After years of focusing on high-dollar, high-profit developments, affordability is beginning to get a sympathetic ear from Orange County homebuilders.
Condominiums that tend to cost less than traditional homes, high-density residential projects in urban areas and affordable-housing plans are set to hit OC in 2006.
While homebuilders surely will continue developing pricey homes in OC, any slight shift in focus is welcome news for many business executives who fret that many of their workers are being priced out of the county.
Housing prices in OC hit a record $621,000 in December, according to DataQuick Information Systems. They backed off in January, with the median price of a home sold falling to $582,000, and the number of sales dipping 32% from December.
But developers aren’t too concerned given the annual double-digit percentage gains in prices posted during the past few years.
“I’d be cautious reading too much into (the latest) indicators,” said Paul Marshall, vice president for Opus West Corp. in Irvine. “January is usually a slow period for residential.”
High-priced home sales continue to be strong. A total of 7,342 homes in OC sold for more than $1 million in 2005. That’s up 43% from 2004.
The result of the surging prices: Only 10% of residents can afford to buy a median-priced home in OC, according to the California Association of Realtors. The affordability rate was 13% a year ago. In 1995, 40% of residents could afford to buy a median-priced home.
Rising prices have led many to take on non-conventional mortgages,a boon for the county’s big subprime mortgage lending industry, but worrisome to those with an eye on steadily rising adjustable rates.
Land Lacking
A lack of new homes being built, continued strong job growth in OC and low interest rates are behind the surge in prices.
The county’s biggest homebuilders reported a 30% decline in sales to 4,706 last year (see related story, page 22). That decline followed a 25% drop in 2004.
OC has seen job growth of about 15% during the past seven years, according to economists at Chapman University.
“It’s pure economics. There are more jobs than houses being built,” said Dave Prolo, senior vice president for Newport Beach’s John Laing Homes, part of WL Homes LLC.
The scarcity of developable land has sent many OC-based homebuilders elsewhere.
Newport Beach-based William Lyon Homes Inc. has pushed hard into Las Vegas, as well as other parts of California.
Irvine-based Standard Pacific Corp. has boosted its operations in Florida, the Carolinas and Phoenix, while Shea Homes, a unit of Walnut-based J.F. Shea Co., has been active in Colorado.
“The big question is: When does the price of a home become so prohibitive that it impacts sales?” said John Laing’s Prolo.
Some cities in OC are taking affordability into their own hands.
At Tustin Legacy, the site of the former Tustin Marine Corps Air Station, the city required that affordable housing be part of the development.
Plans call for 880 affordable units to be built among the 4,200 homes and town homes that are being built, said Christine Shingleton, assistant city manager for Tustin. Prices for the homes start at less than $100,000 for buyers who qualify.
Miami-based Lennar Corp. is working with William Lyon Homes in Tustin, where the homebuilders’ venture has approval to build 2,000 homes, including some affordable housing units.
Builders Switching Gears
John Laing is looking to lower its average sale price for new OC homes.
The builder sold 658 homes and town homes in OC last year,the most by any builder in the county. The company also led in the number of high-end units it sold, with close to 400 sales costing more than $700,000.
The average price for a John Laing home sold in 2005 was about $1 million, Prolo said. Those units are largely single-family homes, in suburban sites such as Heron Pointe in Seal Beach, StoneTree and Juliet’s Balcony at Woodbury in Irvine, and Tustin Field.
In the next three years, John Laing plans to bring its average selling price down closer to $800,000. It’s planning higher-density, infill developments in Anaheim, Fullerton and the Irvine Business Corridor.
Prolo expects to shift Lennar’s ratio between single-family homes and higher-density units close to 50-50 in the next few years.
“We’re trying to find land that fits this model, where we can maximize density in fantastic locations,where buyers haven’t traditionally looked,” he said.
Typical infill sites are 2 acres or larger. If sites are a reasonable distance to other residential development, any existing zoning will be considered, Laing officials said.
Among early projects of this type, the company recently worked with CB Richard Ellis Group Inc. to buy an 11-acre stretch of industrial land along South Euclid Street in La Habra. The plan is to have homes for sale there by late 2007.
High-Density Projects
In addition to smaller, high-density projects, several developers are looking at larger condo projects, particularly in the Irvine Business Corridor, an area close to John Wayne Airport.
Plans for some 30 residential projects have been filed with the city for the Irvine Business Corridor, putting housing alongside established industrial and office projects.
Not all of these developments are focused on affordability. Prices for many homes are expected to run above the $1 million mark.
And don’t expect to see all those Irvine Business Corridor projects in the planning stage to be built, said Marshall of Opus West.
Projects such as high-rise condo towers “are a difficult product to build. They are very cost intensive. There’s just not a lot of people who can do it,” he said.
Opus has three 15-story towers in the works in the Irvine Business Corridor at Jamboree Road and Campus Drive. The three high-rises will total 307 condos,none of them in the “affordable housing” category.
The largest of the Irvine Business Corridor projects under way is Miami-based Lennar’s Central Park West project, at the corner of Michelson Drive and Jamboree Road.
About 1,400 units will be built, along with 90,000 square feet of office space and 20,000 square feet of retail.
Plans at Central Park West call for 15%, or 261, of the homes, condos and town homes to be affordable housing.
Lennar’s biggest urban development in OC is at Anaheim’s Platinum Triangle. There, the developer’s A-Town calls for 2,681 homes, including up to 14 condo towers.
One proposed 38-story high-rise would be the county’s tallest building. Demolition of the existing industrial property at A-Town began earlier this year.
Projects like Central Park West and A-Town “provide housing in the heart of Orange County,” said Emile Haddad, president of Lennar’s West Coast operations, earlier this year. “And it is at a value that’s going to give a lot of people the chance to live here.”
Affordable housing also is part of Lennar’s other big OC housing projects. At the former El Toro Marine base, Lennar owns land zoned for about 3,600 homes.
Requirements call for affordable housing at El Toro. Lennar expects the first homes to finish in 2008.
