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Planners study links between density and affordability

Thursday, July 31, 2008 by Kimberly Reeves

The relationship between density and affordability were the topic of developer Terry Mitchell’s presentation at Tuesday night’s Planning Commission work session.

Each fifth Tuesday night of the month is devoted to a workshop session that Planning Commission members use to discuss topics of interest. At this week’s meeting, Mitchell presented figures on how various zoning categories – specifically, those categories with more density – reduced the price of a proposed project.

Mitchell, assisted by consultant and former planning chief Alice Glasco, used his own recently zoned 10-acre project as the example. First, he presented the mortgage affordability figures, noting what type of family income it takes to afford a home in Austin. Then he talked about the prices of various master-planned subdivisions in the area. And, finally, Mitchell presented a scenario on his own property that measured the cost of a unit against various zoning categories.

The exercise pointed out just how difficult it is for a typical family – with an average Austin income – to afford the traditional detached single-family (SF-3) home in Austin. The median income for an Austin family is going down – not up – while housing prices continue to rise, especially in master-planned communities.

The latest figures show that the median income for a family of four in Austin is $69,100. According to Mitchell’s mortgage affordability figures, that means that a household of four, with an income of $69,600, has the gross income to afford a monthly payment on a $198,000 house, as long as the family is carrying no other debt and can assume a fixed-rate 30-year mortgage.

That assumes, of course, that the family owes nothing else. On charts that Mitchell presented – based on the average income of $71,100 in 2001 – a family buying a house at an interest rate of 6.5 percent with no other debt could afford a home valued at $225,450. A household with $1,000 in debt – and most families do carry between $600 and $1,000, Mitchell said – could afford a house valued at $119,500.

As prices rise in Austin, the places where a family on a median income can dwell has shrunk. According to Mitchell, the family of four on a median income these days can afford Kyle, Hutto, Manor and Southeast Austin. Ten years ago, that area included the outlying areas of Leander and Cedar Park, but rising home prices have pushed the median income family out of those communities.

And the average price of homes continues to rise in Austin. Presenting a map of some of the area’s most popular master-planned communities, Mitchell noted the average price of homes in Circle C is now $465,000. In Steiner Ranch, the average price is now $559,000. In Crystal Falls in Leander, it is $338,000. In Avery Ranch, the average price of a home is $371,000.

That means the only way an average family can find housing in Austin – at a price they can afford – is to put more units on a parcel of land. Mitchell used Momark’s own 10-acre property, which the company bought at a price of $5 million, as the example.

Mitchell provided a chart that outlined zoning scenarios from SF-3 single family to MF-6 condominiums. At the level of single-family zoning, at 5.4 units per acre, the sales price of each unit would be $475,000. Calculating a 10 percent down payment, loan amount and monthly payment, the minimum qualifying income would be $173,249, which would be more than twice the typical median income.

Go to the MF-6 scenario – which would include 80 units per acre, and the price is $166,000 per unit. With a minimum 10 percent down payment and loan amount, the qualifying income would be $63,025, with a monthly payment of $1,773.

The problem illustrates the classic tension between what a neighborhood typically wants and what a developer can afford to build. Momark eventually chose to seek the less intense SF-6 condominium zoning. That gave them a sales price of $240,000 per unit. When the down payment, loan and debt was figured out, the minimum qualifying income was $89,549, which was still above the median family income but close enough to make the project affordable.

Mitchell also noted a new study that said that those baby boomers who are now retiring are used to the typical single-family suburban home, while the Generation X and Generation Y that will follow will be far more comfortable in denser development that has more ready access to city amenities.

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