Reason No. 2 to hate the McMansion ordinance

The McMansion ordinance will drive families from central Austin.

It's common sense that large families tend to prefer large houses.  At least those are the houses they buy.  Just look at the "family-friendly" suburbs:  Between 2000 and 2006, the average new home in Circle C had 3,965 square feet; the average new home in Steiner Ranch, 3,915 square feet; and the average new home in the Great Hills subdivision, 4,065 square feet.  (Download NPA_Comparative_Data.pdf, compiled by the city demographer.)

Although I've got only one child, I understand this preference.  Space per capita matters; it determines how much you can spread out. A childless couple in a 1,600 square foot house has exactly the same amount of space per capita as a couple and two children in a 3,200 square foot house.

Give the family of four a choice between a 1,600 square foot house in Bouldin and a 3,200 square foot house in Circle C and see which it picks.  Circle C, more likely than not.  The family that prefers space will choose Circle C even if it wants to be close to Zilker Park and downtown Austin.  It will choose Circle C even if that means a long commute.  And it will choose Circle C even if it is the 1,600 square foot house that has the bigger yard.

If central Austin is to attract lots of families, it must have plenty of affordable large homes. 

The McMansion ordinance, of course, takes dead aim at "large" houses --anything bigger than the ordinance's paltry 2,300 square foot minimum.  It drastically cuts the number of places to build large homes, strangling supply.  The inexorable laws of supply and demand dictate skyrocketing prices.

It looks like prices already have reached the stratosphere.  On September 17, 2006, there were exactly three 2,500+ square-foot homes in central Austin listed on the Multiple Listing Service for $300,000 or less.  (Central Austin is more or less equivalent to MLS areas 1A, 1B, 2, 3, 4, 5, 6, and 7.)  I chose $300,000 because that is roughly the price a household making $100,000 can afford.  A $100,000-a-year family is hardly poor, of course; according to 2004 census figures, 80% of the metropolitan households make $100,000 or less.  The "interim moratorium" -- McMansion's precursor -- is just a few months old, and central Austin already has been put out of reach for most large families.

Central Austin, with its inventory of bungalows and cottages, will soon be inhospitable to all but the wealthiest families.  Average families will spurn it, abandoning it to the hip singles, childless couples and empty nesters.  There's certainly nothing wrong with being any of these. It is incomprehensible to me, though, that the City Council doesn't think large families deserve a place in central Austin too.  I know -- the City Council does not mean to drive families out of central Austin.  But it should be judged by the utterly predictable consequences of its actions.  The City Council could not have adopted an ordinance more hostile to large families if it had tried. 

Comments

[James]

I just had this very same discussion with some friends in town for ACL Fest. Couldn't agree more with you.

[M1EK]

The biggest "size" argument to me is the fact that the folks on the task force predominantly have big homes which are bigger than their immediate neighbors'. McGraw, for instance, has about 2800 square feet (a corner lot, so she squeaks in under the 0.4 FAR, but her home is huge compared to her neighbors).

[DSK]

AC, you are exactly right.
100%
I don't have anything to add because you covered it all to a T.

[M1EK]

I misremembered. McGraw has 3600 (THIRTY-SIX HUNDRED); about 800 in a garage apartment and 2800 in main home.

[ccosart]

I'm pretty much anti-McMansion ordinance, but I can't completely agree with these square footages as being "average" homes. Just because it's what the exurbs are doing doesn't necessarily make sense for Austin. It's a sort of arms race out there. You can get a brand new 2000 sq ft 4 bedroom in Manor for under $130k. So now the "upscale" exurbanites have to have 3000+ to prove their upscale-iness. But lots of house is all the exurbs have to offer. Urban living you give up space for the amenities that come with the lifestyle. Granted Austin has less in the "urban amenities" column, so we should reasonably get more in the sq ft column than Manhattan. (And of course the McM. Ord. undermines urbanism too...)

Anyway, I don't actually have a problem with 2500 *except* that it includes secondary units, etc.

I suspect we'll agree more on the reasons 3-7. I look forward to hearing them. :)

[DSK]

"But lots of house is all the exurbs have to offer."

Well, let's be fair, that's not the ONLY thing exurbs (and I'm talking exurbs, not suburbs) have to offer. You also generall yget (in the Austin metro case, anyway):

* less crime
* better public schools (in many Austin exurb cases)
* slightly cooler temperatures (less heat island)
* easier to access to rural outdoors/park activities on your side of town

This shouldn't be taken to mean that there aren't a whole host of new *problems* to contend with when you live in an exurb.

[M1EK]

I tend to fall more in line with ccosart, and note that the Planning Commission likewise had a big problem with the ordinance's effect on secondary dwelling units; not so much on primary home size. As a card-carrying marketatarian (Motto: We're Not As Insane As The Libertarian Party), I'd have liked to see a solution for impervious cover which rebates people for less / charges them for more which would have taken the wind out of the bogus "drainage emergency" argument since it doesn't matter if the water's running off an old house or a new house... future crackplog ahoy, I guess.

[AC]

I was at the City Council meeting on June 8(and technically on June 9, too). If I recall right, the Task Force reps admitted they could not justify the ordinance on drainage grounds. I thought it was a surprising admission, since it might be used against the city by anyone challenging the interim ordinance.

ccosart, I picked Circle C/Steiner Ranch as examples because the people who buy there might be able to afford large central Austin houses, if the market were liberalized. They're the "marginal" customers. While you might get people like that to settle for 2800-3000 square foot house in central Austin, I don't think they'll ever settle for 1600 square foot houses, and probably not 2300 square foot houses either.

M1EK, so a "marketatarian" is just a pragmatic libertarian?

[AC]

Oh yeah, didn't the Planning Commission recommend a .5 FAR? That would have made a huge difference -- 3000 vs. 2400 sq ft house on a 6000 sq ft lot.

[M1EK]

"marketatarian" = somebody who realizes the market is a great tool for efficiently solving problems if you feed it the right set of incentives.

Planning Commission recommended 0.5 FAR where secondary uses were present.

[ccosart]

DSK,

I'll grant you that often you can find the first two, lower crime and better schools at a lower price point in the 'burbs, though I don't think it's always true, and certainly there's no need for it ever to be true, it's a direct result of policy decisions.

As far as parks, as I was leaving for work this morning, my wife was getting ready to put our daughter in the baby jogger and literally walk across the street to Town Lake. Granted we won't always have that, or have it for much longer, but I think the access to nature thing is exaggerated in the burbs.

[Jeff]

"Want" is not the same thing as "need." A family of three or four does not NEED a 4000 sq ft house, just as it does not NEED a full-size SUV, super-sized McDonald's meals or 64 oz Double Big Gulps. The majority of Central Austin residents are families who haven't bought into the "bigger is better" mentality and "make due" just fine with 2500 sq ft or so.

And btw the argument that exurbs have less crime and better schools is largely a myth seeded in racism. The best schools in the Austin area by a wide margin are in Westlake, which is right outside of downtown. The ones in Kyle, Pflugerville, Cedar Park or whatever are on about the same level ranking-wise as most of the ones in Central Austin. Similarly, crime levels outside of lower-income areas of the central city (e.g. East Austin and parts of South Austin) aren't really higher than those in exurb areas.

Finally, you can decry the impossibility of buying a 2500 sq ft-plus, under-$300K Central Austin house all you want, but that's a very simple reflection of supply and demand, one that has little to do with any city council-dictated ordinances. Houses in suburban areas are cheaper because they will always be available in greater supply, and because suburbs are always expanding outwards. Houses in downtown areas will always been in limited supply. Simple as that.

[AC]

"Want" vs. "need" is a worthless distinction. How do you decide what is a need and what a mere want? Singles don't NEED more than a few hundred square feet. Families of four don't NEED more than 1000 sq. ft. For that matter, no one NEEDS single-family housing; let's convert all of central Austin to multi-family.

More pertinently, no one NEEDS a guarantee against a large house next door. (Many probably don't even want such a guarantee.) How do you decide to give effect to a preference for this guarantee rather than a preference for large homes? When you call one a "need" and the other a mere "want," you're simply revealing your own preferences, not giving us a rational basis for legislating. (BTW, your example is a 3 person household buying a 4000 sq. ft. house. What about a 5 person household? Is 3000 sq. ft. extravagent?)

As for supply and demand, obviously the relative scarcity of large homes close in makes them more expensive than in the suburbs. The question is how much more expensive should they be. Right now, they're about 2.5 to 3 times as expensive. Those prices are a signal to build more big houses. The market was in the process of doing that when this ordinance was pushed through. If we let the supply of large homes increase, they will not be as expensive as they otherwise would. It's as simple as that.

By the way, I never argued that the exurbs were better than the central city. I've assumed that if prices were lower in the central city, we'd see more families moving in.

[stilllurking]

so wait, take away the ordinance and let builders put up 4000 sq. ft. houses on 6,000 square foot lots in central austin and then we'll get more families? i guess more rich families you mean. which ones from the 80% below 100k earners are gonna be able to afford the bigger houses? ...all the houses i saw built in my Travis Heights neighborhood over the last 2 years, the larger houses that went up before the ordinance have sold for $650k to $990k. i guess either way single-family in the center of town ends up being for the rich only, but it's sounds silly to suggest that your circle c buyer would choose central austin if there was a bigger house for 2x or more the price....

[M1EK]

My next-door neighbor has a 1000 square foot house and a 6-800 square foot garage apartment on a 6000 square foot lot. They now have a family of 5 (plus relative living in the apartment). You and your ilk would deny them their second floor - meaning that in order to have a house reasonably sized for their family, they must go to a large lot or get out of central Austin.

To other readers: don't buy this crap. The McMansion ordinance supporters were empty-nesters and couples without kids; I never once saw even one family of modest means supporting this crap.

[AC]

Also, stilllurking, you're setting up a strawman by citing Travis Heights. Everything's expensive there, just like everything in Tarrytown and Pemberton Heights. Rosedale, Allendale, Galindo, Dawson -- these neighborhoods are getting more expensive, but they are still within reach of a lot of suburanites.

BTW, I used 3200 sq. ft. for my example, but I could have used 2900 or 2700 or even 2500 -- all of these are outlawed unless you buy a big enough lot.

[Jeff]

"If we let the supply of large homes increase, they will not be as expensive as they otherwise would. It's as simple as that."

Not really. I think we both know you have no data to support your contention that prices on large houses in Central Austin were heading down pre-McMansion ordinance. Apparently unlike you, I've paid extremely close attention to prices per sq ft over the past two years in every ZIP code proximate to downtown (78701, 02, 03, 04, 05, 31, 46, 56), since I've been in the market for a house that whole time. Prices have gone nowhere but up, and prices on new construction are in most cases the highest of the bunch. (In case you're curious, the most plentiful supply of reasonably priced 2500+ sq ft houses are in Barton Hills, Allandale and Old Rollingwood. But wait! Those aren't "new construction" and must thus be shunned!)

"The McMansion ordinance supporters were empty-nesters and couples without kids; I never once saw even one family of modest means supporting this crap."

Then I suggest you come meet my next-door neighbors, a family of four in a 1500 sq ft house who vehemently oppose McMansions. Or maybe attend a meeting for any of Austin's many neighborhood associations; mine has plenty of families with school-age kids, most of modest means.

"Rosedale, Allendale, Galindo, Dawson -- these neighborhoods are getting more expensive, but they are still within reach of a lot of suburanites."

See my point about paying closer attention to what's actually going on. Prices in the Dawson area are comparable to Travis Heights these days, if you compare houses of similar size and quality. Travis Heights only seems more expensive because most of its real estate has been fixed up; it's only the fixer-uppers in need of a gut reno that are going for relatively cheap in the Dawson/Bouldin area.

[AC]

I never said that large home prices were headed downward before the McMansion ordinance. Not once. My point has always been that large homes will be a _lot_ more expensive with the McMansion ordinance than without it. That's basic supply and demand: hold supply constant while increasing demand and prices will go up. You've accused me elsewhere of not knowing any economics, but your analysis boils down to "Hey, they were expensive before and they're expensive now; the McMansion ordinance must not have had any effect."

As for your sarcastic comment that old construction must be "shunned," where did you get that I oppose old 2500+ square foot houses? I don't. I have a problem with forcing people to maintain small, outdated homes on their lots, but I'm not against older housing per se. Again, you're reading stuff into my posts that's just not there.

Plentiful supply of 2500+ in Barton Hills? Allendale? Check the MLS listngs. I checked two different ones tonight: there is exactly one 2500+ home for sale in Barton Hills (and it's really in the Zilker neighborhood). There are only a couple of 2500+ square foot homes for sale in all of MLS area 2.

I don't know where you get your pricing info. But fixer-uppers aren't going for much of a discount in this market. If a property can be renovated for $50,000, why discount the price by more than $50,000? I'll let any realtors weigh in, but I think the difference in price between Galindo and Travis Heights is in the lot, not the structure.

[M1EK]

And I just dare you to tell that family of 4 living in 1500 that they ought to downsize to a 800 square foot house to match what you've forced the family of 5 next door to me to live in (200 sqft per capita).

[Jeff]

"I never said that large home prices were headed downward before the McMansion ordinance. Not once."

True, but your comment that "the market was in the process of doing that" insinuates that large-home prices were on the precipice of falling until the McMansion ordinance passed.

"My point has always been that large homes will be a _lot_ more expensive with the McMansion ordinance than without it."

And my point is that prices for large houses were already in the stratosphere pre-McMansion ordinance, and they can't go much higher without reaching the tipping point of reduced demand due to the extreme expense.

"Plentiful supply of 2500+ in Barton Hills? Allendale? Check the MLS listngs."

I meant "plentiful houses in general," not "plentiful listings currently for sale." Austin has one of the lowest per-capita MLS inventories in the entire country, as I'm sure you know. It would be tight with or without the McMansion ordinance.

"If a property can be renovated for $50,000, why discount the price by more than $50,000?"

Most people either don't want to, or can't, invest the time and effort into renovating a place themselves. Why do you think so many people are buying residential investment property in Austin? They fix places up for a relatively small amount ($20K-$30K) and flip them 6-12 months later for a substanial return on their investment, one that well exceeds the amount the house would have otherwise appreciated. (My best friend does this for a living; he generally gets at least a 2x return on his efforts -- e.g. $30K in renovations = a $60K increase in value. In one case he made 4x - bought a total dump for $100K, spent $25K renovating it, sold it a year later for $200K ... and housing prices only went up 10% in his neighborhood during that time.

[AC]

"[M]y point is that prices for large houses were already in the stratosphere pre-McMansion ordinance, and they can't go much higher without reaching the tipping point of reduced demand due to the extreme expense."

Jeff, if you think large home prices are in the stratosphere now, just wait. Can't go any higher? Have you seen the price for homes in San Diego or San Jose? They're ridiculous, even post peak and even for small homes. Demand in Austin is increasing, and will continue to increase as long as job growth remains strong. This includes demand for large homes. There is no magic "tipping point" for large home prices. (If you hold demand constant, then the quantity demanded decreases as the price goes up, but this is not what "reduced demand" means.)

I don't get your point about "plentiful houses in general." What does that mean? You can't say that the most plentiful supply of 2500+ homes is in Barton Hills, etc. (your original point) if there are none for sale in those neighborhoods.

Look, large homes in Barton Hills weren't selling for $500-$600K in the first half of 2005, before the McMansion buzz started. They were maybe selling for $150-$160 per square foot. There are hardly any for sale at all now, so it's hard to say how much they're going for. It's a lot more than they used to get. Some of that is due to increasing overall demand for central Austin housing, but some of the blame must be pinned on the McMansion ordinance as well.

Anyway, you still haven't answered M1EK's point that the McMansion ordinance will prevent growing families with small homes from expanding them, forcing them to the 'burbs.

"Most people either don't want to, or can't, invest the time and effort into renovating a place themselves. Why do you think so many people are buying residential investment property in Austin?"

I bought an investment property in April, renovated it, and rented it out. It is very, very hard to find a good deal on an investment property in Austin, or at least in MLS area 10, where I was looking. In my experience, sellers underestimate rather than overestimate the cost of renovating the house. If a renovated house would fetch $150,000, they'll price it at $130,000 even if it will cost $25,000 to renovate. If they do happen to underprice it, there are lots and lots of circling investors waiting to pounce. I lost a couple of properties like that to other bidders (who I thought paid more than the property was worth). I finally ended up with one that I thought was underpriced by maybe a couple thousand dollars. (It wasn't.)

My point is that there are very few properties discounted by more than the cost of renovation. In my experience, when a property is listed at a below-market price, it's usually by a savvy realtor who wants to start a bidding war.

If your friend is consistently making money flipping, it is either because: (1) he has a source who gives him a crack at good deals before they hit the market; or (2) he's making his money on the appreciation while he's doing the renovation.