The 100k House

Jul 012011
 

August 2011
BuilderNews Magazine
Feature: Project Profile

 

The 100k House

Sizing Up Your Opportunities


In late 2006, Chad Ludeman, his wife Courtney and close friend Nic Darling decided to go into real estate development. Their plan was fairly straight forward: They wanted to build houses on spec, and for the most part, they already knew the style and size of home they would build — the same style and size as most new homes in the city. Courtney is a licensed real estate broker, and to build on spec, they knew, meant building homes that people wanted to buy. In Philadelphia, where they live, that home — or so it seemed — was your standard 2,000-square-foot, three bedroom, two and a half bath house with an asking price of $500,000 or more. That was what most other developers built in Philly, and Postgreen Homes was planning to do the same.

Chad has a degree in technical engineering and manufacturing; Courtney is in real estate; and Darling worked in marketing, before joining his friends. They are all young, urban professionals, in their early to mid thirties, building careers and families. Courtney and Chad now have two young boys. Their decision to go into real estate development, Chad explains, was mostly a practical one. They wanted to own their own business; Courtney knew the market; and real estate, they figured, was as solid an investment as one could make. It wasn’t until they began pricing out land that their plans began to change.

Postgreen Homes, then operating under a different name, started off by scouring the nicer neighborhoods of Philadelphia, searching for a sizable lot on which to build its first 2,000-square-foot home. The company, with Chad as President, Courtney as CFO and Darling as CMO, also began then to work with Brian Phillips, the founding principal of Philadelphia-based Interface Studio Architects (ISA), a small, highly acclaimed firm devoted to sustainable design. “We started out thinking a little differently,” Phillips says. “This was right before the housing (bubble) burst and we were looking at bigger green projects, like 2,000-square-feet, getting a LEED rating and selling for $600,000 to $700,000.” After several long delays and a few land deals gone sour, Postgreen, however, had a vital change of heart. “The whole process (of buying land),” Chad explains, “made us take a step back, and one day were chatting, and said, ‘Why are we trying to build these homes that we can’t afford, our friends can’t afford and most people in their low to mid 30s, making decent money, can’t afford.” It was a moment of inspiration that would send Postgreen in an entirely new direction.

Phillips recalls that decision: “Chad had this moment when he realized that maybe there was this other market out there for first-time homebuyers, who in an urban setting are often relegated to a fixer upper or a small condo.”

In modern, demographic parlance, Chad, Courtney and Darling are on the leading edge of the echo-boomer generation, also known as Generation Y or the Millennials. They are, in loose terms, the children of the baby boomers, born sometime between the late 70s and mid 90s and representing the largest demographic surge of homebuyers since their parents entered the market over 40 years ago. It is estimated that from the start of the millennium on, close to 80 million echo boomers have or will come of age and need a place to live. As Phillips notes, most new, single-family homes in Philadelphia are built for the middle-class, move-up buyer, while the first-time buyer is largely ignored. Postgreen Homes decided then that it would serve this market.

The 100K house, Postgreen’s first project, would stand as its test case. Who were these first-time buyers and what did they want in a home? How small could the home be? How much could they cut costs? How green could they make it? As far as Postgreen saw it, they and their friends, this new generation of homebuyer, wanted different things than their parents wanted. Cost, efficiency and size became their major drivers. “They want these nice modern, energy-efficient homes, but they don’t necessarily care if the (homes) have all the bells and whistles and are 2,000 square feet,” says Chad.

Phillips adds to that description: “This generation is the most environmentally conscious, most consumer driven generation ever, and so we talked about houses as products.”

Another factor they considered was the home’s location. Echo boomers, it appears, want out of the suburbs and back into the city centers. Philadelphia’s population, over the past decade, saw its first population increase after more than 60 years of decline. Inner city neighborhoods, like Fishtown and Northern Liberties, just north of the city center, are revitalizing, with an influx of art galleries and restaurants and an increase in property values. It was in these neighborhoods that Postgreen first looked for lots, but soon found that they were constricted by cost. Their search widened, moving progressively out from the city center until the lots became affordable.

Just north of the Northern Liberties / Fishtown neighborhoods is the hard-scrabble industrial blocks of East Kensington. It, like many inner city neighborhoods, fell on hard times over past 50 years. Though the neighborhood is small, Chad estimates that there are some 2,500 vacant lots (about one in five), overgrown with weeds and litter-strewn, scattered amongst the houses. And not one new home, Chad says, has been built in area for at least 20 years. In terms of development, Phillips adds, it was, and still is, a neighborhood where “all bets are off” with a disjointed pattern of old industrial buildings, early twentieth-century row houses and vacant lots. The lots were cheap. Postgreen paid only $37,500 each for two — one at 1100 square feet and the other at about 2,000. And best of all, East Kensington sits along the Market-Frankford rapid transit line, which makes the neighborhood only 12 minutes or less from anywhere downtown.

The 100K house, for all its conceptual complexity and considered approach, is, in terms of design, remarkably simple. The original challenge (and hence the name) was to build a 1,000-square-foot, super green home for $100,000 in materials and labor. The resulting design was a box — no juts, no jogs, no bays, because all that costs money. And, in fact, there are no interior doors, either, except for on the bathroom. It was a design process, observes Phillips, unlike anything ISA had worked on before. “I often use the phrase industrial design for what we did,” he explains, “because it is a little more like designing a can opener, in that there is a function and the design is always going to follow that function.”

That function was to be a super-efficient, market-rate affordable home that retained its market appeal. No small feat, for sure, and one that brought ISA to a unique conclusion. The way they saw it, Phillips explains, is that they had two choices: They could either design a traditional home that looked like all others, only with cheaper, less attractive materials, or they could push the limits, use quality materials and redefine our expectations of home. Obviously, they chose the latter, and the resulting home has garnered considerable attention. The 100K house, since its completion in May 2009, has won awards from the national American Institute of Architects, its Pennsylvania chapter, as well as its local, Philadelphia chapter. It received a LEED Platinum for New Homes and was recently reappraised in early 2011 for $299,000. The finished size of the home came in at 1,150 square feet, with a final price for materials and labor of only $91.00 a square foot. Including all costs, materials, labor, permitting and design, the home’s final construction cost was around $200,000 — an impressive success in a city with few new homes priced under a $500,000. Postgreen and ISA have since completed nine additional homes, modeled off the 100K concept, and are now designing several more. Postgreen has also started another company, Hybrid Construction, to serve as its general contractor.

“We feel that the 100k approach, that a building should look like its parameters, inspires almost everything we do at this point,” says Phillips. “It has almost become a fundamental ethos for us. A building needs to do certain things, and it can look really great doing it, but (it’s design) shouldn’t be about a certain look that people anticipate… about some nostalgic idea of your childhood home.”

“The 100K house,” he adds, “taught us how to give up other things that in our minds are superficial, while still maintaining this core, performance-based model of a home.”

 

Behind the numbers”

Lot size: 1080 square feet

Lot Price: $37,500

House size:

100k house – 1,150 square-feet

120k house – 1270-sqaure feet.

Footprint: 648 square foot.

Construction method: Structurally Insulated Panels

Construction costs: $105,000.

Construction price per square foot: $91.00 per square foot

Finished cost: estimate $200,000 / $173.00 a square foot.

Appraised resale value in March 2011:

$299,000 – 100k

$319,000 – 120k

Number of bedrooms: 2

Number of baths: 1

Climate: Northeast: cold winters, warm summers.

 

Project Specs:

Exterior Construction: Structurally Insulated Panels

Exterior siding: James Hardie Fiber Cement sheets & stucco

Interior walls: Drywall/ Birch Plywood

Flooring:

Downstairs: Polished concrete

Upstairs: Birch Plywood

Heat: Subfloor radiant

Hot water: Solar thermal hot water / gas boiler back-up

Air conditioning: Split-ductless, passive and Energy Recovery Ventilation

R-values:

Walls: R24 (6.25 inch (Structurally Insulated Panels)

Ceilings: R40 (10.25 inch Structurally Insulated Panels)

Green Amenities:

Solar Thermal Array

Solar tube in bathroom, to bring solar light to interior space.

High R, SIP Panels walls and roof, with sealed vapor barrier

Energy Recovery Ventilation unit

Rainwater collection / rain barrel

Ceiling fans

Sunshades on exterior windows

Estimate monthly heat/hot water costs (winter): $70

Lost Illusions

Jul 012011
 

July 2011
BuilderNews Magazine
Feature: Construction Market Analysis

 

Lost Illusions

How the Real Estate Jitters have Reshaped Rental Housing

 

In early 2011, New York City interior designer Darren Henault, owner of Darren Henault Interiors, was working on two different development projects in the city. The first, for the developer Vanguard Investors, is the re-imagining of a six-story apartment building in the East Village. The second, for Cogswell Realty LLC, is the new construction of a seven-story apartment cooperative in Harlem. One of the key differences between these two projects, besides their locations, is that the East Village project, once completed, will remain rental apartments, while the Harlem apartments will be sold at market rates. What makes these projects remarkably similar, however,  is just how much the current real estate market and a shift in urban demographics have influenced Henault’s designs.

Henault is a New York City designer. He also works in LA. Urbanity is his canvas. And for the fifteen years he has worked as a designer, space has always been at a premium. It is the consequence of having more than eight million people crammed into a city the size of Austin, Texas — population 790,000. Designing small is what Henault does. “I think New York designers and architects have become very adept at using every square inch of space that is available to them,” Henault says, “because of what the cost per square foot is.” This has made New York city apartments the epitome of small, and yet, says Henault, he’s recently noticed a change in the market. New York city apartments, it seems, are getting even smaller. And New York is not alone. Across the country, as foreclosures increase and home sales decline, forcing a rise in the demand for rental apartments, the average size of those apartments appears to be shrinking.

Tom Shoup is the eastern director for Wood Partners, one of the largest builders of multifamily housing in the US, and Shoup points to one leading factor now currently driving Wood Partners’ development goals. That factor is the anticipated arrival of echo-boomer generation, or more precisely, the estimated 80 million baby-boomer children, born between 1980 and the mid-90s, who will over the coming years graduate from grad schools, colleges and high schools and be looking for a place to live. The last time the real estate industry saw a boom of this magnitude was in the late 60s and early 70s with the coming of age of the baby boomers. And it is this boom that we just recently seen the end of.

But, as Shoup notes, not even that tells the whole story. If this surge in home-buying population were viewed through the rosy lenses of just five years ago, we may well have seen a continuation of the sprawling suburbs and an increase in the demand for the once-coveted single-family home. But, as it goes, it is not five years ago, and a lot has changed since then. The housing market has taken a wallop. New home starts dropped to a 70-year low in 2009, with just 580,000 new homes built nationwide. The average price of a US home fell by nearly a third since 2006. The echo-boomers, like many of us, are skittish. The home was once the gold nugget of a family’s net worth, but for many that confidence is gone. As of May 2011, Zillow Inc., a Seattle-based real estate listing company, reported that 27 percent of US homeowners owed more on their home than the home was worth. Add to this the nation’s pockets of depression-level unemployment and the immobility of homeownership, and Shoup predicts than many one-time or potential homebuyers will simply opt out of the market and choose to rent instead.

Architect Mark Humphreys, CEO of Humphreys & Partners Architects and a recognized authority on multifamily housing, shares Shoup analysis of the market. Humphrey’s estimates that if the percentage of homeownership in the US dropped by just 10 percent over the coming years, this would add over 7.4 million new renters to the market. He also estimates that because of the economic downturn there is a significant pent up demand from renters who have stayed out of the market and will enter again as the economy improves. To this, Humphries then adds an estimated nine million echo boomers entering the market a year, together with the potential for their parents — the 74 million baby boomers— to downsize from the family home and into apartments, condos, and senior housing, all of which he expects will drive up demand for rentals.

And still there is more. Humphries, whose firm is headquartered in Dallas but works throughout the country, has also noticed an important shift in social attitudes, which he predicts will have an equally important impact on US housing. Humphries calls this shift in attitudes the “Manhattanization of the United States,” and he sees it as characterized by an increased demand, especially among the younger demographic, for a more urban lifestyle. The reason for this shift, according to Humphries, is due to a number of factors, the most important of which are the spike in fuel prices and increasing environmental concerns, along with the fading panache of a suburban life. This too, says Humphries, is driving up the demand for apartments, while helping to drive down the average size. “What we are seeing,” he says, “is that younger people coming out of college want to be in the cool hip areas and are willing to take much smaller apartments to get their rents down to an affordable range.”

 Building to this New Market

When Henault’s clients, Vanguard Investors, first considered the redesign of their East Village apartments, the New York City rental market was still fairly strong, demand was high, and the expectation of renters was still in throes of the housing bubble. People wanted big and the bigger the better.  The original plans for the building laid-out a single, 1500-square-foot, three-bedroom apartment per floor.  “Not grand,” Henault says, “but a larger and more luxurious apartment that would command much larger rent.” The upsides to this, he notes, are that the units would fetch higher rents and be easier to managed and maintain with fewer tenants. But, before the project went into construction, much of that had changed. As Henault’s notes, the reality of the East Village market couldn’t be ignored. “This was the East Village and the real estate market had been tanking for years,” Henault says. This led Henault and the developers to reconsider their plans and to realize, as Henault explains, that “there will be, in the coming years, more people who can afford smaller, lower priced housing than there will be who can afford luxurious apartments.”

The developers decided  to scrap their original plans, and they chose instead to divide each floor into three smaller units: a 425-square-foot studio, a 500-square-foot one bedroom and, through an impressive feat of space efficiency, a remarkable 550-square-foot two bedroom.  “This is not low income housing,” Henault says. “We still use high-end finishes.” Rather, the apartments are being tailored to young, urban professionals — the echo boomers, with money and incomes, but not so much as to afford a large apartment.  The approach that Henault and developers took was to maintain a certain level of upscale appeal, while reducing the space for more affordability. Henault achieved this by centering the design around the main living space and minimizing the reduction of space where it mattered most—the kitchen and living room—while stealing space from the places he felt he could. “People want the main living area to be the bulk of the square footage,” he explains, “so they don’t feel like they are on top of one another when they are in one room. But when everyone goes to their bedroom at night, a 10ft by 14ft room is fine.”

On the national level, Shoup, whose company generally builds in smaller cities and suburbs, contends that if there is a statistical shrinking in the average size of apartments, it s not that the sizes are actually getting smaller, but that developers are building more studios and one bedrooms, versus larger, two and three bedrooms apartments. This, Shoup contends, is what is forcing down the overall averages. “Urban markets,” he says, “appeal to the 24 to 32-year-old range who don’t have a lot of possessions yet and who work better with these smaller types of units.”

Humphries, who often works in large urban centers, is not so sure. He has watched apartments shrink in size over the last 20 years. It makes sense, he says, real estate is expensive. “Twenty years ago, it was at about a 1000-square-foot average, then about 15 years ago, it was 900-square-foot average. Five years ago it was about an 850 average, and today we’re seeing it into dip into a 750 average. And I think it is going to get smaller,” Humphries says.

Whatever the reason for the shrinking, for Henault, Humphries and Shoup, the challenge is the same: How do you make these smaller, often tiny apartments, both cost effective and appealing to this new and trending market. Shoup says that the most obvious and important approach is the use of the open floor plan. Wood Partners eliminates kitchen wall in smaller apartment, replaces it with kitchen islands and half-walls, and other scraps altogether the hard definitions of living and dining areas. This, Shoup notes, not only increases the perception of space in an apartment, it also provides a greater degree of functional flexibility, which then opens the appeal of the apartment to a broader range of potential renters. “So,” he says, “rather than having really hard, designated areas, for example a dining room, we build a space that could be a dining room. It could be a den. It could be a home office.”

In The Woodlands, Texas, a multifamily development project just north of Houston, Humphreys & Partners Architects is working with Cambridge Development Group and USAA Real Estate and demonstrating that luxury and size are not, by any means, mutually exclusive.  The project, Boardwalk at Town Center, once complete, will contain 450 premium apartments, some of which will be highly space efficient, yet elegantly designed, 340-square-foot studios.

“Designing 340-square-foot units causes you to be very innovative,” Humphreys says, adding that the only truly fixed space in any apartment is the bathroom. In one studio design, Humphreys & Partners includes an electric fireplace (“for effect”) built in to the back, lower portion of a closet. The fireplace is open to the front and side, which creates a greater feeling of depth and space in the unit, as one looks from the living area, through the fireplace and into the far corner of the kitchen. In another, slightly larger unit, a 558-square-foot, one-bedroom apartment, Humphries & Partners uses an open half wall between the bedroom and the living area and a closed soffit above the kitchen island, both of which help divide the rooms without constricting the space.

“Just because it’s small doesn’t mean you are not doing something attractive,” Humphreys says, “These people are smart, and they want to live in something cool.”

Shoup agrees. The bottom line, he says is that “the things (echo boomers) are interested in is not the things their parents were interested in. What they really want is an interesting home in an interesting community that they can live in and that says something about them and their lifestyle.

“I think,” he adds, “that a lot of people have stopped measuring their success by the ownership of a home, and that certainly plays well into the apartment market… And it is why apartments are now the place to be.”