FLR) Wind & Rain Homes
2500 sq. ft. X $150 psf = $375,000 (0.50 FLR) Max size allowed today
B. North/South Grove on 6000 sq.ft. lot (lots tend to be larger)
3000 sq. ft. X $150 psf = $450,000 (0.50 FLR)
II. Assume Average Sales Price of New Home per square foot. I call this “Houses by the pound” since realtors tend to track house sales in each area by their psf price, with Village West Grove lagging behind the rest of the Grove).
A. Village West
1200 sq. ft. X $300 psf = $360,000 3 BR /2 BA
2500 sq. ft. X $300 psf = $750,000 4 or 5 BR/ 3 BA
B.North/South Grove
3000 sq. ft. X $400 psf = $1,200,000
III. SUBTRACT I. FROM II. and you get “PROFIT” AVAILABLE TO BUY THE NEXT LOT
A. Village West
$750,000 - $375,000 = $375,000 (there are no remaining property owners willing to sell for $180,000 so I’ve used the higher number. However, a T- 3 O “Duplex “ zoned lot would still be cheap at $375,000 on Day Avenue since the lot cost is cut in half psf for each new duplex built).
B.North/South Grove
$1,200,000 – $450,000 = $750,000
IV. NOW ASSUME the FLR is raised to 0.60 (60%) in Village West which would allow a new house to be 3000 sq. ft. on a T-3 R Single family zoned lot.
SALE PRICE 3000 sq. ft. X $300 psf = $900,000
LESS CONSTRUCTION COST 3000 sq. ft. X $150 psf = ($450,000)
________
“PROFIT” AVAILABLE TO BUY THE NEXT LOT = $450,000
SUMMARY: You can correctly say that lot cost (along with all “soft costs” such as permit, brokerage, legal and architectural fees) should be deducted from “Profit” if you were developing just ONE house, but once you are developing multiple houses/townhomes sequentially, you then have “Profit” available to buy the next lot, and the next, even as lot prices increase PROVIDED you can build larger and larger houses/townhomes. While you can certainly make the “Property Rights” argument that each existing property owner—and developer-- is entitled to sell for the greatest amount achievable in a free market, there is no doubt that zoning which allows larger and larger houses drives lot prices upward, with resulting increased gentrification in less affluent but desirably located communities.
Anthony R. “Andy” Parrish, Jr.
Coconut Grove
posted by Tom Falco at 4:00 AM
YOU MAY NOT LIFT THE PHOTOS & TEXT. IT'S COPYRIGHTED INTELLECTUAL PROPERTY. YOU CAN HOWEVER SHARE A STORY ON SOCIAL MEDIA BY USING THE LINKS HERE.
For linking to this one story, just click on the time it was posted & just this story will open for sharing - only through social media. Not copying and pasting.
9 Comments:
This calculation is flawed and needs to be corrected. In step IV, the author assumed that the gross sale price of a 3,000 square foot home in W. Grove would fetch a gross of $900,000. To calculate profit, from the $900,000 sale, the author subtracted the cost of construction (which he assumed was $150/square foot totaling $450,000) to yield an estimated "profit" of $450,000. HOWEVER, the author failed to subtract the acquisition cost (i.e. the cost of purchasing the lot), which he estimated to be $375,000. If that acquisition cost is included in the calculated profit, the total profit for the property is actually only $75,000, substantially less than the cost of acquiring a new lot.
The last time I checked, a homeowner is entitled to sell his/her property at the going rate. So, if I happen to own a house in a town or a neighborhood where no one wants to live, my property will be worth only whatever the free market deems its value. It may be little, it may be a lot.
If I happen to own a house in a desirable neighborhood, which is now (after many years) deemed desirable, the laws of the USA allow me to sell it for whatever someone is willing to pay me.
Because the West Grove market only recently became a “hot” neighborhood due to Miami’s continued growth, and the desirability of proximity to downtown, what gives people the right to suddenly try to impose zoning regulations and scream “historic” this and that in order to stop me from profiting from my good luck of owning a home where many people want to live?
I just don’t get that. Where were people like Andy Parrish 10, 20, 30, 40 years ago? What gives them the right to decide that I can’t profit from the sale of my home?
In many communities, there is a long standing tradition of preserving historic structures. And that’s just fine it’s a given. But that’s just not the case in our city. There has been very little historic preservation. In fact, it’s just the opposite. So now ya’all think you can just up and change the rules?
Limiting the size of the home and structure will not resolve this issue. Prices are set by market supply and demand. Look to San Francisco as an example. Developers for years have wanted to rip down row houses (like the ones we saw on full house) and build condos there due to demand for housing. What happened? They don't allow it(less supply of homes), and the home prices went through the roof. Gentrification at its most extreme levels.
To think regulation will limit prices is just not accurate. At the end of the day, there has to be demand to buy the home from the developer. This math doesn't work in liberty city due to the lack of demand even if the cost to build a structure is almost identical to building in the grove.
The bottom line: Limiting supply(square feet, # of homes, etc) will only raise prices even further.
As for quality of life, that's a different story.
As anonymous March 27, 2019 5:22 AM mentions...you need to include acquisition costs. Also I don't understand the problem with gentrification. Nobody is forcing anyone to sell their house to a developer. If they sell it to a developer its because they believe they are being offered a fair value for their house.
Anon 7:38 is correct, "The desirability of proximity to downtown" is fueling the market, plus: I-95 all the way to Canada, Brickell & downtown, airport, S. Beach, Key Largo & Key West to the South, Seminole boat ramp-Biscayne Bay & numerous marinas - fishing & diving plus the Bahamas to the East, great parks, eateries, , tree lines streets shading tons of babies - baby carriages & dogs & mostly friendly professional neighbors, healthcare & hospitals, fire station, police & public safety, drugstores, Home Depot & Shell Lumber, mostly blue skies and a steady breeze off the NE Atlantic with clean un-polluted fresh air. People want it and will pay big bucks to raise their families in Coconut Grove. Jobie Steppe
Mr Parrish, Based in today’s market your calculations are off. Today old houses in the West Grove are selling for $450 a sq.ft. Also, the construction cost that you mention at $150 a sq ft. you would have to add the cost of a lawyer to navigate the complex process of securing a building permit such as waiver, planning and zoning boards, appeals, urban development review boards and many other obstacles the city has created that only people with money and knowledge will be able to achieve.
Of course it's people with money. So now it's a crime, a negative to give a person, a family more money/value than they would have otherwise realized!? And their new found wealth can carry them onward to their children's education, or a new home and vehicle, and healthcare insurance, clothing, and food.
It amazes me after so many years of upper middle class whites selling their homes for huge profits, now all of a sudden now that we've finally reached a point of growth that lower income predominantly African-American neighborhoods are increasing greatly NOW we want to institute rules to limit growth. Why aren't we talking about property restrictions in South Grove or North Grove? It seems disingenuous at best that the only place they are putting restrictions on is the West Grove.
Precisely, someone please identify what RESTRICTIONS, in 50 words or less, are being placed? For example: a 5,000 sq. ft. lot restricts a home to what in square feet? Or a limit to parking space. Or color of paint as in Coral Gables homes.
Post a Comment
<< Home