Condos, townhomes find new favor
10:45 AM PDT on Monday, October 1, 2007
Faced with high development fees, the subprime mortgage crisis and a slump in single-family home sales, local home builders say they expect to build more multifamily projects in the Inland region during the next three to five years.
Shea Homes has about 375 multifamily units under construction at three Inland developments, two in Rancho Cucamonga and one in Chino, said Bob Yoder, Inland Empire division president for the Walnut-based company.
"At least 30% of the projects we're working on now [in Riverside and San Bernardino counties] are attached homes," said Yoder, who runs Shea Homes' Inland region office in Corona.
"We're doing a lot of it now, and that number could get to 50% down the road," Yoder said. "That would be quite a jump if it happens."
Officials with Shea Homes first considered building more condominiums and townhomes in the Inland region about two years ago, when the area's single-family housing market was at record levels.
"Single-family homes were always the emphasis, but there was a gap in the market for smaller housing that was more affordable," Yoder said. "A lot of cities used to avoid multifamily units because of density issues, but that attitude is changing in a lot of places. Cities know that people need a place to live, and not everyone can afford a house."
More than 23,000 multifamily housing units were approved in Riverside County from 2001 to 2006, according to the Construction Industry Research Board, a nonprofit agency in Burbank.
More than 12,000 multifamily units were approved in San Bernardino County during the same period, according to the research board.
The Inland region was 21st among the top 25 multifamily housing markets in the United States - measured by number of permits issued - last year, according to www.buildingteamforecast.com.
The two-county region ranked among the top 25 multifamily markets even though the number of permits issued for multifamily housing dropped in both Riverside and San Bernardino counties last year, according to the Web site.
The Los Angeles-Long Beach-Santa Ana market ranked second, behind the greater New York City region.
"Orange County started getting more multifamily housing about 10 years ago, and now that trend is moving into the Inland Empire, which was probably inevitable," Yoder said.
While condominiums and townhomes don't sell for as much as a single-family home, home builders like them because they appeal to a larger demographic, making them easier to sell.
"You can get families or older professionals, married or otherwise," Yoder said. "Multifamily gives you a chance to hit several price points."
Rollie Heschong, owner of High Desert Homes in Joshua Tree, has built six single-family homes this year and has sold only one of them, in March, after dropping the price by $50,000.
Heschong is renting the remaining five houses, which are still up for sale.
Affordable housing picks up
Construction of multifamily projects - mostly condominiums and townhomes - began to accelerate in Riverside and San Bernardino counties about two years ago, said Frank Williams, chief executive officer of the Building Industry Association of Southern California's Baldy View chapter.
Williams' nonprofit agency, Housing Action Resource Trust in Rancho Cucamonga, recently built 44 condominium units on 1,500-square-foot lots in East Highlands Ranch near San Bernardino. Priced from $320, 000 to $385,000, all but six units had sold by the end of September.
"Affordability is a big part of the trend," Williams said. "In other parts of the country condominiums and townhouses are usually the last things to sell, but out here they sell quickly because people can afford them."
Development fees have gotten so high that some builders are reluctant to build single-family homes, Williams said.
"Those fees can represent 25% to 30% of the price of a house," Williams said. "It would really help if some of theses cities would give us a break on fees."
Condominium and townhome fees are less onerous. "It's a matter of the scale of the economy," Williams said. "With a multifamily project you use less and you get a higher density, which means you have lower costs."
Most cities are friendly toward townhouses and condominiums, but some aren't receptive to apartment complexes.
"Some cities don't like them," Williams said. "They don't have any written bans against apartment buildings, they just don't approve them."
Two factors are driving the trend toward more multifamily housing construction in Riverside and San Bernardino counties, said Dave Rinker, managing member with Sunwest Development LLC's Twentynine Palms' office, which oversees the company's High Desert development.
Those factors are people in California who are losing their homes to foreclosure in the so-called subprime mortgage crisis, and people from outside the state who still want to move here, he said.
"There is lot of single-family home inventory in the High Desert, and with winter coming up that isn't going to change," Rinker said. "Winter is always slow time."
Sunwest Development, which is based in Silverado near Mission Viejo, began developing projects in the High Desert four years ago. The company has secured 1,300 lots for condominium development in the High Desert, Rinker said.
Sunwest Development began positioning itself to develop more multifamily projects about two years ago, when the Inland region's housing market was hitting record sales and median-price numbers.
"You could see the handwriting on the wall," Rinker said.
"You didn't have to be a genius to figure out that sooner or later you were going to run out of people who could afford to buy houses. All of the economic gurus were saying the bubble was going to burst, so we decided to plan accordingly," Rinker said.
The National Association of Realtors projected that U.S. sales of new homes would continue to slump in 2007 and 2008, compared with 2006 levels.
The association projected that housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.
