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Facing the Housing Challenges of 2016

by Connie Yoshimura

Although the final permit numbers for new housing units are not in, there is very little new construction activity in December, and so a downward trend in housing starts has definitely emerged for 2015. With that caveat in mind, this past year brought an 11.23% decline in single-family building permits, a whopping 41.38% decline in duplex permits, and a 15.05% decline in multi-family permits. With the challenges builders and developers face with the implementation of the new Title 21 on January 1, 2016, new home buyers can expect that decline to continue with fewer locations and home plans available to the home-buying public. While new home activity has declined this past year, the residential real estate market has remained steady in sales activity and inventory. This past week there were only 440 single-family homes for sale, just a slight uptick from this time a year ago. The only problem with that segment of the market is the continued aging of resale homes with more repairs identified by home inspectors and required by lenders. Replacement of furnaces, roofs, windows, et cetera, decrease the value of the final sales price of homes that are 30 years or older. Not only do these homes face cosmetic, but also functional obsolescence, resulting in a diminishing economic life.

However, in many areas of Anchorage and Eagle River, a resale home is the only alternative, pushing the cost for maintenance and replacement into the future of the new home owner as opposed to paying for it upfront as a higher purchase price of a new home with built-in warranties and increased energy ratings.

Couple this lack of new home inventory with the aging housing stock, and add on the increase in mortgage rates as a result of the Fed's action on December 16, 2015 and Anchorage's housing challenges for availability and affordability will continue well into 2016. Buyers can expect a tight housing market, higher mortgage costs, and increases in new construction costs as builders and developers grapple with the new Title 21 requirements for more aesthetically attractive streetscapes and exterior elevations on homes, including the requirement to minimize front-loaded garages on narrow lots. The indication from the Federal Reserve is that interest rates will continue a slow creep upward, topping out at 6% over the next two to three years. This affects not only what a home buyer will pay for his mortgage but also what builders and land developers pay for their commercial loans and lines of credit. While mortgage rates have hovered between 3.75 and 4% for almost a decade, commercial borrowing for land development and home building has had rates at 5.5 to 6.5%, depending on the project and financial capacity of the borrower. Increased costs for financing affects every item in a new home, from the front door knob to the insulation. All items for Alaska's new homes comes from somewhere else and while transportation costs, i.e. gas prices, have declined, that doesn't appear to have deterred price increases for goods and services.

So my advice to home buyers is to buy now. There is still mortgage money available at the lower rate before the Fed increase. Last week, there were 440 single family homes for sale in Anchorage. Buyers should look long and hard at existing inventory, whether a resale or new construction home, because the only thing that's going to happen in 2016 is inventory is going to remain in short supply, and new home prices will increase. Without a major economic debacle, i.e. major job and population loss, the Anchorage home buying market is in for a belt tightening.

Bad Timing for the New Title 21

by Connie Yoshimura

The implementation of the new Title 21 scheduled for January 1, 2016, couldn’t come at a worse time for builders and developers. Originally conceived during the housing boom of the mid 2000’s, it was meant to create a more aesthetically pleasing new age community. Ten years later it is bogged down in 836 pages of design criteria that is both expensive and impractical in today’s economic environment. After more than two years of discussion, the municipality of Anchorage has finally recognized it has an affordable housing crisis of significant proportions. How ironic is it that at the same time this lack of housing has become accepted knowledge, the assembly has enacted a new Title 21 which is going to add to the cost of every new home built in 2016 and beyond?

Every homebuilder and residential land developer is now hiring engineers, surveyors, planners, architects, home designers, et cetera to help figure out whether their current home plans and site plans meet the new requirements and if not, how they must be changed. The cost just for deciphering the new Title 21? Most likely anywhere from $75 to $225 per hour. For changes to exterior elevations, assuming the basic plan conforms, add an additional $1,500 per home for new exterior elevations. In total, add $2,000 to any new home for 2016. But changes to the land use regulations will also increase the cost of developing single family lots and condo tracts. The new regulations will force developers to create larger lots in order to accommodate double and triple car garages (number one on a new home buyer’s wish list). The wider the lot the more expensive it is to develop with roads, water and sewer. Add another $5,000 to $10,000 to the price of the lot and pass it on to the home builder and the buyer. In an environment where we need more affordable housing, we’ve now added anywhere from $7,000 to $12,000 to a new home in 2016.

All this at a time when residential building permits remain at historic lows. Single family permits have declined over the past two years. YTD through October permits have fallen to 237. Duplex permits have fallen to 92 units—a sharp decline from 160 YTD in 2014. And multi-family permits have fallen from 295 permits to 251. We are doing nothing to solve our housing crisis. Instead, we are adding to the cost of every new housing unit to be built in 2016. The new regulations will not only increase costs but also slow down permitting as the industry grapples to adjust.

Last week, after reported pending and closed sales, there were only 497 single homes left for sale in Anchorage. Twenty-six percent of those homes were priced over $500,000. The new Title 21 will only add to that percentage in 2016, making Anchorage the Santa Monica of Alaska. With all due to respect to the planning staff who have worked for ten years on this document, and the assembly’s well-intentioned vote of 9 to 2 to approve the new Title 21, everyone needs to take a step back and re-evaluate what they have created and the unintended consequences of the new Title 21 in light of our housing crisis. Now is not the time to burden home builders and developers with aesthetic reform. Do what needs to be amended to the existing Title 21 for the benefit of health and safety. The market place will make its own demands for design and aesthetics. Just log on to Pinterest or Houzz and see for yourself.

Does Your Home Meet the New Title 21 Code?

by Connie Yoshimura

After the ten years of blood, sweat and tears over the new Title 21, have you ever wondered where the people who made these new rules live? If they have been afforded the opportunity for home ownership, do they live in what they are advocating? So, we decided to do a little internet home work and find out. We looked at the MOA tax records and Google Earth of twenty-three planning staff or assembly members’ homes. We found only seven that we felt met with the new design standards. Without divulging locations or ownership for the benefit of privacy, the vast majority of staff and assembly members live in homes that do not meet the new code. Three homes do not have clearly visible entrances from the street. Several homes do not have roof coverage of a minimum of sixteen square feet at the entrance. One had roof drainage that falls on the walkway. Several garage doors exceed fifty percent of the width of the front elevation. Even larger homes lack the required 15% window coverage, particularly in those homes that are attached dwelling units or condos.

Some homes have more than one potential non-conformity. Garage doors are more than 67% of the front elevation. There was no visible entry from the street. Windows are not 15% of front elevation. The garage is greater than 50% of the width of the dwelling. The seven homes where conformity appeared to occur were larger and located on lots over 11,000 square feet but even in those instances, there was potential non-conformity for lack of window size on the front elevation. These potential non-conformities make me wonder what could change in the new Title 21 if the staff and assembly tried to apply the new regulations to their own home, if due to some unfortunate circumstances, their homes would need to be rebuilt under the new code? Could they be rebuilt as an identical structure? Not as the new code has presently been approved. Double garage doors would need to be reduced to a single car garage. Side entrances would not be allowed. Bringing the entrance to the front of the home, so it is visible from the street, would require a major reconfiguration of living areas.

But, let me be fair and make my own personal disclaimer. I live in a two-story owner occupied duplex (I am the owner.) My street-facing windows will comply. My garage doors are in the alley so no worry there. However, the entrance to my home is not wide enough and although my porch has a covered entry it is not 16 square feet, perhaps only 12 square feet. It was designed by a local architect, permitted and built 19 years ago and conforms to all land use and structural permits at that time. I like the way it lives, as probably do the staff and assembly members who live in their own homes. I do not want to have to make changes to my entry that will affect my living space, although I have remodeled my kitchen and taken out a couple of interior walls.

I suspect that two thirds of the homes currently occupied in Anchorage, whether owned by staff, assembly members, or myself, will not comply to the new Title 21 regulations if for some reason they needed to be rebuilt or voluntarily are remodeled. Although well-intentioned with a desire to make Anchorage a more aesthetically desirable residential environment, the current implementation of Title 21 is a serious misstep. I challenge the planning staff and the assembly to apply the new Title 21 to their own personal residences. My recommendation is to allow all existing structures to be rebuilt under the code in effect at the time of the original permit, with the exception of safety and energy ratings. After all, not everyone, including assembly and planning staff members, are going to want to give up their front facing double car garage for a single door.

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Dwell Realty
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Anchorage AK 99503