Clyde Holland
CLYDE HOLLAND
CEO/Chairman Holland Partner Group ULI Spring Meeting Seattle, Washington May 3, 2017
RETURNING AMERICA TO AN EFFICIENT URBAN FORM BALANCING THE FEDERAL DEFICIT AS A RESULT
ACTUAL VS. TREND REAL GDP1 22
} $3T
20 18
$ TRILLIONS
16 14 12 10 8 6 4
1700’s 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 ACTUAL 1
TREND (1969–2007)
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 2
COMPONENTS OF U.S. $3 TRILLION SHORTFALL1 OTHER
20.3% $0.6 TRILLION
AUTO
10.9% $0.3 TRILLION
HOUSING
68.8% $2.1 TRILLION
1
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 3
CUMULATIVE SHORTAGE OF SINGLE-FAMILY STARTS (COMPARED TO 1971-2001 AVERAGE)
3,000
THOUSANDS
2,000 1,000
}
0 -1,000
2.6M
-2,000 -3,000 2002
1
2004
2006
2008
2010
2012
2014
UNIT GAP
2016
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 4
CUMULATIVE SHORTAGE OF MULTI-FAMILY STARTS (COMPARED TO 1971-2001 AVERAGE)
}
0 -200
THOUSANDS
-400
930K
-600 -800
-1,000
UNIT GAP
-1,200 2002 2004 2006 2008 2010 2012 2014 2016
1
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 5
CUMULATIVE U.S. HOUSING SHORTFALL
2,575,511 UNITS
SINGLE-FAMILY
+ 930,013 UNITS
3,505,524 UNITS MULTI-FAMILY
TO FULLY RECOVER TO TRENDED GDP, WE MUST INCREASE OUR STARTS TO OUR PREVIOUS
30-YEAR TREND OF 1.5-MILLION UNITS ANNUALLY THEN
ADD 350,000 UNITS ANNUALLY FOR A DECADE.
1
Source: Housing Production Shortfall, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 6
U.S. HOUSING STARTS Almost everyone working on new entitlements lost everything. Cost Spike
Cost Spike
Cost Spike
2,000
NUMBERS IN THOUSANDS
1.8 MILLION TARGET STARTS
1,500
1980-2007 HOUSING STARTS AVERAGE 1.5 MILLION Cost Recovery
1,000 2008-2013 STARTS AVERAGE 750,000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
500
MULTI-FAMILY 1986 – 1,802 1991 – 1,014 DECREASE IN STARTS 44% 1 2
1991 – 1,014 1996 – 1,477 INCREASE IN STARTS 46%
SINGLE-FAMILY
2005 – 2,068 2009 – 554 DECREASE IN STARTS 73%
2009 – 554 2014 – 975 INCREASE IN STARTS 76%
2014 – 975 2016 – 1,250 INCREASE IN STARTS 28%
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016) Data includes single- and multi-family unit production.
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 7
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 8
ANNUAL ABSORPTION AND COMPLETIONS/NET COMPLETIONS
1
Market Strategy Advisor for the United States as of First Quarter 2017, Witten Advisors LLC (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 9
ENTITLEMENT OVERVIEW HIGH-BARRIER TO ENTRY MARKETS BECOMING INCREASINGLY UNAFFORDABLE ENTITLEMENT
24-30 MONTHS
ENTITLEMENT
36-60 MONTHS
APPEAL PERIOD
12-24 MONTHS 06-12 MONTHS
06-09 MONTHS
PERMITS
CONSTRUCTION
20-30 MONTHS
CONSTRUCTION
SUMMARY
50-69 MONTHS
SUMMARY
PERMITS
20-30 MONTHS 74-126 MONTHS
YEARS TO DELIVER IN HIGH-BARRIER LOCATIONS
Entitlement efforts stop
2007-2013 2015 Rental rates recover
Significant urban market undersupply
Entitled sites are no longer available Rental rates accelerate
1
20
20
2017
20
17 20
15 20
10 20
07 20 2007
18
2017: 7-10 years
2005: 5 years
2018
Rental rates & economic displacement accelerate further
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 10
HOUSEHOLDS BY TYPE, 2010-2030 (FIGURES IN THOUSANDS)
MEASURE
HOUSEHOLDS HOUSEHOLDS 2010 2030
HOUSEHOLD CHANGE (2010-2030)
PERCENT CHANGE (2010-2030)
SHARE OF CHANGE (%)
TOTAL HOUSEHOLDS
116,945
143,232
26,287
22
HHS WITH CHILDREN
34,814
38,358
3,544
10
13
HHS WITHOUT CHILDREN
82,131
104,874
22,743
28
87
SINGLE-PERSON HHS
31,264
45,081
13,817
44
53
CHALLENGE: To put the right types of housing in the right places. 1
Source: Reshaping Metropolitan America, Nelson C (2013) Percentages may not sum due to rounding.
2
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 11
BUILD MORE HOUSING NEXT TO JOBS AND TRANSIT
Solution
Supply Constraints
Low density land use, zoning and regulations • Lengthy development approvals • Misaligned fee structure • Inclusionary housing policies • Rising construction costs • Supply constraints “Make housing more expensive.”
URBAN HOUSING Shortfall
Demand Drivers
Urban repopulation (largest reverse migration since WWII) • Household evolution (post-WWII 75% married with children; today 20% and trending to 12%) • Rapid employment growth in Creative Job Centers
Skyrocketing prices • Economic displacement Severe traffic congestion • Strapped city budgets Adverse environmental impact
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 12
PORTLAND’S METROPOLITAN AREA MULTI-FAMILY HOUSING MARKET NEW DEVELOPMENT 2010 OR LATER 2000-2009 1990-1999 1980-1989
TOTAL UNITS
AVG RENT
8,393
$1,574
52,745
$1,470
75,916
$1,257
50,382
$1,224
AVERAGE RENT $1,206 1970-1979 1960-1969 1
84,309
$977
43,200
$1,151
Source: Axiometrics (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 13
INCLUSIONARY HOUSING CASE STUDY 14TH & GLISAN | PORTLAND, OR
Inclusionary Requirement
Average Unit Size
20% @ 80% of Median Income 622 Square Feet
UNIT MIX
No. of Affordable Units (20% Required)
No. of Market-Rate Units
TOTAL UNITS
49 Units @ 80% of AMI +195 Units @ Market
244 UNITS
RENTS Market Rent
Affordable Rent @ 80% of AMI
SUBSIDY
$2,191 Per Month - $1,119 Per Month
$1,071 PER MONTH
PROJECTED REVENUE
Revenue on 244 Market-Rate Units
Less: Subsidy (49 Units* $1,071, annualized)
REVENUE WITH INCLUSIONARY REQUIREMENT
$6,415,248 Annually - $629,748 Annually
5,785,500 ANNUALLY
Annual Inclusionary Tax on Each New Market-Rate Unit MONTHLY 1
$3,229 Annually
$269 = 12.3% INCREASE
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 14
PORTLAND METRO MULTI-FAMILY HOUSING MARKET IMPACT OF 20% @ 80% MFI INCLUSIONARY HOUSING REQUIREMENT NEW DEVELOPMENT 20010-PRESENT 2000-2009
TOTAL UNITS 8,393
AVG RENT $1,768 $194
52,745
$1,651 $181
1990-1999
75,916
$1,412 $155
1980-1989
50,382
$1,375
s s s s NEW AVERAGE RENT $1,355 AVERAGE PRE-INCLUSIONARY ZONING RENT $1,206 1970-1979 1960-1969 COST OF INCLUSIONARY MULTI-FAMILY ZONING REQUIREMENTS 1
84,309
$1,097
43,200
$1,293
$151
$120 $142
Source: Axiometrics (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 15
INCLUSIONARY ZONING REQUIREMENT’S EFFECT ON AFFORDABILITY IN DOWNTOWN PORTLAND WHO SUFFERS?
MONTHLY
ANNUALLY
• Current Average Rent
$1,206 $14,472
• Average Rent Required to Support
$1,355 $16,260
New Development with 20% Inclusionary Zoning REQUIRED AVERAGE MARKET INCREASE
$149
$1,788
12.3% INCREASE
Total Market-Rate Units 125,019 x $1,788 = $223,533,972 Value of Increased Rents @ 5% Cap Rate
$4,470,679,440
CITIES WITH INCLUSIONARY ZONING REQUIREMENTS If you take 50 years of average production, the 5,000 units produced over today’s economic impact will represent $894,136 per unit.
1 2
Source: Affordable by Choice: Trends in California Inclusionary Housing Programs, Jacobus R, Hickey M (2007) Source: Holland Research
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 16
VOUCHER ALTERNATIVE PORTLAND’S AVERAGE RENT PRE-INCLUSIONARY ZONING = $1,206 80% OF AMI RENT LEVEL = $1,119 Instead of straining the market with a $223 million annual burden, a Voucher for $87/month or $1,044/year could be issued. Take 50 years of affordable housing production and for $1.3 million annually, the $223 million burden they just placed on Portland renters would be eliminated. The irony of this is the property tax on just one new high rise would more than cover the cost of vouchers for the full 5,000 units. This is why Inclusionary Zoning is the most expensive/least efficient mechanism to address affordable housing.
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 17
FISCAL IMPACTS ASSOCIATED WITH $1 BILLION OF HOUSING INVESTMENT
$1,167,100,000 Property taxes generated for Portland’s CBD over the useful life of the additional housing1
2,500 2,080 Additional residential units built
People working in additional retail and office space
Number of new jobs created 2
SDC and impact fee revenue generated
710
People living in additional residential units
5,000 10,700
$11.7
MILLION Annual property tax revenue generated by the additional housing
$19,371,000
Additional bonding capacity to fund infrastructure 3 Business taxes produced based on economic catalyst of project
Equivalent cars taken off the roads
3,400 Metric tons of CO2 reduction per year
$ 209,946,000
$ 47,338,000
Based on 100-year useful life of asset Person years of employment 3 Bonding capacity based on 60-year duration and a 1.50x coverage ratio 4 Holland Estimates Developed Using IMPLAN and Proprietary Modeling 1
2
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 18
COST OF ENTITLEMENT DELAY
DEVELOPMENT COST
5 YEARS
10 YEARS
3.0%
15%
30%
4.0%
20%
40%
Soft Costs
0.5%
2.5%
5.0%
Impact Fees
0.5%
2.5%
5.0%
Code Requirements
1.0%
5.0%
10%
45%
90%
Land
20% of cost at 15% equity
Hard Costs
65% of cost at 6%
TOTAL COST INCREASE
1
ANNUAL COST
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 19
MAXIMIZE SCHOOL FUNDING IMPACT FEE
TAX REVENUE
IMPACT FEE
TAX REVENUE
$75.5K/CHILD
305%
MAXIMIZE SCHOOL FUNDING through investment in high-value alternatives
INCREASE
The higher you build, the more fees and taxes you can collect per child and the less stress you put on the system.
$18.7K/CHILD $11K/CHILD
PODIUM
(0.31 CHILDREN / UNIT) 1
$21K/CHILD
91%
INCREASE
HIGH RISE
(0.12 CHILDREN / UNIT)
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 20
PORTLAND’S SOUTH WATERFRONT WHAT WAS PLANNED
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 21
PORTLAND’S SOUTH WATERFRONT WHAT’S WRONG WITH THIS PICTURE?
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 22
PORTLAND SOUTH WATERFRONT
$1.1B LOST
OVER THE LIFE OF THE PROJECT DUE TO LACK OF $116 MILLION DEFERRAL OF FUTURE PROPERTY TAXES
PORTLAND
SOUTH WATERFRONT
Lost tax revenue by building lower-density forms AS DEVELOPED WHAT COULD HAVE BEEN DEVELOPED
$11.3M
ANNUAL PROPERTY TAX REVENUE LOST 1 2
1,800 UNITS LOST
3,300
RESIDENTS LOST
2,274
METRIC TONS OF CO2 NOT REDUCED ANNUALLY
Source: Multnomah County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 23
1,800 HOMES | 300 ACRES | 6 UNITS/ACRE
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 24
1,800 HOMES | 300 ACRES | 6 UNITS/ACRE $90,000,000
INFRASTRUCTURE INSTALLATION
| $50,000/UNIT
LONG-TERM MAINTENANCE COSTS ARE ESTIMATED AT $395 MILLION / $220,000 PER UNIT
1
Source: Holland Experience, Calculations Based on Discussions with Civil Engineers
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 25
ORENCO STATION, HILLSBORO, OREGON
$210M ADDED
PROPERTY TAX REVENUE OVER USEFUL LIFE OF PROJECT FROM A $16.8M PROPERTY TAX DEFERRAL
$2.1M
ANNUAL PROPERTY TAX REVENUE ADDED
770
UNITS ADDED
1,425
RESIDENTS ADDED
975 METRIC TONS OF CO2 REDUCED ANNUALLY (EQUIVALENT TO 200 CARS OFF THE ROAD)
ORIGINAL LOW-DENSITY ZONING LIMITATION 1 2
Source: Washington County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 26
LOST PROPERTY TAXES
$870M LOST ADDITIONAL PROPERTY TAX REVENUE OVER 100 YEARS
$8.7M
ANNUAL PROPERTY TAX REVENUE 1 2
1,250
ADDITIONAL UNITS
2,000
ADDITIONAL RESIDENTS
2,800
METRIC TONS OF CO2 ANNUALLY
Source: Los Angeles County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 27
ATLANTA I-75
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 28
YOU HAVE A CHOICE 5% SOLUTION
95% STATUS QUO 5% HIGH-DENSITY RESIDENTIAL
IN ORDER TO QUALIFY FOR FEDERAL TRANSPORTATION FUNDING STATES MUST: Declare 5% of their land area in the urban core/job centers and within a 1/2 mile of transit locations as of rights residential zoning (with zero impact fees or Income restrictions). In addition, for the urban/job centers structures over 10 stories will receive 10 years of property tax abatement. For suburban transit locations the tax exemptions will be for six stories or more. In blighted areas the abatement will be 15 years. RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 29
SHIFTING THE COST CURVE $2,030 SOFT COSTS CONSTRUCTION EXCISE TAX (CET)
SDC FEES DESIGN & ENGINEERING
24% REDUCTION IN MARKET RENT WITH AS OF RIGHT ZONING
$1,540 SOFT COSTS DESIGN & ENGINEERING
HARD COSTS HARD COSTS
PARKING LAND
PARKING LAND
1
Source: Holland Estimates
TODAY’S COST
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
5% SOLUTION CLYDE HOLLAND | HOLLAND PARTNER GROUP 30
CALIBRATE DEVELOPMENT IMPACT FEES
BASED ON FULL COST MODEL, DIFFERENTIATED BY DISTANCE TO THE CORE
BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
CENTER CITY BASE CHARGE
ZERO/10 YEARS NO PROPERTY TAXES 15 YEARS IN BLIGHTED AREAS RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 31
ACTUAL VS. TREND REAL GDP1
RECOVERY TO TREND
22 20 18
$ TRILLIONS
16 14 12 10 8 6 4
1700’s
1970
1975
1980
1985
1990 ACTUAL
1
1995
2000
2005
2010
2015
2020
2025
TREND (1969–2007)
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 32
SOLVING THE U.S. HOUSING SHORTFALL WILL BALANCE THE U.S. ECONOMY 1) $2.1 Trillion of annual GDP is missing due to underinvestment in residential housing. 65% of missing residential investment represents wages INCREASE FEDERAL TAXES $1.4 Trillion x 25% marginal tax rate.............................$341 Billion 15% of missing residential investments represents profit $2.1 Trillion x 15% profit x 25% marginal tax...................$79 Billion 2) If we recover our underinvestment in housing the $900 billion investment in autos and other will also be recovered. (65% x $900 Billion x 25% marginal taxes) $146 Billion (15% profits x $900 Billion x 25% marginal tax rate) + $34 Billion $600
Billion
CURRENT FEDERAL DEFICIT $504 Billion POTENTIAL SURPLUS $ 96 Billion RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 33
CEO/Chairman Holland Partner Group ULI Spring Meeting Seattle, Washington May 3, 2017
RETURNING AMERICA TO AN EFFICIENT URBAN FORM BALANCING THE FEDERAL DEFICIT AS A RESULT
ACTUAL VS. TREND REAL GDP1 22
} $3T
20 18
$ TRILLIONS
16 14 12 10 8 6 4
1700’s 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 ACTUAL 1
TREND (1969–2007)
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 2
COMPONENTS OF U.S. $3 TRILLION SHORTFALL1 OTHER
20.3% $0.6 TRILLION
AUTO
10.9% $0.3 TRILLION
HOUSING
68.8% $2.1 TRILLION
1
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 3
CUMULATIVE SHORTAGE OF SINGLE-FAMILY STARTS (COMPARED TO 1971-2001 AVERAGE)
3,000
THOUSANDS
2,000 1,000
}
0 -1,000
2.6M
-2,000 -3,000 2002
1
2004
2006
2008
2010
2012
2014
UNIT GAP
2016
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 4
CUMULATIVE SHORTAGE OF MULTI-FAMILY STARTS (COMPARED TO 1971-2001 AVERAGE)
}
0 -200
THOUSANDS
-400
930K
-600 -800
-1,000
UNIT GAP
-1,200 2002 2004 2006 2008 2010 2012 2014 2016
1
Source: Linneman Letter, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 5
CUMULATIVE U.S. HOUSING SHORTFALL
2,575,511 UNITS
SINGLE-FAMILY
+ 930,013 UNITS
3,505,524 UNITS MULTI-FAMILY
TO FULLY RECOVER TO TRENDED GDP, WE MUST INCREASE OUR STARTS TO OUR PREVIOUS
30-YEAR TREND OF 1.5-MILLION UNITS ANNUALLY THEN
ADD 350,000 UNITS ANNUALLY FOR A DECADE.
1
Source: Housing Production Shortfall, Linneman, P (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 6
U.S. HOUSING STARTS Almost everyone working on new entitlements lost everything. Cost Spike
Cost Spike
Cost Spike
2,000
NUMBERS IN THOUSANDS
1.8 MILLION TARGET STARTS
1,500
1980-2007 HOUSING STARTS AVERAGE 1.5 MILLION Cost Recovery
1,000 2008-2013 STARTS AVERAGE 750,000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
500
MULTI-FAMILY 1986 – 1,802 1991 – 1,014 DECREASE IN STARTS 44% 1 2
1991 – 1,014 1996 – 1,477 INCREASE IN STARTS 46%
SINGLE-FAMILY
2005 – 2,068 2009 – 554 DECREASE IN STARTS 73%
2009 – 554 2014 – 975 INCREASE IN STARTS 76%
2014 – 975 2016 – 1,250 INCREASE IN STARTS 28%
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016) Data includes single- and multi-family unit production.
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 7
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 8
ANNUAL ABSORPTION AND COMPLETIONS/NET COMPLETIONS
1
Market Strategy Advisor for the United States as of First Quarter 2017, Witten Advisors LLC (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 9
ENTITLEMENT OVERVIEW HIGH-BARRIER TO ENTRY MARKETS BECOMING INCREASINGLY UNAFFORDABLE ENTITLEMENT
24-30 MONTHS
ENTITLEMENT
36-60 MONTHS
APPEAL PERIOD
12-24 MONTHS 06-12 MONTHS
06-09 MONTHS
PERMITS
CONSTRUCTION
20-30 MONTHS
CONSTRUCTION
SUMMARY
50-69 MONTHS
SUMMARY
PERMITS
20-30 MONTHS 74-126 MONTHS
YEARS TO DELIVER IN HIGH-BARRIER LOCATIONS
Entitlement efforts stop
2007-2013 2015 Rental rates recover
Significant urban market undersupply
Entitled sites are no longer available Rental rates accelerate
1
20
20
2017
20
17 20
15 20
10 20
07 20 2007
18
2017: 7-10 years
2005: 5 years
2018
Rental rates & economic displacement accelerate further
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 10
HOUSEHOLDS BY TYPE, 2010-2030 (FIGURES IN THOUSANDS)
MEASURE
HOUSEHOLDS HOUSEHOLDS 2010 2030
HOUSEHOLD CHANGE (2010-2030)
PERCENT CHANGE (2010-2030)
SHARE OF CHANGE (%)
TOTAL HOUSEHOLDS
116,945
143,232
26,287
22
HHS WITH CHILDREN
34,814
38,358
3,544
10
13
HHS WITHOUT CHILDREN
82,131
104,874
22,743
28
87
SINGLE-PERSON HHS
31,264
45,081
13,817
44
53
CHALLENGE: To put the right types of housing in the right places. 1
Source: Reshaping Metropolitan America, Nelson C (2013) Percentages may not sum due to rounding.
2
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 11
BUILD MORE HOUSING NEXT TO JOBS AND TRANSIT
Solution
Supply Constraints
Low density land use, zoning and regulations • Lengthy development approvals • Misaligned fee structure • Inclusionary housing policies • Rising construction costs • Supply constraints “Make housing more expensive.”
URBAN HOUSING Shortfall
Demand Drivers
Urban repopulation (largest reverse migration since WWII) • Household evolution (post-WWII 75% married with children; today 20% and trending to 12%) • Rapid employment growth in Creative Job Centers
Skyrocketing prices • Economic displacement Severe traffic congestion • Strapped city budgets Adverse environmental impact
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 12
PORTLAND’S METROPOLITAN AREA MULTI-FAMILY HOUSING MARKET NEW DEVELOPMENT 2010 OR LATER 2000-2009 1990-1999 1980-1989
TOTAL UNITS
AVG RENT
8,393
$1,574
52,745
$1,470
75,916
$1,257
50,382
$1,224
AVERAGE RENT $1,206 1970-1979 1960-1969 1
84,309
$977
43,200
$1,151
Source: Axiometrics (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 13
INCLUSIONARY HOUSING CASE STUDY 14TH & GLISAN | PORTLAND, OR
Inclusionary Requirement
Average Unit Size
20% @ 80% of Median Income 622 Square Feet
UNIT MIX
No. of Affordable Units (20% Required)
No. of Market-Rate Units
TOTAL UNITS
49 Units @ 80% of AMI +195 Units @ Market
244 UNITS
RENTS Market Rent
Affordable Rent @ 80% of AMI
SUBSIDY
$2,191 Per Month - $1,119 Per Month
$1,071 PER MONTH
PROJECTED REVENUE
Revenue on 244 Market-Rate Units
Less: Subsidy (49 Units* $1,071, annualized)
REVENUE WITH INCLUSIONARY REQUIREMENT
$6,415,248 Annually - $629,748 Annually
5,785,500 ANNUALLY
Annual Inclusionary Tax on Each New Market-Rate Unit MONTHLY 1
$3,229 Annually
$269 = 12.3% INCREASE
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 14
PORTLAND METRO MULTI-FAMILY HOUSING MARKET IMPACT OF 20% @ 80% MFI INCLUSIONARY HOUSING REQUIREMENT NEW DEVELOPMENT 20010-PRESENT 2000-2009
TOTAL UNITS 8,393
AVG RENT $1,768 $194
52,745
$1,651 $181
1990-1999
75,916
$1,412 $155
1980-1989
50,382
$1,375
s s s s NEW AVERAGE RENT $1,355 AVERAGE PRE-INCLUSIONARY ZONING RENT $1,206 1970-1979 1960-1969 COST OF INCLUSIONARY MULTI-FAMILY ZONING REQUIREMENTS 1
84,309
$1,097
43,200
$1,293
$151
$120 $142
Source: Axiometrics (2017)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 15
INCLUSIONARY ZONING REQUIREMENT’S EFFECT ON AFFORDABILITY IN DOWNTOWN PORTLAND WHO SUFFERS?
MONTHLY
ANNUALLY
• Current Average Rent
$1,206 $14,472
• Average Rent Required to Support
$1,355 $16,260
New Development with 20% Inclusionary Zoning REQUIRED AVERAGE MARKET INCREASE
$149
$1,788
12.3% INCREASE
Total Market-Rate Units 125,019 x $1,788 = $223,533,972 Value of Increased Rents @ 5% Cap Rate
$4,470,679,440
CITIES WITH INCLUSIONARY ZONING REQUIREMENTS If you take 50 years of average production, the 5,000 units produced over today’s economic impact will represent $894,136 per unit.
1 2
Source: Affordable by Choice: Trends in California Inclusionary Housing Programs, Jacobus R, Hickey M (2007) Source: Holland Research
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 16
VOUCHER ALTERNATIVE PORTLAND’S AVERAGE RENT PRE-INCLUSIONARY ZONING = $1,206 80% OF AMI RENT LEVEL = $1,119 Instead of straining the market with a $223 million annual burden, a Voucher for $87/month or $1,044/year could be issued. Take 50 years of affordable housing production and for $1.3 million annually, the $223 million burden they just placed on Portland renters would be eliminated. The irony of this is the property tax on just one new high rise would more than cover the cost of vouchers for the full 5,000 units. This is why Inclusionary Zoning is the most expensive/least efficient mechanism to address affordable housing.
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 17
FISCAL IMPACTS ASSOCIATED WITH $1 BILLION OF HOUSING INVESTMENT
$1,167,100,000 Property taxes generated for Portland’s CBD over the useful life of the additional housing1
2,500 2,080 Additional residential units built
People working in additional retail and office space
Number of new jobs created 2
SDC and impact fee revenue generated
710
People living in additional residential units
5,000 10,700
$11.7
MILLION Annual property tax revenue generated by the additional housing
$19,371,000
Additional bonding capacity to fund infrastructure 3 Business taxes produced based on economic catalyst of project
Equivalent cars taken off the roads
3,400 Metric tons of CO2 reduction per year
$ 209,946,000
$ 47,338,000
Based on 100-year useful life of asset Person years of employment 3 Bonding capacity based on 60-year duration and a 1.50x coverage ratio 4 Holland Estimates Developed Using IMPLAN and Proprietary Modeling 1
2
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 18
COST OF ENTITLEMENT DELAY
DEVELOPMENT COST
5 YEARS
10 YEARS
3.0%
15%
30%
4.0%
20%
40%
Soft Costs
0.5%
2.5%
5.0%
Impact Fees
0.5%
2.5%
5.0%
Code Requirements
1.0%
5.0%
10%
45%
90%
Land
20% of cost at 15% equity
Hard Costs
65% of cost at 6%
TOTAL COST INCREASE
1
ANNUAL COST
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 19
MAXIMIZE SCHOOL FUNDING IMPACT FEE
TAX REVENUE
IMPACT FEE
TAX REVENUE
$75.5K/CHILD
305%
MAXIMIZE SCHOOL FUNDING through investment in high-value alternatives
INCREASE
The higher you build, the more fees and taxes you can collect per child and the less stress you put on the system.
$18.7K/CHILD $11K/CHILD
PODIUM
(0.31 CHILDREN / UNIT) 1
$21K/CHILD
91%
INCREASE
HIGH RISE
(0.12 CHILDREN / UNIT)
Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 20
PORTLAND’S SOUTH WATERFRONT WHAT WAS PLANNED
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 21
PORTLAND’S SOUTH WATERFRONT WHAT’S WRONG WITH THIS PICTURE?
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 22
PORTLAND SOUTH WATERFRONT
$1.1B LOST
OVER THE LIFE OF THE PROJECT DUE TO LACK OF $116 MILLION DEFERRAL OF FUTURE PROPERTY TAXES
PORTLAND
SOUTH WATERFRONT
Lost tax revenue by building lower-density forms AS DEVELOPED WHAT COULD HAVE BEEN DEVELOPED
$11.3M
ANNUAL PROPERTY TAX REVENUE LOST 1 2
1,800 UNITS LOST
3,300
RESIDENTS LOST
2,274
METRIC TONS OF CO2 NOT REDUCED ANNUALLY
Source: Multnomah County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 23
1,800 HOMES | 300 ACRES | 6 UNITS/ACRE
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 24
1,800 HOMES | 300 ACRES | 6 UNITS/ACRE $90,000,000
INFRASTRUCTURE INSTALLATION
| $50,000/UNIT
LONG-TERM MAINTENANCE COSTS ARE ESTIMATED AT $395 MILLION / $220,000 PER UNIT
1
Source: Holland Experience, Calculations Based on Discussions with Civil Engineers
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 25
ORENCO STATION, HILLSBORO, OREGON
$210M ADDED
PROPERTY TAX REVENUE OVER USEFUL LIFE OF PROJECT FROM A $16.8M PROPERTY TAX DEFERRAL
$2.1M
ANNUAL PROPERTY TAX REVENUE ADDED
770
UNITS ADDED
1,425
RESIDENTS ADDED
975 METRIC TONS OF CO2 REDUCED ANNUALLY (EQUIVALENT TO 200 CARS OFF THE ROAD)
ORIGINAL LOW-DENSITY ZONING LIMITATION 1 2
Source: Washington County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 26
LOST PROPERTY TAXES
$870M LOST ADDITIONAL PROPERTY TAX REVENUE OVER 100 YEARS
$8.7M
ANNUAL PROPERTY TAX REVENUE 1 2
1,250
ADDITIONAL UNITS
2,000
ADDITIONAL RESIDENTS
2,800
METRIC TONS OF CO2 ANNUALLY
Source: Los Angeles County Assessor (2017) Source: Holland Experience
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 27
ATLANTA I-75
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 28
YOU HAVE A CHOICE 5% SOLUTION
95% STATUS QUO 5% HIGH-DENSITY RESIDENTIAL
IN ORDER TO QUALIFY FOR FEDERAL TRANSPORTATION FUNDING STATES MUST: Declare 5% of their land area in the urban core/job centers and within a 1/2 mile of transit locations as of rights residential zoning (with zero impact fees or Income restrictions). In addition, for the urban/job centers structures over 10 stories will receive 10 years of property tax abatement. For suburban transit locations the tax exemptions will be for six stories or more. In blighted areas the abatement will be 15 years. RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 29
SHIFTING THE COST CURVE $2,030 SOFT COSTS CONSTRUCTION EXCISE TAX (CET)
SDC FEES DESIGN & ENGINEERING
24% REDUCTION IN MARKET RENT WITH AS OF RIGHT ZONING
$1,540 SOFT COSTS DESIGN & ENGINEERING
HARD COSTS HARD COSTS
PARKING LAND
PARKING LAND
1
Source: Holland Estimates
TODAY’S COST
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
5% SOLUTION CLYDE HOLLAND | HOLLAND PARTNER GROUP 30
CALIBRATE DEVELOPMENT IMPACT FEES
BASED ON FULL COST MODEL, DIFFERENTIATED BY DISTANCE TO THE CORE
BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
TOD BASE CHARGE
CENTER CITY BASE CHARGE
ZERO/10 YEARS NO PROPERTY TAXES 15 YEARS IN BLIGHTED AREAS RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 31
ACTUAL VS. TREND REAL GDP1
RECOVERY TO TREND
22 20 18
$ TRILLIONS
16 14 12 10 8 6 4
1700’s
1970
1975
1980
1985
1990 ACTUAL
1
1995
2000
2005
2010
2015
2020
2025
TREND (1969–2007)
Source: Peter Linneman Presentation to Holland Investor Conference, Linneman, P in Holland Investor Conference (2016)
RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 32
SOLVING THE U.S. HOUSING SHORTFALL WILL BALANCE THE U.S. ECONOMY 1) $2.1 Trillion of annual GDP is missing due to underinvestment in residential housing. 65% of missing residential investment represents wages INCREASE FEDERAL TAXES $1.4 Trillion x 25% marginal tax rate.............................$341 Billion 15% of missing residential investments represents profit $2.1 Trillion x 15% profit x 25% marginal tax...................$79 Billion 2) If we recover our underinvestment in housing the $900 billion investment in autos and other will also be recovered. (65% x $900 Billion x 25% marginal taxes) $146 Billion (15% profits x $900 Billion x 25% marginal tax rate) + $34 Billion $600
Billion
CURRENT FEDERAL DEFICIT $504 Billion POTENTIAL SURPLUS $ 96 Billion RETURNING AMERICA TO AN EFFICIENT URBAN FORM
CLYDE HOLLAND | HOLLAND PARTNER GROUP 33
