January 19, 2006

Afternoon Flash

INCLUSIONARY ZONING. Do those words send chills up and down your spine as they do for many DC condo developers? Like so many things in life, incusionary zoning -- which requires builders to add a certain number of affordable units to new condo projects -- could be good or could be bad. The zoning commission is expected to continue its deliberations on the topic on Feb. 6.

What's affordable? How many units must be set aside in the condo? Do developers get something for setting aside units? Is the whole thing mandatory or voluntary? Does it apply to small fry developers?

To illustrate the need for inclusionary zoning, the Washington Examiner today talks about lucky Jack McKay who bought his house in Mount Pleasant for $21,000 in 1972. And today the house is worth "multiples" of the original price. But six months ago I bet it was worth more multiples than today.

DC Bubble fears the inclusionary zoning requirement, which everyone says is coming, will have been written at a time when the market was hot. Red hot. But that was then and this is now. The market has cooled. Maybe the lead anecdote in the Examiner should have been about the guy who bought a condo in July and now the identical unit on a lower floor is on the market at a 10% lower price with no offers coming in.

Inclusionary zoning will be good for the city because of the economic diversity it will impose, but be careful. Let's craft it using today's market, not the red hot one of early 2005 and all of 2004 when anything was possible and the sky was the limit. In fact, the Commerce Department reported that construction of new homes and apartments fell by 8.9 percent in December.

If the inclusionary requirement forces too many set asides, we wont have a cool market, but a frozen one where developers will say its just not worth it building in DC.


MORTGAGE RATES DROP AGAIN. The benchmark 30-year fixed-rate mortgage fell 10 basis points to 6.12 percent from 6.22 percent the prior week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.31 discount and origination points. One year ago, the mortgage index was 5.71 percent; four weeks ago, it was 6.33 percent. The 5/1 adjustable-rate mortgage fell 11 basis points to 5.71 percent.


urbannomad said...

I must say that I agree totally. Current housing values are an anomaly not the new norm and legislation should take this fact into account.

Colin said...

Set asides are a waste and a disguised tax. Ultimately it's nothing more than a wealth transfer.

This is addressing the symptoms instead of the underlying problem. Why are prices so high? I don't know for sure but I would bet things like zoning and other regulations play a part.

If the DC govt wanted to get serious about the lack of affordable housing they should start asking why the housing is to expensive to build in the first place, and then see what can be done about that.

Anonymous said...

Has the DC market cooled? sure maybe a smidge - but nothing like other regions in the country. And there are no reasons (currently) to believe it will get much better for the buyer (or the renter).