This afternoon I got another phone call from someone convinced that they should develop condominiums and sell them. I am really struggling to find a better way to communicate on this really basic point. I feel like the guy in the Far Side cartoon above.

 

If you have the know how required to produce buildings that people live and/or work in, using that very valuable resource to produce houses or condos that you sell to people has a huge opportunity cost.  Opportunity cost is a big deal, as in lost opportunity and wasted opportunity.  What else could you have been doing instead of building and selling?

I cannot emphasize this enough. If you have the wherewithal to build something, Don't sell it.  Hold onto it and rent out space in your building. The market for new or renovated rental buildings is hugely under-supplied in most markets, particularly in anything even remotely resembling walkable urbanism.  There are lots of places where a couple of decent buildings will have a wonderful effect upon the neighborhood.  The people who fill in the missing teeth in the neighborhood will do well, while doing good.

 

Our culture has created completely unrealistic expectations for what is supposed to happen when you buy a home. Avoid putting yourself in a place where you have to deliver on all the delusional nonsense that fills the heads of people who watch too much HGTV. Build to hold and rent. Build in places where the amenities are exotic stuff like proximity to transit, day care, $2 coffee and a genuine local bar.

P1000505

In most places the demand is large and the supply is pretty damned small.  So just how large is the demand?  If we were able to wave a wand and redirect the entire US housing industry to deliver only new rental housing in walkable urban places tomorrow, we would not catch up with the demand until 2050

If you understand urban places and have the ability to produce modest buildings for a living, I encourage you to figure out how to build apartment buildings and mixed use buildings, rent them out and and hold onto them. You should look for opportunities to do this in walkable or even marginally walkable places.  Avoid completely car dependent locations so you don't have to build swimming pools nobody uses.

If you are a contractor, I think this might work out better than building for other people.  If you are an Architect or urban designer I think this will work out better than performing fee for service design or consulting work.

If this seems like a crazy idea, please read Arthur C. Nelson's book Reshaping Metropolitan America and give it a a little more consideration.

http://www.islandpress.org/book/reshaping-metropolitan-america

Here is a link to Dr. Nelson's entire data set (in excel file format).

https://www.dropbox.com/s/3fzf8e8l89o1w0b/9781610910194_reshapeamericadatabase.xls?dl=0

Go ahead and download it and poke around.  At a minimum, cruising through the spreadsheet will make you want to read the book, where Dr. Nelson very helpfully explains what all this data means. I suspect that if you are half as geeky about this stuff as I am, you will hone in on the place where you live to see what the housing future holds for a place you care about.

 You can look up your Metropolitan Statistical Area (MSA) and find out what the annual demand for new rental apartments will be in your backyard.  Then hop over to the US Census website to look at how many multifamily building permits were issued in your county in 2014 and 2015.  

http://censtats.census.gov/bldg/bldgprmt.shtml

For example, I live in Albuquerque.  In the Albuquerque/Bernalillo County MSA, the annual demand for new rental units, according to Dr. Nelson is 4,000 units.  Imagine that a quarter of those units get delivered by the apartment fairy in the form of converted single family houses and the demand number comes down to 3,000 units.

In 2014 there were 400 units built in Bernalillo County, so the short fall of 2,600 would roll over into 2015.  Add the conservative number of 3,000 units for 2015 and that comes to a demand for 5,600 new rental units.  I check in on the permit activity for the City of Albuquerque and the number for the city (admittedly not the entire MSA) for 2015 was 570.  So now the demand for 2016 is something over 8,000.    Vacancy for apartments in Albuquerque over the last couple years has been less than 2% (--about what you would see when apartments need to be repainted and re-carpeted between tenants)  Rents have gone up 5-10% a year in this market with the higher rents in the walkable parts of town.

Is your area any different?  Do you see an opportunity?

I got an opportunity to work with Gracen Johnson during the recent Kalamazoo Small Developer Boot Camp.  I was already pretty clear on the fact that she is an exceptionally bright person, but I had no idea what a quick study she is on new technical skills.

She shot some video while I was pulling together diagrams boiling down the zoning code that used for the Edison Neighborhood of Kalamazoo.  We had a chat about how zoning codes typically work.  She said the video would be helpful as she practiced some of this stuff.

Last week she posted a blog on the StrongTowns.org website.  Wow.  She absorbed a lot of technical stuff and made it much more accessible.  The photo above is Gracen's diagram of one of the zoning categories in her town of Fredericton, New Brunswick.

Gracen Johnson's wonderful recent blog post

I recommend following Gracen on Twitter and keeping track of her adventures.  She is a genuine talent.  She cares  about people and cities. I can't begin to imagine what she will be learning and doing in the coming years.  Gracen's Twitter