Claim that McMansions have proportionally lost resale value

A recent study by Trulia suggests McMansions don’t hold their value:

The premium that buyers can expect to pay for a McMansion in Fort Lauderdale, Fla., declined by 84 percent from 2012 to 2016, according to data compiled by Trulia. In Las Vegas, the premium dropped by 46 percent and in Phoenix, by 42 percent.

Real estate agents don’t usually tag their listings #McMansion, so to compile the data, Trulia created a proxy, measuring the price appreciation of homes built from 2001 and 2007 that have 3,000 to 5,000 square feet. While there’s no single size designation, and plenty of McMansions were built outside that time window, those specifications capture homes built at the height of the trend.

McMansions cost more to build than your average starter ranch home does, and they will sell for more. But the return on investment has dropped like a stone. The additional cash that buyers should be willing to part with to get a McMansion fell in 85 of the 100 largest U.S. metropolitan areas. For example, four years ago a typical McMansion in Fort Lauderdale was valued at $477,000, a 274 percent premium over all other homes in the area. This year, those McMansions are worth about $611,000, or 190 percent more than the rest the homes on the market.

The few areas in which McMansions are gaining value faster than more tasteful housing stock are located primarily in the Midwest and the eastern New York suburbs that make up Long Island. The McMansion premium in Long Island has increased by 10 percent over the last four years.

Read the Trulia report here.

Interesting claim. After the housing bubble burst, some commentators suggested that Americans should go back to not viewing homes as goods with significant returns on investment. Instead, homes should be viewed as having some appreciation but this happens relatively slowly. This article would seem to suggest that return on investment is a key factor in buying a home. How often does this factor into the decisions of buyers versus other concerns (such as having more space or locating in the right neighborhoods)? And just how much of a premium should homeowners expect – 190% more than the rest of the market is not enough?

This analysis also appears to illustrate both the advantages and pitfalls of big data. On one hand, sites like Trulia and Zillow can look at the purchase and sale of all across the country. Patterns can be found and certain causal factors – such as housing market – ca be examined. Yet, they are still limited by the parameters in their data collection which, in this case, severely restricts their definition of McMansions to a certain size home built over a particular time period. As others might attest, big homes aren’t necessarily McMansions unless they have bad architecture or are teardowns. This sort of analysis would be very difficult to do without big data but it is self-evident that such analyses are always worthwhile.

Why would we want to promote more HOAs with a tax break?

A new proposal in Congress would allow members of a HOA to deduct their association fees from their federal taxes:

Upward of 67 million people live in these communities — ranging from sprawling master-planned subdivisions down to individual condominium or cooperative developments. As of 2014, they contained nearly 27 million housing units. Their homeowners associations often provide the functional equivalents of municipal and county services, and residents nationwide pay roughly $70 billion a year in regular assessments to fund road paving and maintenance, snow removal, trash collection, storm water management, maintenance of recreational and park facilities, and much more.

The same residents also pay local property taxes to municipal, county or state governments. But unlike other homeowners, only their local property tax levies are deductible on federal tax filings. Their community association assessments that pay for government-type services are not.

Now a bipartisan group of congressional representatives thinks that’s inequitable and needs to be corrected. Under a new bill known as the HOME Act (H.R. 4696), millions of people who live in communities run by associations would get the right to deduct up to $5,000 a year of assessments on federal tax filings, with some important limitations…

The bill’s primary author is Rep. Anna G. Eshoo, D-Calif. Co-sponsors include Reps. Mike Thompson, D-Calif., and Barbara Comstock, R-Va.. Though the bill has little chance of moving through the House or Senate during this election year, it sends a message to the legislative committees now working on possible tax code changes for next year: Congress needs to acknowledge the role the country’s community associations play in providing municipal-type services. The way to do it is to allow deductions on a capped amount of the money residents are required to pay to support community services.

It will be fascinating to see what sort of formula is used to calculate these deductions as the fees paid to associations do not cover all sorts of municipal services used outside of the association.

At the same time, won’t this promote more HOAs, or at least make them more attractive? And do we really want more? They certainly are popular but they continue a trend that is not necessarily good for society: privatizing municipal goods and helping neighbors guarantee their property values. For the first, instead of paying a municipal government, a new layer of private government is enabled to take care of certain services. Americans tend not to like more and more layers of fees and government. However, this might be outweighed by the second factor: the HOAs help keep the neighbors in line without owners directly having to interact with other neighbors. Instead of possibly having to live next to the neighbor who paints their house purple and starts a garden in the front yard, the HOA polices this. In other words, this tax break might help more and more Americans work out civic life through private associations that they see as a necessary evil.

Given all of the HOAs, is there any analysis that shows they pay off financially in the long run either for the property owners or the municipalities?

Hiding the remains of the dead Chicago Spire

With the plans for a 150-story Chicago building postponed or dead, the massive hole in the ground is going to be harder to see:

It was supposed to be a strutting 150-story lakefront symbol of the city’s virility — but eight years after construction of the Chicago Spire skyscraper ground to a halt, the gaping hole where it was to have stood has instead become an enduring reminder of the Great Recession.

So owner Related Midwest is now hiding the unsightly circular hole that would have formed the foundation of the world’s second-tallest building behind a pile of dirt.

Workers last week started moving dirt to form a landscaped berm that will block the view of the 110-foot diameter hole from a row of 10 Streeterville row homes on the 400 block of East Water Street…

The screen, which won’t be tall enough to block the view of the hole from nearby high-rise buildings, is simply “the neighborly thing to do,” Anderson said on Tuesday, declining to comment on Related Midwest’s long-term plans for the land.

There could be a variety of reasons for blocking views of this large hole:

  1. The city requires such changes.
  2. People have complained about this, either because it is a safety issue or it harms property values.
  3. The company has some plans or changes they don’t want to broadcast.
  4. The empty hole in the ground is a negative symbol that reflects poorly on the property and Chicago.

We tend to like stories of large skyscrapers that succeed against all obstacles. They fit with narratives of endless urban growth, humans producing technological marvels, reaching for the heavens, and serve as symbols of power and wealth. Recently, I had my class watch part of Episode 8 (“The Center of the World”) of the PBS documentary New York which details the decades long effort to build the World Trade Centers which were not needed but came to be important markers. Yet, there are certainly stories of significant building projects that failed or never got off the ground. These are rarely told or there is little physical evidence that something went wrong. A large hole in the ground present for years suggests something didn’t work out and few corporations, planners, or urban officials would want to be reminded of this.

One thing McMansions can do? Play host to Smash Bros. tournaments

McMansions are often derided for their size but imagine them as a fun site for a weekend of Smash Bros.:

Some tournaments take place in massive convention centers. Some grand finals even go down in giant arenas. While these events can be truly impressive, they don’t have the spark of early tournaments that captured the imagination and hearts of Smash players. Friends crowded around TVs, laughing, jeering, and, while the competition was fierce, they were still having the time of their lives. This is the atmosphere players will find at McMansion 7, a tournament that’s like a vacation with live music and a whole lot of Smash.

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This home in Pensacola Beach, Florida (according to the comments) is a modest home by McMansion standards. I can only imagine the kind of fun and mayhem that might occur in a larger and more opulent McMansion, say 8,000 square feet in a ritzy neighborhood. Still, a massive video game tournament may help fill out those great rooms, bonus rooms, and expansive spaces of the McMansion. But, what would the neighbors think about the kind of people who play video games, the noise, the cars, and the property values related to being near the video game heaven McMansion…

Regulating sex businesses in the suburbs

Many suburbs want nothing to do with strip clubs and similar businesses so they employ several methods to discourage them:

Warren is running into something that has plagued businesses dealing in sex for decades. Local governments — and the officials elected to govern them — don’t want these businesses around, according to Judith Hanna, a professor at the University of Maryland.

Hanna has testified as an expert witness in more than 150 court cases involving sexually oriented businesses. She even wrote a book about her experiences…

The majority of the cases she testified for involve strip clubs, which Supreme Court rulings protect because of First Amendment rights…

Menelaos Triantafillou, a professor at the University of Cincinnati who teaches courses in planning and urban design, explains: “The only thing you can regulate is not the use itself,” he said, “but the specific location.”

Local governments typically allow these businesses to exist in industrial areas. Restrictions are placed on how close they can be to other establishments such as schools and day cares.

In the particular case discussed in this article, the community is working hard to make a swingers club go away. But, it sounds like they are making it up as they go to appease voters as several local officials have privately supported the new business.

Perhaps an alternative strategy is in order. Zoning is a big deal in suburbs as they get to keep uses that limit endanger property values or a high quality of life away from single-family homes. But, zoning can only do so much. Yet, communities can make it clear that certain businesses are not welcome. While suburbs often welcome new businesses (they provide jobs, property tax revenue, perhaps sales tax revenue), couldn’t they also make it hard for the new business to make money? I’m thinking bad publicity, protests, no invitations to the local chamber of commerce and local events.

Proposing a stronger theory of NIMBYism

A lawyer in Austin is working on a more-encompassing theory of explaining NIMBY responses to development:

The key to any strong definition or explanation, suggests Bradford, is that it must go beyond the simplistic idea that NIMBYism aims to protect home value, full stop. If that’s the case, why do some homeowners reject development projects so forcefully while others don’t? Why is California more NIMBY than Texas, for instance, or Austin more NIMBY than Houston? Why is NIMBYism more intense now than it was 40 years ago, when home value mattered just as much to personal wealth?

Bradford builds his own central thesis around the idea that NIMBYs seek to monopolize “access to neighborhood amenities”:

“In the absence of zoning restrictions on the number of housing units in a neighborhood, neighborhood amenities would be a public good. Zoning converts neighborhood amenities from a public good (a partially non-rivalrous, non-excludable good) into a “club” good (a partially non-rivalrous, excludable good). Because “club” membership is bundled with home ownership, zoning causes the value of neighborhood amenities to be capitalized into home prices. NIMBYism can be thought of as the practice of objecting to development in order to protect the value of “club” membership.”…

As for realistic policy solutions, Bradford makes an initial go at these, too. Rather than trying to undo existing single-family zones, he says, an easier place to start would be for local planners and officials to stop automatically applying such zoning to new developments. “There is no particular constituency for zoning fringe greenfields exclusively for single-family use, so cities ought to stop doing it,” he writes. “This practice merely begets the next generation of NIMBYs.”

It sounds like the argument is that property values are part of a deeper desire to protect the neighborhood from use by others. People buy a property with the expectation that they will have exclusive use of particular features, whether that is parks, roads with less traffic, or nearby open spaces.

The policy solution offered above is intriguing. If buyers don’t have any knowledge of how the land nearby might be used, it lowers their expectations about what might be there some day. Still, they might object to any changes – home buyers on the fringe become quite enamored with empty fields. Additionally, this recommendation doesn’t help deal with infill or redevelopment situations.

I wonder if some developer could up the value of their properties by writing into the deed or through some other contract that the land nearby will not change for a certain number of years. Would buyers be willing to pay a premium if that land was controlled and they knew they had exclusive rights to amenities? If a developer couldn’t be sure of the actions of a municipality, perhaps they could purchase a buffer zone that they would control.

Countering the negative responses to micro-apartments

As some city residents fight micro-apartments, here is a set of arguments countering the complaints:

Families often complain that there isn’t enough housing to suit their needs, especially for large families. They’re right. In Seattle, for example, just two percent of market-rate apartment units have three or more bedrooms, according to a 2014 report by the Seattle Planning Commission. The last thing that these families need—especially low-income families and larger families of color—is to compete with single, young professionals for that limited housing stock.

Yet zoning for approximately 65 percent of Seattle’s land area is designated single-family, meaning that the options across much of the city are restricted to what’s already been built. That’s good news for incumbent homeowners, but bad news for people who want to move to Seattle. The city’s not an outlier in this regard, of course: Low-density zoning spurs young renters to rent group houses (or “stealth dorms” as the case may be) all over the nation. It’s not a hard and fast rule, but when single renters can’t find good options in a growing job market, chances are that renting families won’t find them, either…

Incidentally, making sure that housing is legal, affordable, regulated, and, well, available is one way to guarantee against any truly adverse health effects from shared living. The alleged increased health costs specifically associated with micro-housing … well, I don’t want to say that they’re not bad. But they can’t be any worse than the health costs of unaffordable housing. It’s arguable that the stress of unsafe, uncertain, or unsustainable living situations—housing insecurity, as the Centers for Disease Control and Prevention puts it—outweighs the potential crowding-related stress of micro-apartment living…

It’s certainly the case that micro-housing looks trendy, in part because it is presented in savvy renderings by smart architectural firms such as nArchitects. But micro-apartments are also not a type of new housing we’ve never seen before. They’re apartments. Advances in technology and interior design make micro-housing possible without requiring that micro-apartments be tenements, boarding houses, or single-room-occupancy hotels. But the concept of multifamily living is preserved (even if the division of amenities changes).

A more charitable interpretation of the complaints of residents is that lots of affordable housing is needed across sectors: for poor residents, for families, for the elderly, for recent college graduates, and so on. Certain residents may just want the kind of housing that helps them and people like them more than they want to help others groups. A less charitable take might emphasize property values: who wants to live near these cheaper units (people may complain about health or traffic or density but they are more worried about what will happen to the value of their own unit) and the people who might live there (which underlies concerns Americans have about apartments)?

One solution to all of this would be to pay less attention to the exciting new idea of micro-apartments and for cities to comprehensively address housing issues with a range of solutions. Many major cities are short tends of thousands of affordable housing units and a few trendy micro-apartments aren’t going to do much. But, a more comprehensive plan could threaten even more people with a range of locations and housing options…

Install an artificial plant to hide nearby McMansion

Have an unsightly McMansion next door? Install artificial plantings:

A San Marcos, California based company, Geranium Street Floral, has installed their artificial plants at many hip remodeled homes throughout Southern California. The company recently installed an artificial hedge at a remodeled property in North Hollywood that no doubt greatly improved the view in the backyard of the custom remodeled home. Geranium Street specializes in creating backyard privacy with their artificial plants.

Geranium Street president, Bob Smith explains that with the advent of “McMansions” throughout Southern California, the need for privacy is at an all time high. “Before, you had houses in a neighborhood that were all basically the same height, so privacy wasn’t much of an issue, but now they are tearing the old houses down and building houses that tower over those of their neighbors – suddenly everyone feels like they are living in a fish bowl. We have ways to solve that problem quickly with our artificial plants,” said Smith…

Bob Smith explained that many real estate developers have found the quick solution to their privacy and decorative needs by installing artificial plants. “Whereas it may take months to grow real vines and plant real trees, we can come in and install our artificial plants in a day or two. The new artificial trees and plants look more realistic than they ever did before, and they are very durable,” said Smith.

Four quick thoughts:

  1. Given the water issues in California, I’m surprised this press release doesn’t include the rationale of saving money on plantings. Have a hedge and no water is required.
  2. It would be interesting to think about how these installations play with the idea of “nature.” Some would say the real plantings in the suburban sprawl like that found in southern California are already poor imitations of nature. But, what if those same plantings aren’t even real? Is this a more honest admission of the lack of nature? These options are billed as durable but they likely provide a different aesthetic and physical experience.
  3. Theoretically, such hedges could be built to any size of shape. McMansions can come in all sorts of sizes and shapes and a company could get pretty creative in how an artificial hedge hides the ugly house next door.
  4. What do artificial plants do to property values? They may be durable but I imagine they could be viewed as tacky or lower class.

Neighbors: keep gangster’s house or support replacement McMansion?

Tampa residents are facing a quandary: do they support two possible McMansions to replace the home of a notorious gangster?

The community is rallying around the five-bedroom, 2.5-bath house built in 1952 by Santo Trafficante Jr., a supposed gangster who ran casinos in pre-Castro Cuba as the head of one of the most powerful organized crime syndicates in Florida.

Parkland Estates residents are upset about an application asking the city to split the lot in two at the request of Trafficante’s surviving daughters, Mary Jo Paniello and Sarah Ann Valdez…

“They’ve always been good neighbors and this is kind of a slap in the face,’’ said Anneliese Meier, vice president of the Parkland Estates Civic Club, which vigorously opposes the plan. “No matter what the history is, it’s a gorgeous house and should be preserved.”…

She said splitting the lot might mean the 63-year-old house will be torn down to make way for two larger homes.

“That doesn’t fit the character of this neighborhood,’’ Meier said. “McMansions tear up the community. They are big houses on small lots. Nobody’s happy about it. We’re tired of seeing this happen in our community.”

Both situations could leave the neighbors with some notoriety that they might think could threaten their property values. But, it is interesting that the neighbors quoted in this article think the McMansion is worse than the gangster: the family were good neighbors but a McMansion would pose a more important threat. Perhaps this suggests that neighbors think people are replaceable but the physical structure has a stronger impact. A broader question to ask many Americans would be: would you rather have a bad neighbor in a nice house that enhances the neighborhood or a bad house nearby with lovely neighbors?

Asking $9.8 million for one small home near Wrigley Field

The property near Wrigley Field is getting quite valuable – at least according to the asking price:

In the world of real estate, location means everything. But does a property around the corner from Wrigley Field command $9.8 million? The sellers of 3710 N Kenmore Ave. realize that there is much more to the property than the two-story frame house that sits on it. The property has some potential to earn a few bucks and the listing agent is suggesting that investors consider erecting rooftop advertising (specifically a digital billboard) on the site. The Ricketts family have famously scooped up several of the surrounding rooftop properties, but this property is billing itself as one of the few that is not under the control of the Cubs organization. Broker Amy Duong of Jameson Sotheby’s Intl Realty tells us that the seller has been paying attention to sales in the neighborhood, notably the McDonald’s parking lot that the Ricketts family paid $20 million for. Duong also tells us that there’s no mistake in the price in the listing and the seller is fine with sitting on the house until a reasonable offer comes forth.

Perhaps the asking price was influenced by the success of the team this past season. More wins and young talent mean that property values may go up even more. In contrast, look at the land near U.S. Cellular Field on Chicago’s South Side. While that land is not easily converted to party/retail/restaurant space like the properties near Wrigley, imagine if the team was good for a number of years. Wouldn’t businesses and residents want to be part of the scene?

I’m guessing the property won’t sell soon for anywhere near this initial price but why not ask for the moon while the team is winning and the owners are spending money on property and renovations?