Explain to me why highrise condos/apartments in Sacramento don't pencil out (San Diego: real estate, renters)
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Explain to me why highrise condos/apartments in Sacramento don't pencil out
For starters, don't come in here with fact/opinions that come out of your ass. I want hard data/facts backed up with numbers.
Ok, so lets try to figure out why high rise residential doesn't pencil out in Sacramento. First lets look at a few similar sized cities (from wiki by metro area 2008). I'm not sure about San Antonio but all of the other cities have residential highrises.
Now lets look at income per county (I wish I could do per metro but I can't find those numbers).
City (county) Median Income
Pittsburgh (Allegheny) $48,778
Portland (Multnomah) $51,372
Cincinnati (Hamilton) $50,285 Sacramento (Sacramento) $56,882
Cleveland (Cuyahoga) $44,324
Orlando (Orange) $50,674
San Antonio (Bexar) $45,794
So just looking at the income numbers, Sacramento comes out on top. Yes Sacramento is in CA and we high costs than other parts of the country. But even if you take that into account our average income is similar or even higher, plus places like Portland have a higher median house price than us, even though we make more on average.
Just from a income standpoint, it would be very hard to argue Sacramento doesn't have the income to support the cost of residential highrises with facts (which I rarely see on the board). From a density standpoint, even though our population is very spread out, the city is more dense than all of those cities except Cleveland and Pittsburgh. So again, the argument that our density is too low for it doesn't hold water when compared to similar sized cities.
The only thing left is politics and the cost of building in CA. The cost of building in CA is an issue, I agree with that, but I don't think politics has hindered us since maybe 2000. I don't think a NIMBY group has successfully stopped (maybe delayed, but not stopped) a project in a very long time.
My theory is that it's a myth. It's all in your (in this case, the banks/developers/citizens) head. Sacramento is an unproven market (sort of, The Towers + Aura have proved the market is there), so people (mainly banks) don't want to take a risk on something that's unproven. Downtown is unproven.
I think the answer is to open midtown for development by removing height limits. I truly believe there is where you will see the first successes with 20+ story residential buildings. Midtown has exploded and is now densely packed with residents and entertainment. It is ripe for a residential highrise, maybe middle-income apartments. After Sacramento becomes a proven market, you will see the high rise residential trickle into downtown.
For the point you are trying to make about urban mid and high rise residential development, I'd certainly include Indianapolis in the discussion. It has a very highly developed and active downtown, with a lot of residential units.
Its more expensive to build up than out. What drives building up is when rents in an area go so high that it becomes profitable to build upwards. Income is part of the reason for higher rents but its not the only factor. The difficulty in building additional housing is another thing that drives housing prices up as well as the supply of local attractions that makes living in a particular area particularly desireable.
In the Houston region the median family income is $63,899. In the Sacramento area the median family income is $61,087. In San Diego the median family income is $63,727. As between the three areas, median family incomes aren't that different. Now compare housing prices in these areas. In the Houston area the median housing price is $152,400, in the Sacramento region its $208,000 and in San Diego its $365,000.
John Burns Real Estate Consulting - Local Analysis (http://www.realestateconsulting.com/Intelligence.aspx?quicklaunch=true®ion=local - broken link)
Why the huge difference in housing prices? For roughly the same median family incomes, housing in San Diego is more than twice as expensive as housing in Houston.
Some of it is supply and some of its demand. San Diego is on the beach, Houston is inland. The climate in San Diego along the coast is also much more temperate than the climate in Houston. Both the summers and the winters are mild in San Diego, Houston can get snow in the winter and the summers are hot and humid. There is a limited amount of areas in the planet with the very pleasant coastal California micro- climate and people will just bid a lot more for the right to live in that climate than in Houston. Some of its also supply. In Texas, the locals are much more willing to permit new development. Houston is also fairly flat, there is a huge area for Houston to spread into. In California both the California Coastal Commission and prop 13 tend to limit the amount of property that is available in San Diego. There are growth controls that tightly limit the height of buildings in San Diego west of I-5 outside of downtown. Additionally the Coastal Mountains, Camp Pendleton to the North and the general lack of water all tend to constrict the amount of land available for development in San Diego.
So while incomes are about the same in both Houston and San Diego, housing prices are about twice as much in San Diego.
So what about Sacramento?
Sacramento has features of both San Diego and Houston. Like Houston its inland from the Coast. That means that there aren't natural features like an ocean view that tend to concentrate growth in one area. Sacramento is in the middle of a huge valley that goes 300 miles to the south and another 200 or so to the North and its about 80 to a hundred miles wide. One of the reasons this area doesn't grow up is that its still usually much cheaper and faster to just grow out. Its a lot easier and cheaper to get someone in in Lincoln or Roseville to approve another housing development than to get approval of the locals to do even a minor project like the infill of the Western Pacific Station near Curtis Park. Cows and rice fields don't complain about traffic the way that nimby's complain about additional traffic from development in there neighborhoods.
But as long as housing is being built cheaply on the urban fringe, housing prices can too low to make it unprofitable to build tall infill projects.
Second man made features can be replicated fairly easily. For a while the nicest mall in the region was the Arden Fair Mall. Then the Roseville Galleria was built and it was much nicer. Today the nicest mall in the region is the Roseville Galleria. If you look at the Fountains development in Roseville it functions as an upscale substitute for midtown for the residents of Placer County. Its an outdoor pedestrianized space with lots of trendy high end boutiques and outdoor restaurants for people watching.
Part of the reason that downtown and midtown haven't been able densify quickly is that Roseville, Rocklin, El Dorado Hills and Folsom function as substitutes for some that suck some of the energy out of midtown.
Lastly, the reason that this area doesn't densify more is practical politics. At the peak of the housing boom when housing prices were much higher relative to local incomes than they are today, the locals were upset because many of them couldn't afford to buy a home in the region. If the region adopted a really strong urban growth boundary and really strong growth controls, rents and housing prices in the area would be pushed up, probably enough to justify building tall instead of building out. But a lot of people in the area wouldn't be able to buy housing in the area and a lot of people would be spending the majority of there income on rent. Remember the reason that a lot of people moved to this area was that high housing prices in the bay area made that area too expensive for them to buy there. It the comparative affordability, that made people move here. Politically I think there is a practical limit on how much growth control the locals will put up with.
Additionally, there are a lot of different political bodies in this area. You might get the city and maybe the county of Sacramento to sign off on strict growth controls, but if you are in Sutter or Yuba County where the local economy usually is in the tank, you might have a strong reason to under mine Sacramento's growth controls and create a lot of new construction jobs by permitting a lot of growth in those counties.
As long as the development community has a free hand to grow outward, and can convince local governments to subsidize their infrastructure costs, they will grow outward, eating up farmland as they go. They only stop when they are forced to stop--either by physical boundaries or by legislation. But that requires regional cooperation: if Sacramento County decides "no more" but Placer and El Dorado county say "c'mon down!" to suburban tracts, they will just build suburbs in those counties and leave Sacramento out of the mix, because it makes them more money to do so.
And that's really the bottom line--the bottom line. I don't think any suburban developer really looks at the endless seas of bland beige/taupe or parking-lot power centers they produce and sigh with pride--but they like looking at their net worth. And if that's high enough, those suburban blandscapes are mighty beautiful to them. It's a safe, predictable product--as reliably tasteless as a McDonald's hamburger. And if that's the only product on the market, it is all that people can buy.
I don't think that the McDonald's hamburger should be banned--but there should be options for those of us who prefer to eat at Nationwide Freezer Meats or Jim-Denny's!
One of the problem's with downtown Sac is that they want people to spend money there and yet accessibility is a bit of a pain and as wburg mentioned there is not a lot of high quality areas of living like high rise condos downtown. If you want a flourishing downtown, and you want more people "with money" to live there you better have nicer upscale areas to live whether its high rise condos or nice new modern housing. Things like that would possibly make more families or young/older professionals want to live downtown. Most of those people currently live in the suburbs for many various reason. Also Sacramento's leadership still has a bit of that cowtown mentality. Its slowly changing but its always there lingering and hence you get more sprawl outwards instead of building the city up.
Most people that live downtown now are younger folks who dont spend that much money. So you have a lot of struggling upscale restaurants, shops, even the downtown mall. There isnt a big enough draw to downtown Sacramento to make people who live in Roseville, Granite Bay, Folsom etc to make the effort and drive all the way downtown. Roseville Galleria as you mentioned is the premium mall in Sacramento now. The recent remodel brings it up to par with some of the nice large malls I've been to in Southern California. Roseville has had a lot of retail growth. Lots of nice restaurants etc. It makes it even better considering its less of a drive and the parking is ample and spacious. Pretty soon Folsom will have the Palladio.
The way to get more people to visit downtown is to make accessibility easier. For example, I am in the Folsom area and there are convenient light rail stations right of folsom and near old Folsom. I know plently of people who said they would visit downtown more often if they could take the light rail. Easy access, no parking issues etc. Problem is that light rail closes down too early rendering it useless on a weekend or even on a weekday. People could conveniently shop downtown and vice versa. The other problem with Sac is that we need more highways to get from one end of town to the other. If I want to go to Old Sac from Folsom via the freeway I bascially have to go all the way around in a big circle down 50, up 5. These are things that could have been addressed years ago when there were plans to build more freeways which by the way got shot down by good ol Jerry Brown when he was governer. Why that guy want's to run for Governer again is beyond me.
Folsom to Old Sacramento is about as straight as you can get without realigning US-50. Even then, it is .5 mi north on I-5 to the exit at Old Sacramento.
Interesting opinions/observations from all of you, most of which I agree with, especially the fact that it is cheaper/more profitable to build out than build up.
Here are the issues I have with these opinions so far:
1. Although it there is still, theoretically, plenty of space to build out in the Sacramento region, the "plenty of space" is pretty much only in the very far out suburbs, I.E Folsom, Rocklin, etc. The city of Sacramento, and other inner ring suburbs, save Natomas (which we can't build out anymore - levees), is completely built out, hence our density numbers being higher than most of those other cities on the list. There are still plenty of people who want to live in the inner city and downtown/midtown still has the highest job density in the region. It doesn't make any sense why at least a few high rises in midtown wouldn't work. The public transportation is also built out in the grid and will be even better when the streetcars are back up and running.
2. The financial argument about why it doesn't pencil out still haven't been made. The region has the wealth, and its very hard to say the wealth ONLY want suburbs because currently they have VERY few choices in the inner city and NO choices in the grid. Plus all highrises ever build are not all luxury high rises. There is no reason why you couldn't build a middle/upper middle class apartment building and make it work.
3. Although places like Roseville are full of retail/shopping, it doesn't provide the urban experience that the grid does. It's not for everyone, but obviously enough people like it for the explosion in restaurants/entertainment in the past 5 years. There have been shakedowns over that time but you can't honestly say the entertainment options in the grid have, at least, quadrupled in the past 5 years. Also, *plenty* of people from the suburbs come into the grid to party. I don't know where you guys get the idea that people don't have enough reason to come from the suburbs into the city. The amount of people that come in from the suburbs have gone UP, not down, despite the retail/restaurant boom in the outer suburbs.
4. The lack of regional corroboration, I agree, might be a huge factor. I don't know exactly what we can do about it besides doing a regional metropolitan government similar to NYC. The city-county annexation would of solved that issue but it's far too late for that.
5. No one commented on my idea to open up midtown height limits. I still think that's the key to make Sacramento a proven market.
First there are plenty of areas in the existing grid for the agglomeration in the grid to expand into much cheaper than it would be to build upwards. Its a lot cheaper to open a restaurant in Southside Park or Alkalai Flat than it would be to build a 60 story building in midtown. Its not just the Fountains in Rooseville that acts as a partial substitute to the grid. Nearby neighborhoods to the grid also act as partial substitutes to the grid. East Sac, Land Park, Mc Kinley Park, West Sac, even North Sacramento and Oak Park all offer places that would be cheaper for the urban agglomeration in the grid to grow into rather than growing upward.
But at the same time, there are other areas like the Fountains, like Davis, like downtown Roseville and downtown Folsom that can also function as substitutes for the grid.
Substitutes don't have to be perfect substitutes. For some people if its not Manhattan its not worth doing. For others, San Francisco is a perfectly good substitute for Manhattan and for still others midtown is a reasonably good substitute for Manhattan in this area.
In terms of urban experiences the fact that you would rather not move to Manhattan or even nearby San Francisco demonstrates that even someone as committed to urban living as you is willing to make tradeoffs for something that is closer to your existing friends, family and current employment situation.
The issue is what is a good enough substitute? For you and maybe wburg there is no substitute to the grid. For people currently living in SF and Manhattan, the grid is probably an inadequate substitute for the type urban living found in NYC or SF. For people living in Folsom and Roseville, downtown Folsom, downtown Roseville or even the Fountains might be a good enough substitute.
Built features area easier for developers to build partial substitutes. Try as he may, Tsakopoulos can't really make a coastal climate and an ocean view show up in Lincoln. At best a developer can create a fake lake ala Greenhaven or Westlake in Natomas or build homes around existing water bodies like the American River or Folsom Lake.
But for things where there aren't good substitutes that you see people willing to pay a premium for that experience and to pay rents that justify building taller buildings.
In this region the highest rents aren't found in the grid, but in Davis. If the higher rents in Davis hasn't resulted in tall residential towers there, I doubt that the lower rents in the grid will create tall building in the grid. Maybe if the city adds huge subsidies to make it happen.
If high rises happen in this area its going to be a luxury product. Its more expensive to build upward than outward. If you look at the high rise office spaces downtown, again those need to rent for more to justify the cost of building higher.
The issue with middle class/upper middle class apartments is one again of substitution. If rents start going up in the grid, would the middle class renters just start moving to Natomas, West Sac, Arden Arcade, Rancho Cordova? If so the huge supply of apartments in those areas acts as a cap on how high rents can go in the grid for the middle class.
For the wealthy the tax benefits of owning your own place are going to drive a lot of people out of high end rentals. Second lofts in the grid act as substitute for high rise living. If you want to live downtown, the supply of lofts in former warehouses tends to sap the market for high rise living downtown. Third, how important are kids to the wealthy? What Granite Bay and Arden Oaks offers is high end housing in homes big enough to raise a family comfortably. Luxury high rise living makes sense for people who are wealthy and don't have kids. The question is how big is the market in this region for people who have lots of money and don't have or plan to have kids any time soon?
Majin for your purposes what constitutes a high rise?
In the Capitol towers at 500 N street, there is a residential tower that is around 10 stories high. In East Sac at 4100 Folsom Blvd, there is another residential tower that I think is also around 10 stories high. On Broadway near fairgrounds is another residential tower that is probably 8 stories tall. Lastly in Carmichael at Van Alstine Avenue and Carmichael Way, just off Fair Oaks Blvd is another residential tower that is probably about 7 or 8 stories as well.
I guess the question for me is what constitutes a residential high rise? If you define the term broadly enough don't we already have them? If these aren't high enough, how high does one need to build to qualify?
Re-zoning Midtown for highrises would make matters worse, not better. Midtown is the closest thing in the region to an urban success story, precisely because it isn't zoned for high-rises.
Downtown, many lots zoned for high-rises are occupied by older buildings owned by slumlords. This has resulted in those lots being very, very overpriced, because the slumlords assume that their old, poorly-maintained building should get them skyscraper prices. Because they have them priced so high, they are out of reach of people who would actually want to rehab the buildings, plus the price provides an additional obstacle to anyone who would want to build a high-rise there. The result is vacant, decaying buildings that could be active and beautiful and useful if only the owner gave a crap about them. I refer to this phenomenon as belief in the "Skyscraper Fairy": the assumption that a skyscraper will magically appear simply because the land is zoned for one.
In Midtown, because the zoning is not compatible with skyscrapers, people make use of the existing buildings, or build things within a similar envelope where rehab isn't possible (such as on vacant lots) and the overall result is good. The vast majority of housing in Midtown is rental, which minimizes (to some extent) housing prices and slows gentrification--which is a good thing. Although I'm sure there are still a couple of old-school holdouts who expect Midtown to start sprouting towers and are letting their beautiful homes decay in the hope that they will get a shiny skyscrapery payday.
As to how we can promote the growth of skyscrapers downtown: Use "height trading" policies that gives the owners of existing not-so-tall buildings the right to sell their airspace to other lots. Promote residential use of existing buildings--since there is a glut of office space, convert some of the formerly residential buildings downtown that were converted to offices back into residential!
Jimbo15: I'm sure Majin is talking about 50+ story supertalls, but yeah, there are several residential towers downtown--Capitol Towers is 15 stories, so is 500 N, the Mariott at 15th & L has condo units on the top, and there are two mid-rise senior housing towers owned by SHRA on I Street across from the jail, which in some ways is "residential." Places like 800 J and the 17th & L building are mid-rises, and so are the handful of concrete low-income/senior mid-rises in Midtown (18th & Capitol, 23rd and K, J and 25th.) They are below Majin's threshold of interest--they aren't tall enough to get his customer to success.
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