Thursday, March 26, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Wealth Gap: Many seek new homes near cities but are priced out

Wealth Gap Home Construction

This June 4, 2014 photo shows homes within the newly built Portland townhouse development in Phoenix. Americans increasingly say they prefer to live near the centers of cities and towns, where commutes tend to be easier and culture, restaurants and entertainment close by. It marks a pronounced shift away from the yearning for open suburban space that drove U.S. home construction for decades. (AP Photo/Matt York)

By
From page B14 | June 22, 2014 |

Josh Boak

WASHINGTON — City living has been a blessing for Tim Nelson.

The Phoenix lawyer moved downtown a few months ago into a new $389,000 home with a warehouse-style floor plan, a Jacuzzi tub and kitchen counters made of Caesarstone quartz. His favorite coffee spot is three blocks away. When the Arizona Diamondbacks play on Friday nights, he can watch postgame fireworks from his deck.

“I like the views,” said Nelson, 50. “My commute is almost nonexistent.”

Nelson has plenty of company.

Americans increasingly say they prefer to live near the centers of cities and towns, where commutes are typically shorter and culture, restaurants and entertainment close by. It marks a shift away from the yearning for open suburban space that drove U.S. home construction for decades.

But it carries a costly trade-off: Land in many cities has surged in price. And fewer Americans can now afford newly built homes in the walkable neighborhoods they desire.

The average price of a newly built home nationwide has reached $320,100 — a 20.5 percent jump since 2012 began. That puts a typical new home out of reach for two-thirds of Americans, according to government data.

Yet many builders have made a calculated bet: Better to sell fewer new homes at higher prices than build more and charge less.

Their calculation is partly a consequence of the growing wealth gap in the United States. Average inflation-adjusted income has declined 9 percent for the bottom 40 percent of households since 2007, while incomes for the top 5 percent exceed where they were when the recession began that year, according to the Census Bureau.

Buyers have historically paid about 15 percent more for a new home than for an existing one, a premium that’s reached 40 percent today, according to the real estate data firm Zillow. An average new home costs about six times the median U.S. household income. Historically, Americans have bought homes worth about three times their income.

The high prices and sparse construction are no help for a still-subpar U.S. economy. With new-home sales well below their historical average, construction firms need fewer workers. The economy remains 1.49 million construction jobs shy of its total in December 2007, when the Great Recession began.

After 60 years of migrating to car-dominated suburbs, polls show more Americans want out of long commutes in favor of neighborhoods where jobs and stores are nearby.

Stuck with pay that’s barely budging, many face a tough choice: Keep renting. Pile up huge mortgage debt to buy a home near their job. Or buy a cheaper home that requires a lengthy commute.

“Middle-class Americans are (being) squeezed out,” said John McIlwain, a senior fellow at the Urban Land Institute.

Low mortgage rates have eased some of the pain from rising prices. But the desire to live near town centers on costlier land could depress home ownership rates to as low as 60 percent, McIlwain estimates. That would be down from 65 percent today and 69 percent during the housing bubble.

About 40 percent of Americans still live in a suburb “where most people drive to most places,” according to a new poll by the American Planning Association, a trade group for community planners. But just 7 percent say they hope to stay in car-dominated neighborhoods. Those findings mesh with a March report on the preferences of millennials by Nielsen Holdings.

The construction business thrived for decades by bulldozing cheap farmland into suburban networks of streets and houses. But as farmland grew costlier, land prices in cities and towns with attractive amenities soared, says Christopher Leinberger, a professor at George Washington University and an industry strategist.

Homebuilder Toll Brothers spent $24 million in 2012 to buy two-thirds of an acre near Nationals Park in Washington. That’s equal to roughly $830 a square foot, compared with $5 a square foot before the ballpark existed, Leinberger said.

At the Walnut Hill Townhomes in Chattanooga, prices start at $610,000. The figure reflects a revival of that industrial city. A pedestrian bridge spans the river, carrying locals to gastropubs, gourmet tacos and a waterfront park.

Dale Mabee, who’s building the homes, said his material and land costs meant prices had to be $243 a square foot, nearly three times the average in the metro area.

“It’s almost a necessity to build at a higher price point to make the numbers work,” Mabee said.

Among the buyers was Spencer McCallie, a 77-year old former school headmaster. McCallie initially retired to a lakeside cabin about 30 miles outside the city. But its quiet pleasures were undercut by long drives downtown for symphony concerts and Rotary Club meetings.

“We didn’t want to have to come in 28 miles because we knew we’d have to come home late at night,” McCallie said.

The shift in tastes is among factors that are eroding home affordability despite still-low mortgage rates. Among other factors: tighter lending rules and difficulty producing down payments.

All of which helps explain why construction has yet to rebound with vigor. Just 433,000 new homes were sold on an annualized basis in April. Over the previous half-century — when the United States had a smaller population — annual sales had averaged 660,000.

Builders noted in recent earnings calls the higher prices and the decline in construction.

Richard Dugas, CEO of PulteGroup, says building entry-level homes isn’t profitable enough anymore.

Builder D.R. Horton says escalating prices have left first-time buyers “underserved.” It’s introduced a low-cost division with homes priced as low as $120,000, targeted in part at millennial buyers but located at the edges of suburbia where land is cheaper.

For those able to live downtown, the tight supply of new homes has forced them to act fast.

Crews broke ground last month on a 47-rowhome luxury development in Chicago. Every apartment — starting at $562,900 — sold before digging began. The rooftop decks survey the city skyline. Buyers are waiting 12 to 16 months for construction to finish before moving in, said Heather Gustafson of CMK Realty.

The homes are built in the Cabrini-Green area, once occupied by a housing project notorious for gang violence. The city began to demolish the project in 1995 and resettle residents, clearing prime real estate just a 20-minute walk from the office towers and trendy restaurants of Chicago’s Magnificent Mile.

Adam Kriticos, a mortgage broker, bought the last available home at the development, known as Basecamp River North. He had less than four days to make an offer after touring a model home. That didn’t faze him.

“It’s not like we’re overpaying for where the market is now,” he said.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Vacaville honors top cops, support staff

By Kevin W. Green | From Page: A1, 2 Comments | Gallery

 
 
Kings honor Rankin, Mustangs

By Paul Farmer | From Page: A2, 1 Comment | Gallery

Fairfield mall to host first aid kit assembly party

By Susan Hiland | From Page: A3

 
Fairfield PD chief to address Solano GOP

By Susan Hiland | From Page: A3, 1 Comment

 
New meeting location for family support group

By Kevin W. Green | From Page: A3

Padan Elementary demonstrates new school culture

By Susan Hiland | From Page: A3, 2 Comments | Gallery

 
 
 
Fairfield police log: March 24, 2015

By Susan Hiland | From Page: A7

Suisun City police log: March 24, 2015

By Susan Hiland | From Page: A7

 
Frustration permeates college contract negotiations

By Susan Winlow | From Page: A7 | Gallery

.

US / World

Vallejo woman’s story a hoax, police say

By The Associated Press | From Page: A1, 5 Comments

 
Deceased woman’s video supports Wolk’s bill

By The Associated Press | From Page: A4

Man threatened suicide before shooting officer

By The Associated Press | From Page: A6

 
.

Opinion

We deserve freedom to choose our fate

By Kelvin Wade | From Page: A5, 4 Comments

 
 
.

Living

Today in History: March 26, 2015

By The Associated Press | From Page: A2

 
Community Calendar: March 26, 2015

By Susan Hiland | From Page: A2

Horoscopes: March 26, 2015

By Holiday Mathis | From Page: A9

 
After several years, my nieces now live with their father and are miserable

By Kathy Mitchell and Marcy Sugar | From Page: A9

.

Entertainment

David Crosby in car accident with jogger

By The Associated Press | From Page: B5

 
Contract not renewed for ‘Top Gear’ host

By The Associated Press | From Page: B5

TVGrid

By Daily Republic Syndicated Content | From Page: B5

 
Felicity Jones excited, tight-lipped about Star Wars role

By The Associated Press | From Page: B5

.

Sports

 
Prep badminton preview: City teams making their marks

By Brian Arnold | From Page: B1, 1 Comment | Gallery

6 teams with 10 or more losses most ever to reach Sweet 16

By The Associated Press | From Page: B1

 
After 1st division title in 39 years, Warriors want more

By The Associated Press | From Page: B1

Local report: Rodriguez boys swim past Vintage

By Daily Republic staff | From Page: B1

 
Alameda County to join talks about new Oakland stadium

By The Associated Press | From Page: B2

Rio mayor unveils controversial Olympic golf course

By The Associated Press | From Page: B2

 
Joe Gibbs’ son being treated for ‘brain function’ issues

By The Associated Press | From Page: B2

America’s Cup organizers want smaller, cheaper boats

By The Associated Press | From Page: B2

 
Gomez uses offense and defense, leads Brewers past A’s

By The Associated Press | From Page: B2

Cal to host UC Davis in 2019, Cal Poly in 2020

By The Associated Press | From Page: B2

 
Lanny McDonald selected as chairman of Hockey Hall of Fame

By The Associated Press | From Page: B2

Serena Williams hoping to play at Miami Open

By The Associated Press | From Page: B2

 
Change to extra points likely in NFL

By The Associated Press | From Page: B2

Bills to honor late owner Wilson with life-sized statue

By The Associated Press | From Page: B2

 
Tulowitzki homers, Butler strong in Rockies’ win over Giants

By The Associated Press | From Page: B2

Elliott heads to Martinsville to attempt 1st Sprint Cup race

By The Associated Press | From Page: B2

 
.

Business

.

Obituaries

Howard Leon Carnes

By Nancy Green | From Page: A4

 
.

Comics

Pickles

By Daily Republic Syndicated Content | From Page: A8

 
Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

Baldo

By Daily Republic Syndicated Content | From Page: A8

 
Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

Sally Forth

By Daily Republic Syndicated Content | From Page: A8

 
B.C.

By Daily Republic Syndicated Content | From Page: A8

Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Zits

By Daily Republic Syndicated Content | From Page: A8

 
Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

 
Dilbert

By Daily Republic Syndicated Content | From Page: A8

Peanuts

By Daily Republic Syndicated Content | From Page: A8

 
Blondie

By Daily Republic Syndicated Content | From Page: A8

Garfield

By Daily Republic Syndicated Content | From Page: A8

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

 
Bridge

By Daily Republic Syndicated Content | From Page: A9

Sudoku

By Daily Republic Syndicated Content | From Page: A9

 
Crossword

By Daily Republic Syndicated Content | From Page: A9

Cryptoquote

By Daily Republic Syndicated Content | From Page: A9