Teardown Post

We’ve been hearing and reading more and more about how urban communities are dealing with their housing problems.  “Fight the Blight” appears to becoming a movement of sorts with organizations like Habitat for Humanity working with municipalities and community leaders to teardown vacant blighted structures in hopes of stabilizing values, as well as an effort to make a better environment for living.

The goal in many cases will be replacement with new affordable housing stock that’s built to last.  The number of these projects seems to be increasing with areas like the City of Cleveland looking to demolish over 20,000 homes this year alone.

It appears that there is a growing consensus to rebuild (infill) instead of build-out.  With infrastructure in place; i.e. schools, police, fire, city center, transportation etc. - it makes sense that energy (and $) would be spent making our once vibrant communities thrive once again rather than build new communities further away from what’s established.

Recent article re Dallas Fight the Blight.

In our humble opinion, we think that rebuilding (teardown and start-over) the infrastructure (bridges, roads, utilities), as well as older, totally obsolete housing structures will go a long way to get things going again in some of the urban (and suburban) communities that have suffered most -the bonus - jobs! jobs! jobs!

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Buyers around the world are replacing older, functionally obsolete housing (and commercial) stock with new structures.  Whether on the lower end i.e. inner-city Cleveland where 1,000 homes were torndown in 2011 and over 20,000 are on the demo deck for 2012, or the high-end i.e. million dollar teardowns in Naples, FL, Greenwich CT, Hinsdale, IL etc.

Be-it Canada, the UK, Australia or even in the “new” China the replacement of certain housing types with new construction continues in good markets and bad.  In professional circles this phenomenon is called “infill”.

Dictionary.com defines”infill”:

the planned conversion of empty lots, underused or rundown buildings, and other available space in densely built up urban and suburban areas for use as sites for commercial buildings and housing, frequently as an alternative to over development of rural areas.

When we think rationally, we know that in many cases homes were not built to last forever when they were originally constructed. Construction during past depressions, recessions, wars etc., times when materials and capital were scarce, “last-forever” structures were, by default, not being produced.

So, just how significant is this tearing down and replacement of older housing stock and what larger purpose does it satisfy?

Consensus agrees, the real estate market played a major role in the poor economic conditions that exist today and it will take some kind of stabilization or if we’re lucky a revitalization in housing to get us back on the road to prosperity.

New construction and all its ancillary benefactors (suppliers, manufacturers, amenities (i.e. furnishings), builders, contractors, technologies catering to efficiency etc.) are vital to a real recovery and without debate a major source of job creation.

So, from an economic stand point, a theme for 2012 that centers around redevelopment can easily be viewed as a positive.

Do you want a “do-over”?  Turns out 38% of Americans do - http://t.co/IqnP1Imn

Popularity: 8% [?]

We’ve set our Google account up so that it alerts us whenever there is anything written about “teardowns”.  We do it for a couple of reasons; we can stay current with the trend, as well as, comment on Blogs and share what we know or have learned on the subject.

Today, we saw an article in Echo, an Essex publication from the U.K.  It appears that a certain community is undergoing some significant redevelopment.

Like here in the U.S., tearing down and replacing older obsolete housing stock is most often designed to rejuvenate a community - the purpose of this redevelopment project in the U.K. is of similar mission - “the demolition of these maisonettes is a key moment in the regeneration of the Craylands Estate”.

What we learned from this is something we continue to experience, year in and year out - good market or bad.  When given the choice, many buyers  prefer new amenities and technologies  - many of which can only be enjoyed properly via new construction.

The article.

Pip pip, cherrio old Bean!

Brian

Popularity: 10% [?]

For some time now the owners of certain homes in blighted communities have been tearing down their abandon obsolete housing structures.  Why are these home being torn down? Some are demolishing to deter crime, others are trying to stabilize housing prices in the community by decreasing supply.

The activity in some markets has drawn the attention of the U.S. Department of Housing and Urban Development.  In Toledo Ohio, the states fourth largest city, the Department has funded demolitions to the tune of over $1 million.   City officials expect that over 400 residential buildings will have come down by the end of 2011 with about 700 more on the “teardown” list.

As unfortunate as this may sound, it appears that the intentions are good.  Clearing out and cleaning up our once vibrant communities is a start.  We hope that this process leads to new affordable homes giving these neighborhoods a fresh start and its residents a new lease on life.  Sometimes its better just to start over.

Popularity: 15% [?]

In preparation for a meeting with one of the Internet’s big real estate information portals yesterday our management wanted to have a current handle on just how big the market is for redevelopment property i.e. teardowns.  The industry uses the term “infill” to accurately describe this type of real estate.  Inside our Company we loosely define infill as “the redevelopment of established communities, usually as part of some kind of revitalization process”.

Coming as no surprise, with a name like teardowns.com we are often asked about the subject.  Many wonder “is it still going on”?  Are people and/or professionals still knocking down older obsolete housing in established communities to make way for new construction with modern amenities and new technologies?

The answer is a yes. And it is happening on both ends of the economic scale.

In order to understand the scope of this market segment, we’ve picked a market that we know well, Hinsdale, IL.  The National Trust for Historic Preservation included Hinsdale when it identified the top 500 communities most prone to teardowns. Over our 10 years as brokers doing business exclusively within this niche, we have discovered 1,000’s of other like communities - mostly in 2nd home, lake and resort communities.

So yesterday we gathered data from the local MLS to help determine just how big (or small) the market is for this property type? According to the data, in Hinsdale, there are 272 active listings for single-family homes. Using our expertise and knowledge of the market we identified that 57 of those listings were being marketed by their listing agent as a teardown.

We know these designations because we know the market.  The easiest way for consumers to identify such listings is to interpret the code agents use in their description of the property; if you see “value in land”, “as-is”, “needs TLC”, “do not disturb owner”, “not to be shown”, “attention builders”, “cozy” etc. you’ve got a pretty good idea of the “highest and best use” for the property - redevelopment.

These numbers indicate that in Hinsdale 21% of the “homes” on the market are really on the market for some kind of extensive redevelopment or teardown.  On the other-hand, if consumers or agents search using the “lot/land” option - we found that 16 of the 31 “lot/land” listings actually had houses on them.  That means that 51% of the listings that consumers search for in the lot/land category are really teardowns, as well.

So, if we use Hinsdale, IL as a sampling and extrapolate the data over the U.S., about 24% of the real estate listings for sale in like-communities, similar to the 500 communities identified by the Trust are really teardown or significant renovation opportunities, their value is the land with the structure of little or no incremental value.  We understand some of these communities vary in size and the numbers will fluctuate, in fact the results for Winnetka, IL were lower with about 15% of the similar listing population considered to be teardowns.  So even if we take an average of the two, it still tells us that 19% of the single-family and/or “land/lot” listings are teardowns - a very large number.  Take into account duplicate listings posted in both SF and land/lots and the number goes down to around 17%.

Now, if we go down the same path and include foreclosures and “short-sales” the numbers explode.  Coming up with an accurate calculation for this sector is beyond our pay grade.  We can only guesstimate what percentage of the 1 plus million foreclosures on the market are, or are becoming (through neglect, deferred maintenance, environmental issues etc.) teardowns - 25%?  (FYI- we did not include “short-sales” or foreclosures in our analysis for the higher-end markets; Hinsdale and Winnetka).

If anyone cares to chime in with those numbers - that would be great.  We just don’t have enough experience in the foreclosure space to come up with accurate data.

So, our conclusion is that about 21% (avg. 17%, mis-categorized via MLS, and 25% of foreclosures) of all the homes listed for sale in the U.S. are teardown opportunities?

If that is even close to accurate, why would it matter?  Why should anyone care?

We think it is very important.  We believe that housing, and new construction in particular, will play a large part in the country’s economic recovery. Understanding where opportunities exist and how to transform these opportunities into jobs, smart investment, innovation and over-all social well-being will be paramount to returning our once vibrant communities into thriving, stable and purposeful places to live and grow.

teardowns.com

Popularity: 36% [?]