Non-Profit Urban Infill: A Proposal

For the past several years, the North Park area has been booming.  30th Street and University Avenue are full of new and exciting restaurants, breweries, and other shops, and El Cajon Blvd is building steam.  Large houses are selling for a lot of money in the neighborhood, but a stroll in the area reveals an ugly truth: there are still a lot of run down houses and poorly designed apartments.  The scourge of the "Huffman Six-Pack" is well documented.  This is especially true on the edges of the central area.

Small developers are creating new infill projects, but they are not exactly affordable and don't necessarily lead to a better design for the community.  In large part, this is likely because these developers are focused on one main thing: profit.  In the quest for profit (which, to be fair, is necessary for any business venture), the need for a larger variety of housing types is left behind.  Also, these developers aren't necessarily focused on creating a great streetscape.  Is there a way to fix this?

Here is what I propose: a non-profit urban infill factory.  To be clear, I am not talking about building only affordable units or seeking City for State funds, which complicates things for many reasons.  Instead, I am talking about a small organization looking to build residential units, but not focusing on profitability.

Why do this?  Several reasons, each of which could fill several blog posts with explanations:

  1. Housing in San Diego is not affordable.  The best way to improve affordability is to both build more units and build smaller units as fast as possible.  Even if the exact units being built aren't very cheap, they would create a trickle-down effect.
  2. We need dense development to avoid sprawl and implement the new Climate Action Plan.  Speaking roughly, for every new unit in North Park, that is one less unit in Escondido.
  3. Housing that addresses the street and allows for greater density is essential to improving our neighborhoods, increasing walkability, and supporting mass transit.  
  4. Inequality:  Pulling in the dreaded "gentrification" word, the more luxury condos and large single-family homes get built in trendy neighborhoods, the more people with lower incomes get pushed out.
  5. Domino effect: as dilapidated structures get torn down and replaced with something new, surrounding property values rise as the neighborhood gets nicer.  At a certain point, critical mass sets in a variety of ways: supporting retail, sufficient density for mass transit, greater local enrollment for public schools, etc. etc.
  6. Political effects: speaking bluntly, replacing one old house with eight new, modern units is going to lead to a younger, more liberal demographic.  The type of voters that are going to support raising the minimum wage, support alternative transportation, etc.  At the same time, these types of units are in high demand by young, educated millennials.  The type of people that cities are fighting over.
  7. Public Health:  Living in a dense, grid-based neighborhood "is a factor in lower risk of obesity, high blood pressure, and heart disease."

It seems a large variety of institutions and philanthropists would support projects that aid in reaching these goals.  Using some very generalized, assumption-filled calculations, a relatively small investment could jumpstart infill development so long as the developer could ignore profit.  Here's how, using an example.

Take this property for sale: a collection of older units right off of El Cajon Blvd (this complex isn't so horrible, I'm mainly using it just for an example to plug in some numbers).  The place is for sale for $819,000, but let's say you can get it for $800,000 for the sake of round numbers.

The lot is roughly 50x140 feet.  Taking a quick look at the zoning for this lot, there is a 50 or 60-foot height limit, a maximum floor-to-area ratio of 1.25, a limit of 8 units, and a requirement of an average unit size of 600 sf.  There are other requirements, which this general concept may violate, but I'm just ball parking here.  Also, I'm not designing parking, although it's required.  It can either go under the units or in the back near the alley.  Again, this isn't a final design.

The plan should be to build the type of units that don't lead to maximum profits.  Let's say you build two 2,100 square foot townhouses facing the street (3 stories of 700 sf each) and then six 500 square foot units (three wide by two high) near the back.  Maybe instead of six 500sf units, it's three 500sf units and one 1,500 units, or four 500sf units and one 1,000 sf units, it doesn't matter for this example.  It's a total of 7,200 square feet, which is within the 1.25 FAR (7,200sf on a 7000sf lot = 1.02 FAR).

I couldn't find a good estimate for construction costs.  Jonathan Segal built a project in 2011 for $105 per square foot, page 12 of this document suggests $130/sf, and I saw other estimates closer to $200-225/sf.  So let's just say it's $200/sf to be sure we are covering all soft costs, like architectural services, permits, etc.  At that price, construction costs would total about $1.4 million.  Add in the original purchase price of $800k, and you're looking at $2.2 million. Using this new "luxury" row home as an example, new construction is selling in the area for around $380/sf (the overall average in North Park is $393/sf).  At these rates, this new project could sell for over $2.7 million, resulting in a profit of $300,000, or a 13% return on investment assuming no leverage using financing (if these projects were built with loans, the financials are even better, but ignoring for now just for simplicity).  If you maximize the FAR, you're looking at a profit of almost $800,000.  Regardless, the project is not losing money.

Then, there are two options: in regards to that "profit."  Either sell at market rate and use the profit to do more projects, or simply sell at cost to recoup expenses and hold some type of lottery or contest to pick owners for the cheaper units to draw in the target demographic, be it artists, or young families, or entrepreneurs, or minorities, etc.  Perhaps some of the units are retained as affordable rentals (with solar panels on top to run the whole property) and the others are sold.  Either way, it's then on to the next project.

So for a relatively small funding of three million dollars (adding a little cushion for operating expenses), a non-profit could build projects including the type and style of units that are neglected in the for-profit infill development scheme.  Rather than maximizing profit, the venture could target creating sustainable communities.  It would also allow for a degree of experimentation: without the need to maximize profit, the venture could try new things that may be outside the building norm, like building microunits..  The venture would also be self-sustaining, able to move from one project to the next, or even expanding to multiple projects at once if the profits are reinvested.  Also, as the projects continue, costs would drop.  Many lots in this area are a standard size, and architectural plans could be reused, cutting a major soft cost of construction.  Given that a standard plan may be used, perhaps an architectural competition could be held to pick a winning design, with community input.  Once a design is nailed down, efficiency increases and prices drop.

If all the goals discussed above are achieved, it seems this would be a "successful" non-profit for a relatively small, one-time funding contribution.  Although non-affordable housing development is usually left to firms, there is a strong argument that the positive outcomes warrant charitable investment.  If you're interested in funding, I'm ready to get to work!  If I missed something or you have something to add, please comment below!