Pros and cons for builders attempting New Urbanism

A representative of Pulte Home Corporation presents the builder point of view. Pulte Home Corporation, the nation’s largest home builder, is in the early stages of developing Salamanca, a 160-acre traditional neighborhood development (TND) in West Kendall, Florida. Tim Hernandez, vice president of land and marketing with the South Florida Division of Pulte, took a leading role in getting the company to develop its first new urbanist project, designed by Duany Plater-Zyberk & Company. “I don’t think it is an exaggeration to say that I put my career on the line with this project,” says Hernandez, who has worked to acquire, design and develop more than 50 conventional Pulte subdivisions in 15 years. In a November, 1998, presentation at the “State of the New Urbanism in Florida” conference sponsored by the Seaside Institute in Seaside, Florida, Hernandez explains why builders are wary of the New Urbanism, and why they should nevertheless give it a try. Hernandez offers more obstacles to the New Urbanism than enticements, yet he concludes with this strong endorsement: “If it was my money, if I had enough money to invest in my own project, I would still do it. That is really the ultimate test,” he says. Hernandez calls Salamanca “as close to a pure TND as anything that has been done. I’m giving away about 20 percent of the site for civic uses — schools, meeting halls, parks galore.” The plan is located in Dade County within an urban development boundary. New Urbanism advantages Some municipalities, like Dade County, allow higher densities for developers that build the New Urbanism, because the concept is geared to enable a compact mix of uses to work together harmoniously. “If you give us three or four units per acre bonus in a high land cost area, that is a great incentive,” Hernandez says. The New Urbanism often allows developers to construct commercial buildings in areas where the use might not otherwise be permitted. That’s another strong incentive, Hernandez says. Also, TND accommodates the “work at home” trend through its live/work units, accessory units and mix of uses, which could be a significant marketing tool, he believes. With Salamanca, Pulte got a lot of governmental cooperation from Dade County officials, who wanted to see the TND ordinance used for the first time. Planners in many communities are interested in fostering the New Urbanism — which can help developers in specific locations. Accessory units lead to the shadow density advantage, Hernandez explains. So-called granny flats over garages, an important part of the New Urbanism, add value to a project, although the exact value has not been quantified. “In Kendall — which has a strong Latin community and families are very important — I think this is going to be fabulous,” Hernandez says. Accessory units also add affordable housing, and therefore are socially desirable. If local planners want to encourage accessory units, they should not be counted in official density calculations, Hernandez says. “If they are counted, the land seller will think the builder is entitled to that density, and the land will cost more.” Because the New Urbanism is still relatively rare, it gives builders significant product differentia- tion. “There are 50 or 60 projects in our submarket going on right now,” Hernandez says. “All are conventional. So I don’t care if some people don’t like TND. Because if they do like it, they will come to me.” Finally, Hernandez believes that TND represents a better product, which will translate into a higher value development. “I feel comfortable enough to say that TND is the right thing for us to be doing from a strictly financial standpoint,” he says. Builder concerns Builders are creatures of habit and are used to designing conventional subdivisions, Hernandez points out. Suburban sprawl therefore has powerful momentum. The New Urbanism costs more to design. “I spent five times more to design this project than a conventional project,” he says. TNDs “cost more to develop and build” on a project basis, but not necessarily on a per unit basis. The conventional development next to Salamanca doesn’t have curbs and gutters, alleys, meeting halls, nearly as many parks, or other civic amenities. “I have to believe that I have a 10 or 15 percent premium based on the Dade County TND code,” Hernandez says. However, Dade County also allows four extra units per acre for a TND. Pulte reduced the density slightly during approval — to mollify neighbors — but still gained three extra units per acre. “I am hoping the density will even things out on development costs,” he says. Under current Dade County planning rules (and other localities likely have similar policies), TND developers lose in the creation of parks in three ways. Hernandez calls it the “triple whammy.” With a conventional project, the developer gives the town a piece of land — say five acres — for a park, and gets credit toward impact fees. Although TNDs typically include many more parks designed as neighborhood civic spaces within easy walking distance of homes, these parks are larger in aggregate but smaller individually, so the county won’t accept dedication. Therefore the TND developer gives up more land, must improve it and maintain it (or have a homeowner association maintain it) and gets no credit on impact fees — because the parks are not dedicated to the town. The “fortress America syndrome” is another problem. New Urbanism principles call for nongated communities, but this can be a sales disadvantage in some markets, Hernandez says. “If a potential buyer walks into a competitors’ sales office and mentions Salamanca, the sales person will say, ‘Oh you mean that nongated community? You care about your family, right? Why would you buy there?’ This is going to happen 100 times a weekend. In Dade County, crime is an issue.” The development industry is highly specialized, with builders that do only industrial, retail, single family residential, multifamily residential, office and other kinds of real estate products. TND requires a generalist. “It stretched the limits of my intellectual capacity to put this thing together,” Hernandez says. “And that’s probably normal for just about anybody who is trying to do it.” Buyers like to experience exactly what they are buying, which leads to what Hernandez calls the see it, feel it, touch it dilemma. “If a customer walks in and says ‘explain to me what this will look like. I’m going to make the biggest investment of my life,’ what am I going to do? I can’t tell them to walk down the street, because there aren’t any of these projects in Dade County.” When writing the development proforma, Hernandez must decide how many parks and civic amenities to build up front. “If I put in too many, the carrying cost for this infrastructure is going to harm the rate of return,” he explains. “But if I don’t put in enough, people aren’t going to get the concept, and it might not sell as well.” The creation of a fine grained mix of land uses means that many types of residential and commercial buildings will be placed in relatively close proximity. Hernandez worries that some buyers will be reluctant to purchase single homes near townhomes, apartments, and stores, which could affect the absorption rate — which will ultimately determine whether Pulte is eager to build more TNDs. TND development requires — and offers — great flexibility in terms of building types and products. “Big builders tend to be inflexible, and much of the development in metropolitan areas is by big builders,” says Hernandez. “You have to be pretty flexible to take advantage of all the things the TND ordinance has to offer.” Hernandez concludes by saying that even in Dade County — which has a TND ordinance — it takes longer for approval of a new urbanist project. The situation is far worse in most other locations. u