June 27, 2024 by John Krukowski
‘For The Good Of The Region’: The Role Of Master-Planned Communities In Supporting Texas’ Continued Growth
The “Texas Miracle” that continues to draw new residents and businesses to the state in record numbers is the envy of other states and an economic force to be reckoned with.
But even miracles may need help maintaining their momentum, and Texas’ unprecedented boom is showing some signs of stress, particularly in its housing market. In a worrying development, Texans are confronting a serious lack of affordable housing.
This scarcity is putting homeownership out of reach for many, whether they are newly minted Texans or lifelong residents. In North Texas, a Zillow study found that homebuyers needed an income of at least $121K to comfortably afford a mortgage — an increase of nearly $50K from only four years ago.
One often discussed solution to the problem is the construction of more master-planned communities. Encompassing hundreds and often thousands of acres, these custom-built developments can include a variety of housing types at price points suitable for homebuyers of varying incomes. They can also provide a host of quality-of-life-enhancing amenities like hiking trails and parks.
MPC developers can face resistance from local governments, however, which frequently raise density and other concerns to prevent them from being built. While not limited to Texas, this anti-MPC attitude is preventing much-needed affordable housing of all types from being built in a state bursting at the seams and jeopardizing its growth prospects.
To learn what this dynamic looks like at ground level, Bisnow spoke with Texas developers, builders and consultants who are active in the MPC scene. We asked them why they thought MPCs are an important solution to the state’s growing housing shortage, what stands in the way of more being built and how the state can get past NIMBYism to ensure housing is available for Texans of all incomes.
WHAT ARE THE BENEFITS OF MASTER-PLANNED COMMUNITIES?
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‘Vibrant, Sustainable And Affordable’: Michael Smith, President And CEO Of Johnson Development Corp.
Smith called MPCs a “comprehensive solution to housing affordability and density challenges.” But that is only one of their benefits, he said.
“Efficient land use, comprehensive infrastructure, sustainable practices and community-focused amenities reduce the need for commuting outside the community for essentials like shopping, healthcare and education,” Smith said. “These elements, combined with diverse housing options, create vibrant, sustainable and affordable communities capable of scaling to meet the demands of growing populations.”
‘Socially Connected Communities’: Mark Meyer, Principal And Firmwide Leader For TBG’s Community Development Practice
Meyer said the benefits of MPCs extend to a range of factors that may be less tangible but no less important than hard economic statistics. Taken together, they contribute to “socially connected communities that foster social benefits and resiliency,” he said.
For one thing, mixed-use areas incorporating commercial, residential and recreational spaces can reduce the need for extensive infrastructure and long commutes, he said. MPCs can also reduce the sense of isolation common to many suburbs and encourage people to walk more, interact with neighbors and experience nature through the strategic placement of pocket parks and other nature-focused amenities.
“People desire to see and be around each other. Through thoughtful design, we can successfully balance our needs for visibility to street views, connection with our neighbors and privacy,” he said. “Integration of diverse housing and street design not only enriches the experience of a place, it also strengthens the community fabric and one’s sense of identity, values and connection.”
‘For The Good Of The Region’: Danny Signorelli, President And CEO Of Signorelli Co.
As development generally becomes more expensive and a meaningful shortage of lot supply drives costs higher, Signorelli said MPCs are a cost-effective, long-term solution to these challenges and help to keep the American dream alive.
“MPC developers are generally focused on the health of the environment and take pride in developing these amenities not only for the good of the residents within the MPC but also for the good of the region,” he said.
Larger-scale MPCs can spread the amenities and infrastructure cost over a larger number of homes, often giving the consumer more “bang for the buck,” Signorelli said.
While also contributing to job creation and driving the tax base to support local initiatives such as schools and mobility projects, MPCs can drive quality development and attract companies well beyond the boundaries of the MPC, he said.
‘A Choice To All Buyers’: Jim Jenkins, Vice President Of Master-Planned Communities For Toll Brothers
Homebuyers of all incomes can struggle to find housing because traditional development practices and zoning laws tend to focus on homeowners of a narrow income range.
Jenkins said MPCs present an alternative approach.
“Master-planned communities offer a broad range of housing segments, from attached and rental units to luxury homes and starter homes to retirement living,” he said. “The diversity of homes offers a choice to all buyers.”
‘Financial Certainty’: Dustin Davidson, Managing Director At Hines
High interest rates are also contributing to the limited housing supply, Davidson said.
“Existing housing resales are notably low compared to historical norms because current residents are reluctant to give up their 3% mortgage rate,” he said. “Consequently, new homes at similar price points become more attractive than older resales.”
MPCs, combined with municipal utility districts in extraterritorial jurisdictions, represent a way for builders in the state to work through thorny supply-and-demand issues, Davidson added.
“Now, working together or around nearby cities, developers can achieve a level of financial certainty regarding public infrastructure reimbursements,” he said. “This financial stability means developers no longer need to sell lots at a premium in the absence of a MUD, thereby lowering the final home price to a consumer.”
‘Real Community’: Peter Pincoffs, Founder At PMB Capital Investments
As younger Americans worry whether they can afford homeownership, Pincoffs said MPCs are a potential solution to their angst.
“Done well, master plans can meet the needs of a young renter that is just out of school starting their career, up to large single-family homes that meet the needs of families,” he said. “These communities inherently offer a range of densities and price points and do so in a format that is thoughtfully integrated to foster real community through amenities and programming.”
Making A Dent In Affordability: Fred Balda, President Of Hillwood Communities
MPCs can help address issues of affordability, but they can't happen in isolation, Balda said. Special financing districts are necessary.
“Because developers are in a unique position to use land efficiently over a large area, they are able to distribute the cost of development across thousands of lots and combine that impact with the buying power of homebuilders who can mobilize construction activity over hundreds of lots at a time,” Balda said. “However, this is only possible if municipalities are willing to work with developers to address zoning and costly fees and to establish special financing districts. Only with the combination of these efforts can we begin to help address housing costs.”
Vital To The Future: Ted Wilson, Principal With Residential Strategies
Wilson said the key to creating a successful MPC is the use of a public-private special-purpose district such as a municipal utility district. Multiple types of special districts in the state can help finance vital infrastructure. MUDs, which may be the best known, oversee water, sewage, roads and other much-needed services.
Wilson said these special districts can also help an MPC counter one of the toughest foes of affordable housing: rising costs.
“There are a lot of households that want to buy a house and, quite frankly, they cannot because of the cost,” Wilson said. “It's imperative that developers find ways to at least arrest the inflation that we're seeing in the future of these master-planned communities. And one such way is through special districts.”
Special districts allow developers to sell bonds to reimburse their construction costs, contributing to a development that is both profitable and quality-built.
“Special districts are quintessential to the future of most developments and master-planned communities across Texas if we're going to be able to keep the skyrocketing inflation in check to maintain our affordability,” Wilson said.
Faster Appreciation: Robert H. Kembel, Principal With The Nehemiah Co.
Public-private partnerships such as special districts can result in a superior product and better amenities, Kembel said. This benefits MPC residents over the long term.
“Given the quality step-up in master-planned communities, the early buyers generally see faster value appreciation over time,” he said. “MPCs can negotiate better density solutions in exchange for quality design guidelines, also helping the affordability challenges.”
Well-built MPCs are also likely to see higher sustained assessed valuations, he added.
“The taxing jurisdictions will ultimately have more resources in the long run, in exchange for investing in the infrastructure development on the front end,” Kembel said.
WHAT STANDS IN THE WAY OF MPC DEVELOPMENT?
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Multiple Barriers: Michael Smith
Johnson Development's Smith said several obstacles stand in the way of MPC development. These include zoning and land use regulations that favor low-density single-family housing over higher-density mixed-use developments. Also on his list: water rights, high infrastructure costs, environmental concerns, financial constraints, and political or community opposition.
“Overcoming these barriers requires coordinated efforts from developers, local governments and communities to create a supportive environment for MPC development,” Smith said.
‘Fear Of The Unknown’: Mark Meyer
TBG’s Meyer added another obstacle to the list, fear of the unknown. Existing homeowners understandably worry that new development might devalue their investments, he said.
“The best way to address this fear is through better community engagement,” Meyer said. “We should hold a series of meetings to talk with residents, establish trust and understand their preferences and concerns. This approach helps find a common currency of language, understanding and creative solutions that accommodate both new development and the residents' comfort level.”
‘Time Is Expensive’: Danny Signorelli
Signorelli, too, has a long list of obstacles. At its top: red tape.
“MPCs may take three to four years or more to get underway,” he said. “Elected leaders in some regions have a better understanding of the cost of red tape, recognizing that time is expensive when hundreds of millions of dollars are sitting idle. Regions that collaborate effectively with MPC developers to create a sustainable economic engine have benefited significantly.”
The Big 2: Jim Jenkins
Toll Brothers' Jenkins put it succinctly: “Master-planned communities are restricted by local government regulations and the high cost of capital.”
So Many Requirements, So Little Time: Dustin Davidson
The demands on local government employees to review MPC plans expeditiously “far exceed” their available time, Hines' Davidson said. But there is progress.
“New MUD communities, especially in an extraterritorial jurisdiction, are increasingly utilizing third-party review and inspections,” he said. “This approach allows developers to expedite the review process and focus on core project elements, thereby shortening the overall timeline and reducing the final home price.”
Commercial Bias: Peter Pincoffs
PMB’s Pincoffs said that cities often prioritize commercial development over residential because the latter is viewed as generating too little revenue compared to the burden it places on city services.
“We’ve even had city staff refer to residential development as a ‘money loser’ that they have no interest in incentivizing within the city limits, which loses sight of the fact that commercial development will not occur without sufficient residential around it,” he said. “With cities unwilling to incentivize well-planned residential development, the solution to this is to develop properties outside of the city limits and utilize alternative public financing sources.”
Resistance To Special Districts: Fred Balda
Land prices, infrastructure costs, impact fees and entitlement charges all add to the burden of creating an MPC, Hillwood Communities' Balda said.
“Some markets are resistant to the idea of special districts like MUDs, PIDs, MMDs, etc.,” he said. “These districts allow developers to assist a city and/or town to meet their housing needs by building needed infrastructure to support new housing development.”
Balda added that a lack of available inventory has contributed to increased housing costs.
“If we can put more homes on the ground, that puts downward pressure on house prices,” he said.
‘Concerted Lobbying Efforts’: Ted Wilson
Some counties and municipalities fear that special districts will encourage the construction of higher-density but less expensive housing, Residential Strategies' Wilson said. The irony is that such resistance can block any type of residential development.
“I think there are concerted lobbying efforts that oppose special districts. If not trying to outright block the districts, many municipalities have put up hurdles that attempt to delay or restrict the creation process,” Wilson said. “And unfortunately, it also affects these higher-profile, more expensive and really nice communities that the cities should be embracing.”
Misinformation And Bad Experiences: Robert H. Kembel
Widespread misinformation about public-private funding is one factor working against MPCs, The Nehemiah Co.’s Kembel said. Another is that some communities have had genuinely negative experiences with “developers who don’t know how to build communities properly.”
“The cost and peak capital required to finance a master-planned community can be a challenge, but most quality MPC developers have quality capital sources if they have time to work through the zoning and due diligence prior to having to purchase the site,” he said.
HOW DO WE GET PAST THESE OBSTACLES?
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Coordination And Education: Michael Smith
“We are thankful to be developing in Texas where legislative laws are comparatively more friendly than in other states,” Smith said. “However, there is still room for improvement in revising zoning laws and land use policies to make them more flexible, and in expediting permitting for projects that meet specific criteria, thereby reducing delays and uncertainties.”
Smith said developers, government entities and communities should coordinate to streamline regulations, invest in infrastructure, promote sustainability, engage stakeholders and innovate financially.
“Public education on the benefits of MPCs can further facilitate their acceptance and support,” he said. “Land developers think that it is in all stakeholders' interests to better understand the intricacies, benefits and challenges of developing master-planned communities.”
Early Engagement Needed: Mark Meyer
“Successful, sustainable MPCs that look and feel authentically rooted in place and grow in value begin with strong planning that evolves over time,” Meyer said. “Our most successful MPC clients engage TBG’s team of planning, urban design and landscape architecture expertise early.”
‘A Win For All’: Danny Signorelli
Signorelli called for establishing strong relationships with community leaders and builders through collaboration. Understanding the role MPCs play in impacting a more positive type of growth is important, he said.
“A true MPC creates billions of dollars in tax base that funds schools, county obligations, police and fire, and can generate tremendous office and mixed-use development and quality-of-life conveniences,” Signorelli said. “All of this attracts major companies and job drivers that solidify a region for long-term economic growth and success. If you have an MPC coming to your area, that is a win for all, in my opinion.”
Encouraged By PUDs: Jim Jenkins
Continued opposition to MPCs might limit the housing stock available to Texans.
“Master-planned communities are encouraged by planned unit development agreements and special financing districts,” Jenkins said. “Without master-planned communities, new development will have more single-product subdivisions.”
‘Amicable Solutions’: Dustin Davidson
Davidson called on the development community to work cooperatively with cities and encouraged municipalities to consider third-party plan reviews and inspections of MPC plans.
“At Hines, we strive to provide amicable solutions that we know from experience are effective,” he said. “However, sometimes the response of ‘we don’t have that in our ordinance’ can be a significant hurdle.”
The Role Of The Legislature: Peter Pincoffs
Like many in the MPC community, Pincoffs said he is anticipating the Texas Legislature will focus on MPCs and special districts in 2025.
“We see momentum in creating a regulatory framework at the state level that fosters well-planned and attainably priced development,” he said. “We are encouraged by progress that has been made over the last few legislative sessions, but there is work yet to be done, and it seems like that has to come out of the legislature in Austin.”
‘Quality And Affordability Can Coexist’: Fred Balda
All eyes might be turned to Austin, but Hillwood Communities' Balda said the building community has a job to do, too.
“Developers and homebuilders who self-develop must set the example of what a quality MPC looks like, demonstrate the benefits it can deliver to a city or town, and how it can address a critical need for housing, particularly more attainably priced homes,” he said. “Quality and affordability can coexist.”
End The Weaponization Of Water: Ted Wilson
Wilson said the state has made progress in making Texas a more MPC-friendly place, but more needs to be done.
“Texas has started to implement new rules and regulations so we can maintain affordable housing,” he said. “Most significant this past year was the passage of Senate Bill 2038, which is called the ETJ opt-out bill.”
Extraterritorial jurisdictions are vague boundaries separating an MPC from a neighboring town. Previously, a local government could use ETJs to limit the development of MPCs on their borders, but now an MPC has the option of opting out of compliance with the city’s development requirements.
However, towns still have the authority to restrict an MPC’s access to water, Wilson added, which is another issue the state needs to take up.
“These municipalities have weaponized water,” he said.
For All The People: Robert H. Kembel
Kembel said it’s important not to lose sight of what is really at stake in these debates: Texans' ability to find affordable housing.
“The MPC development community and the local governments need to understand that their primary role is to develop quality housing for all their people. In today’s environment, density, coupled with quality design guidelines, is good for their community and people,” he said. “Allowing density without public-private partnerships and quality design guidelines is not a great solution, either, and the industry needs to police ourselves in understanding that the long-term impacts of aggregating one income level of affordable housing by itself is a poor solution.”
Watch for future articles in this series that will explore successful MPC developments and look ahead to the future, including the 2025 Texas legislative session.
In-depth coverage on the issue of Texas housing affordability is brought to you by ABHR and Studio B, Bisnow’s in-house content and design studio. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
