Thanks. Please don’t assume though that my feelings on this thing have changed in the slightest – it hurts me and my neighbors next door – that family of 5 I kept bringing up – just as much whether or not we can see the macro-impact on Austin as a whole. (They nearly moved out a month ago but their new deal fell through – they have already indicated that when they finally do go, they’ll be renting to students – I can only assume this is partly because the “best use” of the property has shifted farther from owner-occupant use due to McMansion in their case since their house is effectively not expandable except with the ‘tricks’ like habitable attic space or basement).

I would prefer using lot-size data. But there’s a pretty strong correlation between lot size and house size in these central neighborhoods, particularly if you stick to pre-2003 construction. Over 90% of pre-2003 Hyde Park homes have a FAR of under .4. Ditto with Tarrytown. This means there shouldn’t be many large houses on small lots, and they shouldn’t be skewing the numbers much.

I imagine there are more small houses on large lots. If true, then using house size as a proxy will understate the effect of the McMansion ordinance, at least if you believe that small houses on large lots would have appreciated in value like large homes.

I think the fact that it is hard to compare individual properties is why you look at aggregate data in the first place. It’s hard to look at an individual piece of property and say, “It’s market value would have been $X without the McMansion ordinance.” Widespread swings in value ought to show up in the aggregate data, though. If McMansion has hurt small lot owners (and, M1ek, we both believe it has), the sales figures ought to reflect it.

Steve, you’ve already done so much I hate to ask for more, but would it be possible for you to run exactly the same analysis on 2004 data? I’m just wondering how small homes and large homes appreciated between 2004 and 2005, before the McMansion ordinance.

Finally, I’ve read the homebuilders’ report, too, and was disappointed — it’s just advocacy economics. Basically, they came up with an “average” loss in value that doesn’t represent an average of anything, and multiplied it by an arbitrary percentage of an arbitrary number of homes for sale at an arbitrary point in time. When I saw that they were doing a study, I hoped it was something along the lines of what Steve’s done.

Another aspect that makes the economic impact difficult to assess (i.e. isolate) is the general “softening” of real estate.

Although the Austin housing market (particularly central Austin) is proving much much more resilient than other parts of the country.

I think your right. There are so many variables it would be hard for anyone to present any sort of sales data that can be conclusive, or that caan’t easily be called into question.

A funny thing happened to me today though. I called friend to see if he wants to grab lunch, and he was sitting at the City of Austin waiting to talk to someone about renewing his pre-McMansion building permits. He has a lot in Hyde Park and one in East Austin with building plans in place that he wants to preserve. He absolutely does not want to let his permits lapse he told me, as it will “screw everything up”. We’re meeting for lunch tomorrow and I’ll get his first hand point of view relating to the two lots he’s planning to develop, and find out exactly what he means by McMansion screwing up his plans.

Steve

The 2005-2006 numbers are at least _consistent_ with the claim that the McM ordinance hurt small home appreciation, even if they’re not conclusive proof.

I’m not sure how to explain the 2006-2007 numbers. Maybe we’ve got too small a sample at this point. Maybe the McMansion ordinance just had a one-time effect on home prices. Maybe there was never any effect at all, and we’re just seeing random variation.

Thanks again for working on this.

—Quoted from the study report:
One, today’s home buyers want higher ceilings and large open areas. Limits imposed by the regulations, however, hurt the marketability and desirability of homes without these features.

A second area that is affected is the mechanical area. With the limited attic space and the extra beams to create the open floor plans, the mechanical units and duct work will need to be installed in the conditioned space of the home. This can take as much as 10 to 20 square feet out of the available living space and require more expensive mechanicals units which must be used in conditioned spaces. Ten to twenty square feet of mechanical space can cost from $1,000 to $3,000. The more expensive mechanical units can cost from $1,500 to $7,500.

A third area that is affected by these limits is the size of garages and storage space. These limits encourage single car garages and car ports which are less desirable for today’s buyers. This forces people to either store items in back yard storage buildings or off site storage centers.

A fourth area is that is affected is when homes are designed for limited ability clients. This limits designs for larger hall ways, ramps, larger door ways, elevators, accessible bath rooms and accessible kitchens.

The additional costs discussed above could add as much as $75,550 to a new or remodeled residence in the area governed by the regulations, as shown below.
—- end quoted text

These seem like valid things to consider. I’m skeptical of some of the numbers. If you read the full report, they’re saying a custom set floorplan blueprints could cost “up to” $50K. So the entire “up to $75,500″ number seems flimsy to me, as it assumes the $50K number.

Then, all of the other “economic” statements are extrapolated from the $75,500 number.

Nevertheless, there clearly are issues that previously were not factors. In reading the report though, it’s clearly a biased, doom and gloom peice of work that takes worst case scenarios and presents them as foregone conclusions.

The study also assumes, with no data or evidence, that real estate market forces will not absorb the additional costs of building or remodeling in these areas. I simply don’t believe that’s going to be the case.

Steve

Thanks for rolling up your sleeves and mining the data Steve.

edward tasch

Here are some numbers for you. I looked at sales of smaller homes (1500 sqft or less) in MLS Areas 4, 1b, 6, 7, the core Central Austin neighborhoods for 2005, 2006, and 2007 YTD.

2005
591 Sold, Avg Price $234,933, Avg sqft=1108, avg price psf=$212

2006
545 Sold, Avg Price $257,608, Avg sqft=1107, avg price psf=$233
Average appreciation for the small homes in 2006 was 9.65%.

2007 (through March 14)
80 Sold, Avg Price $273,013, Avg sqft=1129, avg price psf=$242
Appreciation in 2007 is 6% YTD. Not bad given we haven’t finished the first quarter.

Smaller homes don’t appear to be suffering in value. Though we don’t know if smaller homes on large lots are now selling for more (and vice versa) because of the better potential for expansion/upgrade on larger lots, which would offest the averages.

Larger Homes
2005
649 Sold, Avg Price $484,115, Avg sqft=2354, avg price psf=$206

2006
716 Sold, Avg Price $554,977, Avg sqft=2415, avg price psf=$230
Average appreciation for the large homes in 2006 was 14.63%. Quite a bit more than the smaller ones. Hmmm. This is an interesting figure compared to the smaller homes.

2007 (through March 14)
97 Sold, Avg Price $564,499, Avg sqft=2362, avg price psf=$239
Doesn’t seem to be a steep climb yet for 2007 prices. Only 1.7% compared to 6% for the smaller homes.

Just some food for thought. The data seems contridictory in a way. 2007 is trending the opposite of 2006 thus far, with regard to smaller vs. larger homes and whether there is a difference in appreciation and demand.

I’m not sure what conclusions can be made.

Steve