Fredericksburg Texas

As the City of Fredericksburg TX continues to explore solutions to the perceived lack of affordable housing, clear and convincing evidence exists that there is, indeed, a need for this type of product.  All one has to do is look at statistics provided by the U.S. Census Bureau, the Texas State Demographer, FISD, the Gillespie County MLS and the Bureau of Labor Statistics (among others) to see that prices continue to trend higher while poverty levels are increasing and wages are not keeping pace with inflation (not to mention home prices).

While some may argue that meeting this demand by granting tax-payer funded incentives to private developers is a bad idea, it has been proven time and again that it is the only idea that works. The “do nothing” alternative presents risks to the community in the form of exacerbating the chronic labor shortages faced by local employers and will (by default) encourage more low-income multi-family development.  If people need a roof over their heads, someone will provide it.  The question for our community is what kind of roofs do we want to see and live with.

Multi-family developments are certainly not bad things.  We’ve all lived in an apartment or two (or eight) in our time.  Recognize however that the “business of apartments” has changed dramatically since most of us most likely made that housing choice.  Large-scale apartment communities (50+ units) fall into two categories these days; “subsidized” and “securitized”.  Subsidized units typically involve some kind of government funding and come with “income qualifying” strings attached. Securitized units are “free market” in the sense that they will charge the highest rates possible (and spend the least in maintenance practicable) to achieve the highest returns for their publicly traded REIT’s.

While each type of unit serves its targeted demographic well, they effectively bookend the low and high end of any given market.  What about the “middle”?  Who serves that? Who has the ability to serve that? The answer to that is a whole other post, so I’ll stick to my point.

As in the debate on affordable, single-family housing, apartment developers clearly consider land cost and income demographics in their development equations.  High land prices and the lower the area incomes virtually assure more projects aimed at the lower end of the apartment spectrum (subsidized).  Again, there is nothing wrong with someone meeting an identifiable demand; the question for the community is “how do we want that demand to be met?”

Coming full-circle, the alternative to more taxpayer subsidized multi-family development (yes, local incentives are given to these projects too) is properly incentivized single-family residential development.

“Affordability” can be defined by assessing local income levels, current underwriting criteria and the availability to downpayment assistance programs.  Once defined, affordable mortgage amounts can be deduced resulting in target home prices.  The cost to construct certain types and configuration of dwellings can be assessed and subtracted to identify the resulting market lot price targets.  None of this can be accurately calculated, however, unless and until a clear message is delivered from city officials as to incentive packages that will be granted to projects meeting established criteria.

Is it in the best interest of the community to incentivized development in return for stabilizing the local labor market and/or slowing the spread of taxpayer supported multi-family development? In the special place that is Fredericksburg, TX, I would answer with a resounding YES!

What about those who say “well Jeff, not everyone can afford a house”, or “hey, I had to live in many apartments and save my money for years before I could afford a home”? These are certainly valid statements and are (by the way) very reflective of my own experiences.

These arguments; however, ignore the fact that times have changed.  Home prices and inflation are far outpacing the real growth in wages.  I suspect that many of us who make these arguments couldn’t achieve what we managed to do then, today.

The AffordableHousing Task Force (Fredericksburg,TX) provided its report and recommendations to the City Council on8/4/08.  While I was unable toattend the meeting/presentation the Fredericksburg Standard provided a lengthy(hopefully accurate) report of the latest in the affordable housing soap opera.I am endeavoring to obtain a copy of the report so stay tuned for anyupdates/adjustments, etc. to this commentary.

Predictably, theTask Force report is loaded with consultant double-speak (big red flag!) withrecommendations falling into three major categories: “Entity, Development andCommunication” (huh?). To sum it up, they are recommending the following (eachwill be addressed by me in turn): that the City of Fredericksburg form aCommunity Development Corporation; that Planning and Zoning hold jointworkshops to establish new language and policies and that the community needsto be well-informed of these efforts.

I suppose thisis a respectable “first step” but Council and the Task Force had hopes highthat their report would recommend concrete solutions not just morestudy/workshops and “communication”. Tentative half-measures such as addressing lot sizes were mentioned butthere was a glaring lack of detail on what it is going to take from the city tosolve this community-wide concern.

Note: A long-planned, Planning andZoning approved “affordable” subdivision was put on hold buy Council recentlypending the Task Force results mentioned herein and subsequent actions to beconsidered as a result of this report. Given its apparent contents, I’m sure the developer is mystified as towhat any of this means to his efforts. Ironically, the developer/builder ofthis proposed affordable housing PUD is named Timeless Luxury Homes.

IMHO, forming aCommunity Development Corporation (CDC) as a charitable, tax exempt, non-profit501(c)3 entity places city government square in the path of the solution ratherthan moving it out of the way to allow market factors to solve the problem.  A city-sponsored CDC (along with allthe politics and bureaucracy that implies) would, in effect, be competing withmarket-based solutions (e.g. a private CDC) for the race to develop “affordablehousing”.  What private developerin their right mind will attempt competing with a taxpayer-supported entitythat controls all the rules of the game? Answer: none.  By defaultthe city and its well-intentioned CDC will become the sole source for “affordablehousing” in Fredericksburg, TX.  Ifthe political/taxpayer will to pursue this course exists, I have yet to see it.

Jointworkshops?  Hmmm, I like manyothers, was under the impression that this task force would be suggestingmultiple lines of attack against planning and zoning rules and regulations thatimpeded progress in this arena.  Granted,they did touch on lot size as being a factor. Simply put, anything mandated byzoning and subdivision regulations is a significant cost to a developer.  These costs are passed on to the endconsumer in the form of higher lot and home prices. Mandates regarding streetwidth, curbs, gutters, sidewalks, storm drains, landscaping, lot sizes,building setbacks, density, parking, impervious cover, etc., etc. all add tothe cost of development and should all be “on the table” fordiscussion/revision.

Informing thecommunity? Is there a more obvious CYA than that?  The implication is that we have to inform everyone and getinput from all areas lest “leadership” on the issue be off the mark or called into question. Theyof course failed to mention that the real estate, banking, development, etc.communities (stakeholders I believe they call us) have yet to be allowed input.We are told that is coming.

I’ve no doubtthat the city leaders and the citizens of Fredericksburg, TX havetheir hearts in the right place and clearly see the need for “affordablehousing”.  What has been absent inthis whole discussion (or I’ve missed it so far) has been any consistentdefinition of what constitutes “affordable” and any concrete evidence of aquantifiable demand for this product. A rational, risk-taking developer isunlikely to roll the dice without clarity of the rules from the city andwithout verifiable market evidence of a legitimate demand.