Developers and builders are often asked to prognosticate, especially in these difficult economic times, and I plan to do that periodically.
The economy is especially tough in the real estate market. But these conditions, I believe, are permanently changing the market.
I think infill development is poised to really take off. Fuel, energy and materials costs are skyrocketing, while inner-city land costs are falling. Combined with local government policies favoring urban renewal, I believe we will see less development outside of city limits, particularly planned communities.
“Infill” is small-scale development next to existing development, either on vacant or developed land. Infill has some drawbacks for developers: land costs have been higher, there may be contamination issues and the parcel may be oddly-shaped. On the other hand, infill takes advantage of existing sewer, water and streets. Infill development – especially when it’s done on a scale of several acres or more – also renews the housing stock of a city.
For the past few decades, however, developers have gravitated toward greenfield development. Building on farmland has been cheap and easy and local governments have been willing to extend services, making suburban homes lower in cost but farther in distance.
Things are different in 2008. While a home in Caldwell is cheaper, it’s costing around $10 to $17 per hour to drive, so a 2-hour commute to Boise comes to at least $400 a month. That’s at least $4,800 a year just for work commuting, making an infill location with a ½-hour commute start to look like a bargain.
Also, sheetrock, stone, metal and appliances are much more expensive than they were just a few years ago, as is energy to heat and cool a home. So, a smaller home on a smaller infill lot is more economical to build and maintain.
I think these trends are here to stay, permanently favoring infill. Of course, I have a bias here. Ted Mason Signature Homes has been doing infill projects since 1991. After building hundreds of such homes, we know how to profitably build high-quality infill homes at various price points.
