Conditions right for Pittsburgh to be a “house-flipping hotspot”

Pittsburgh is home to a lot of profitable house flipping activity:

Today, old industrial cities such as Pittsburgh, Buffalo and Cleveland are among those offering the greatest returns. They have struggled to recover from the recession, but now are beginning to attract tech firms, such as Google-parent Alphabet Inc, Uber Technologies Inc, and Amazon.com Inc.

The influx of new workers is boosting demand for urban homes in areas that have some of the oldest housing stock in the nation and not much new construction, creating richer opportunities for flippers than in Las Vegas or Miami at the height of the housing boom more than a decade ago…

In Pittsburgh, home flippers made a gross profit of 162.7 percent on average during the second quarter of this year, while in Buffalo, the average gross return came in at 107.5 percent, according to ATTOM data. Nationally, the average house-flipper earned a 44.3 percent gross return on investment this year, compared with the 35.3 percent during the boom…

“Pittsburgh’s housing market was under-invested in for 40 or 50 years,” said Aaron Terrazas, senior economist at real estate listing firm Zillow. “The housing stock in the urban core of these cities requires substantial investments to update these older homes and bring them up to modern living standards.”

There are plenty of Rust Belt cities that would want in on this action. Do you think political and business leaders in places like Syracuse or Milwaukee or Lansing wouln’t salivate over the prospect?

But, it sounds like Pittsburgh could be a unique place. Certain conditions were in place:

  1. An influx of tech workers. Pittsburgh has a university and research base that not all Rust Belt cities can draw on. Everyone wants part of the tech industry but how many cities, particularly struggling ones, can attract significant numbers of tech employees?
  2. Relatively cheap homes. Many Rust Belt cities have this.
  3. An attractive urban core. In addition to jobs, a vibrant city or neighborhood scene could go a long way to attracting new workers and residents.
  4. While the article mentions concerns about residents being priced out of their own neighborhoods, I assume leaders in Pittsburgh are at least okay with the house flipping activity if not outright encouraging it. A “favorable business climate” could signal to developers and investors that the city wants redevelopment and is okay with seeking profits. This does not even account for the moves local leaders may have made to encourage the growth of the tech industry.

In other words, if the conditions change in Pittsburgh – such as there are fewer cheaper houses to make money on – it is not guaranteed that house flippers will simply move on to the next Rust Belt city with cheap housing.

The possible problems when governments buy dying or dead shopping malls

According to the Wall Street Journal, some local governments are purchasing shopping malls. With plenty of malls in trouble across the United States, this could be an opportunity for many municipalities. Yet, some problems could lie ahead:

  1. Some of this depends on the resources of the municipality. How many resources do they have to purchase the land and develop it? Does it require taking on debt? Would this debt outweigh the negative consequences of leaving the property vacant or leaving it in private hands? Communities with more resources to draw on have a leg-up in this process.
  2. Finding an acceptable use of the land can be a tricky process since the surrounding properties likely were developed under the assumption that the land would be a shopping center for a long time. Working out the zoning issues, particularly if residences are nearby, could prove tricky.
  3. Developing a plan for these sites is not necessarily easy and part of the reasons the malls are dying or dead is because of the attractiveness of the surrounding area to developers. Swapping out a mall for another thriving commercial use – such as entertainment – may be hard to do.
  4. Could this put communities on the hook for properties that are very hard to develop? It could be useful for local leaders to push the blame on developers or outsiders but it may not be so pleasant if the government is viewed as the reason the property is not improved. Such large properties could become albatrosses for local governments.
  5. Perhaps the simplest route for local governments would be to use the buildings or land for government purposes: park districts, schools, and other taxing bodies that do not always have easy access to large parcels. There might still be zoning issues to deal with and the loss of revenue could be tough. However, repurposing the retail space into space that the broader community could utilize could be a winner.

On the whole, there is a lot of potential for innovation when it comes to local governments and shopping malls. Yet, there are numerous ways this could go poorly for local governments, particularly those with limited resources.

When considering redevelopment projects, balancing concerns of neighbors and “market demand”

A recent meeting in Naperville about redevelopment plans for 5th Avenue involved interested parties with two different perspectives. These two views are extremely common in debates about development and redevelopment. The Daily Herald encapsulates the issue in two sentences toward the end of the article:

Resident Sandee Whited said she thinks Ryan Companies is “ignoring what we want” in terms of building height.

McDonald said the company is listening to residents’ wishes but balancing them with market demand.

When opposing redevelopment, the argument of neighbors often revolves around this idea: the new structure or land use is out of tune with the surrounding properties. People bought single-family homes because they liked the residential character (single-family homes, lots, quieter, safer, etc.). Multi-family housing or a larger structure disrupts this character. In this Naperville case, concerns about the larger structure include changes to traffic and light.

When promoting redevelopment, developers and local leaders will argue – not always explicitly – that growth is good. Here, it is phrased in terms of “market demand.” In other words, there are possible businesses and residents who would be willing to pay good money to be located in the structure. Naperville is a desirable place to locate: certain businesses could generate a lot of money with a location near the train station and downtown while residents would enjoy the high quality of life, the status of the community, and the access to the train station. The new development will generate profits for the developers and perhaps more tax revenues and an increased status for the city.

Balancing these two perspectives is not easy. At times, neighbors might be able to rally the whole community with the implied threat that a single development could change what is possible in the community and more single-family homes will be under threat. This claim is a little harder to make in Naperville given its downtown and size but the city does have relatively few tall structures near single-family homes. The developers and the city may be able to convince the community that this redevelopment project is a good asset for everyone, even if a few neighbors are inconvenienced.

 

How to make a better public case for abundant housing in four steps

After witnessing a positive result in front of a neighborhood council for a small project in Los Angeles, Virginia Postrel suggests four steps can help smooth the process:

Respect matters. Especially in liberal enclaves like West L.A., opposition to new housing — and to change in general — comes wrapped in the rhetoric of democracy and procedure. Activist residents, including official representatives, are jealous of their prerogatives as neighborhood incumbents. They’re more likely to say yes — or at least not say no — if they feel they’ve been listened to…

But so do the rules. Under a law signed in 2017, anti-development activists can no longer easily block new housing if it meets zoning requirements and incorporates 10 percent low-income units. One reason the Mar Vista project garnered support was that activists feared the alternative would be something less considerate of neighborhood sentiment.

 

Showing up is important. By answering questions and treating the meeting as important, the developer’s representative helped flip sentiment in Mar Vista. And the Abundant Housing LA speakers made arguments that often go unspoken in such forums. They reminded locals that by not letting people build housing near jobs, they make traffic worse, and that by blocking new apartments, which tend to be expensive, they send high-income renters into places where they push out middle- and lower-income residents. Beyond the specifics, it’s simply harder to argue against housing when you don’t have the overwhelming majority.

Don’t assume residents are against housing. In March 2017, Angelenos had the opportunity to vote for a slow-growth initiative that would have blocked at least a quarter of new housing developments. They overwhelmingly said no, defeating Measure S by a 70-30 margin. “That stereotypical kind of Nimby does exist, but there aren’t really that many of them,” says Burns. “When you really talk to people and you put a face on what it means to develop more — to add more housing — and it’s somebody who lives close by, you can really come to some sensible kind of compromises with folks.”

 

Generally, these look like good steps anybody seeking to redevelop property could benefit from. From some of my own work, these would be helpful for those constructing teardown houses in the suburbs as well as religious groups seeking to alter an existing building or construct a new building. Building a relationship with people in the community as well as presenting a cogent and reasonable case can go a long ways.

At the same time, I wonder if these four steps might be idiosyncratic and apply only to certain places and at certain times. This particular case is from a state and region that has a large need for more housing. The description of the steps above suggest that residents were more open to this project because they feared something worse. Additionally, this project is within a city and region that is already very dense (and one of the densest regions in the United States). Residents are used to denser housing.

I suspect redevelopment would be a much tougher sell in areas or communities that are (1) primarily comprised of single-family homes with some distance from denser land uses and (2) where housing demand is lower (or is perceived to be much lower – the Chicago area may have a big need for affordable housing but it would be hard to convince many communities of this).

 

If golf and football are dying sports, what would happen to that land?

I recently discussed NIMBY responses to redevelopment of golf courses but this had me thinking more broadly about land dedicated to sports and recreation: what happens to the land if the activity becomes less popular?

Golf was the sport cited in the CityLabs article:

Golf is dying, many experts say. According to one study by the golf industry group Pellucid Corp., the number of regular golfers fell from 30 to 20.9 million between 2002 and 2016. Ratings are down, equipment sales are lagging, and the number of rounds played annually has fallen.

Part of the bust can be blamed on the fallen fortunes of a single person: Tiger Woods. Golf boomed in the 1990s and early 2000s as the charismatic superstar raked in titles. Then, beginning in 2009, it faced a one-two punch of recession and bad press when its star golfer’s chronic infidelity came to light.

But the bigger story involves the sport’s aging demographics and the athletic tastes of Millennials, who just aren’t that into an expensive, poky sport that provides few health benefits. Unless the golf industry can change its ways, the decline will mean a lot of empty greens across the country. How that land is used—or isn’t—could reshape America’s suburbs for decades to come.

Beyond golf, the next sport that comes to mind is football. If youth leagues continue to see a decline in participation, less park and school land would be needed for football fields. What would then happen to that space? For a good number of high schools, that land is already shared with sports like soccer and lacrosse. Park space could simply become large fields again. But, some football facilities could be turned over to other uses (and cause NIMBY issues similar to those faced by golf course redevelopment).

What other sports could be next? Baseball still has a lot of young players but imagine that participation dries up in a few decades. Baseball fields can take up a lot of space. Could there be sports that arise and take up some of this space? Nice basketball courts would be welcomed in many places but neighbors and communities often have concerns about building these. I can think of several lesser known sports but cannot realistically imagine they would become so popular as to take up public park space or space at schools. But, perhaps parks in a few decades will include a much wider variety of sports fields and spaces to better serve a fragmented sports playing populace.

Sports spaces come and go over time. Bowling alleys thrived decades ago but now are more sparse. Skate parks started a few decades ago and now are found in many American community. Large cities have spent millions on helping to fund sports arenas but this could stop as communities realize who benefits from the stadiums. Is it too far-fetched to imagine that in a few decades very few people will play sports outdoors due to a combination of a lack of interest in physical activity, inside facilities, e-sports, and simulators that could provide similar experiences? Could parks and outdoor spaces become exclusively about “natural settings” and open land?

 

Redeveloping golf courses and incurring the wrath of neighbors

Turning land from a golf course to a housing development could be a bumpy process:

Consider that the average 18-hole golf course is 150 acres. At standard densities, that means that your average golf course can host at least 600 new single-family detached homes. Mix in townhouses and apartments, and a single shuttered course could provide housing for thousands of new residential units. This is land in desirable communities: Golf-centric subdivisions built in the 1990s and 2000s feature courses threaded among affluent McMansion-style developments, meaning that the new housing could go in areas with access to high-quality schools and work opportunities…

But the main variable blocking new housing on old golf courses might be old-fashioned NIMBYism. Golf courses, after all, are often interpreted as high-status amenities that raises the value of neighboring homes, despite evidence to the contrary. If golf courses are gone and not coming back, residents often ask, why can’t they turn into permanent parks? Indeed, converting former greens into open space, wetlands, and natural preserves is happening nationwide in places where local land trusts have been able to purchase the tracts.

This can be a more appealing option for neighbors—often much higher income than the average resident of their region—who push to block permits and rezonings that might allow for infill housing redevelopment on idle greens. Earlier this year, voters in Lynnfield, Massachusetts, an outer suburb of Boston with a six-figure median income, voted down a zoning change that would have allowed for a 154-unit senior housing facility on part of the struggling Sagamore Spring Golf Club. Voters in the Rochester suburb of Penfield, New York, meanwhile, recently passed a $3.65 million bond to buy out the golf course and turn it into a park…

Golf probably isn’t coming back, at least not at the kind of scale it once boasted. Whether or not this bust can be a boon or a wash for suburbs and cities will likely be decided by hundreds of small zoning fights like these over the next decade. If recent pushes to downzone and preserve golf courses are any indication, it will take some effort and forethought on the part of planners and policymakers to get former greens productively redeveloped. Once the physical embodiment of tony upper-crust seclusion, these silent driving ranges and ghostly sand traps can be an effective way for more people to find housing in exclusive suburbs—or another means of keeping newcomers out.

There are few things suburban homeowners like less than finding out that the open, green, or park land they moved next to is now going to be a new development. Sometimes this anger is misplaced: if you move into a new subdivision recently created out of farmland and it is next to more farmland, you can probably expect that more farmland is going to be developed. Parks, forest preserves, or land trusts appear to offer more certainty: a private group or local government has committed to that green space and it would take a lot to choose otherwise. It seems like a golf course then falls in between these two options as it looks like green space but it dependent on a steady stream of users. If the golf course does not have enough customers, it cannot remain a golf course forever.

Also taking into account the social class and status of those who might locate on or near a golf course, I imagine communities that try to convert golf courses to new development will have a significant fight on their hands.

 

Invoking (a different kind of) blight to take land for Foxconn

The term “blight” is more likely to conjure up images of slums and urban decay (example of Detroit) than farmland and single-family homes. Yet, the Wisconsin village of Mount Pleasant earlier this week invoked blight to take land for a planned Foxconn facility:

Trustees voted 6-1 to declare as a blighted area some 2,800 acres of open farmland and a few dozen homes, all of it earmarked for Foxconn and the development expected to spring up around the planned electronics factory. Trustee Gary Feest was the lone dissenter, and one of only two board members to speak before the vote…

Still, holdouts remain — people who believe the 140 percent of market value the village has offered is unfair when owners of larger tracts of farmland were paid several times the pre-Foxconn price such property was bringing…

As proponents have in the past, DeGroot emphasized not the eminent-domain power the blighted-area designation gives the village, but rather the financial advantages the measure confers. Communities with plans such as the one Mount Pleasant just approved can finance the redevelopment by issuing bonds exempt from both state and federal taxes, which DeGroot said could save the village millions of dollars…

In taking its action Monday, the village is using a section of state law that broadly defines blighted areas. Besides the commonly understood definitions of blight — dilapidated housing, overcrowding, high crime — the statute says an area can be deemed blighted if it is predominantly open and, for any reason, “substantially impairs or arrests the sound growth of the community.”

Here is the Google Maps satellite image of the Foxconn location (according to news reports). All the farmland is clearly visible.

Google Maps satellite image of Foxconn site

Taking land for a sizable or notable project like this is not always easy. The argument that this is good for the community will not strike all land owners as consonant with their property rights. And there may be some irony later in this story involving property rights. A Democratic gubernatorial candidate will be protesting the use of eminent domain as part of his larger concerns about the project. When Republicans are characterized as supporting both big business and property rights, which one wins? And are Democrats pro-property rights?

While Wisconsin has a slightly different definition of blight, this could be compared to urban renewal plans of the mid-twentieth century that used similar reasoning to mark certain properties as blighted. In both cases, officials and developers have a redevelopment plan for the land that is billed as an improvement for the community. In this case, the trade-off is largely open land for increased local tax revenue and a significant number of jobs. With the urban renewal plans of decades ago, history was not kind to some of the proposals as redevelopment could clear affordable housing units, target minority communities, and accelerate suburbanization (in the cases of highways constructed right through urban neighborhoods). Even without declaring some land as blighted, a project this size could be viewed by some as a significant change to the character of the community. “As many as 13,000 jobs” may sound good but this will affect local traffic, housing, and civic services. I would guess that following up with the community in five, ten, or twenty years could relay both intended and unintended changes if all or most goes as planned with the Foxconn facility.