Master-Planned Communities Can Help Solve DFW's Housing Crisis — But Only With Public Buy-In
For years, thousands of acres on the Trinity River in North Arlington sat vacant. Despite being located at the center of the Metroplex, countless developers passed on the site because of the prohibitive cost of development and the low incomes of nearby households.
It wasn’t until 2006, when a joint venture between CrossHarbor Capital Partners and Huffines Communities purchased the land, that its fortunes began to change. Through an innovative partnership with the city and county and a unique layering of special financing mechanisms, the companies were able to turn the land into a thriving master-planned community.
Today, the Viridian development holds more than $2B in value and generates $40M in annual tax revenues.
“Without the public-private, that property would be an opportunistic landfill and four-wheeler heaven,” The Nehemiah Co. President Robert Kembel, who served as head of development for Huffines at the time of the acquisition, said during a Bisnow event held Tuesday at The Westin Galleria Dallas. “Now it’s an ecosystem with new life.”
In this environment of high interest rates and elevated housing costs, well-structured partnerships between developers and public entities are more critical than ever to the creation of master-planned communities, panelists said.
Through the use of special districts, tax increment financing or economic development grants, cities and counties can work with developers to build housing that accommodates a broad range of demographics, said Clay Crawford, senior counsel at Allen Boone Humphries Robinson.
This is essential as the cost of housing continues to eat away at the pool of potential homebuyers, Crawford added. Housing affordability in DFW has substantially declined, with only 27% of homes affordable to those earning the median household income.
“There is no more important issue facing the future of MPCs in the DFW market than how they can be entitled and financed to ensure their success,” he said.
Today's master-planned communities in DFW are often built on large swaths of undeveloped land at the periphery of the metro area. Infrastructure may not yet exist, leaving developers with the headache of figuring out how to pay for things like roads and sewer systems.
But even those with access to infrastructure need help to make the numbers work, said Andrew Pieper, vice president at Hillwood Communities. The approval of public improvement districts, municipal improvement districts and tax increment reinvestment zones is often the deciding factor in whether a project gets built.
“You’d be hard-pressed to find a deal that works without some sort of special financing,” Pieper said.
The use of special districts can reimburse 15% to 20% of a developer’s cost, which allows them to build quality projects, said Scott Davis, president of Location Strategy.
The stable values of communities in Houston, the majority of which are financed using special districts, proves the strategy’s mettle, Davis said.
Agreements that are embedded in those developments, whether they be with the homeowners association or with taxing jurisdictions, ensure communities are maintained better than other subdivisions, guarding them from depreciation even during downturns.
“If you want to include a development in your community that will maintain itself as a store of value, allowing them to have a district is one way to do it,” he said.
Support from the jurisdictions in the form of flexible zoning is also a critical factor in the success of master-planned developments, PMB Capital Investments partner Taylor Baird said. Many cities have regulations that discourage density by requiring larger lots, which makes deals more difficult to pencil and prevents developers from offering homes at various price points.
“Density allows you to split the infrastructure costs across more units and create more affordable homes,” he said. “There’s a misnomer amongst some cities that larger lots are going to create higher-priced homes, and it just really doesn’t end up doing that.”
Rental options within master-planned communities are becoming more essential, as fewer Americans can afford to buy a home. This is often met with opposition both from city officials and existing homeowners, but the variation is needed to meet the market and ensure long-term sustainability, said Rylan Yowell, managing director of master-planned communities at Provident Realty Advisors.
“[Renting] is here to stay,” he said. “This is a big space in the market, and to push those renters out would almost be irresponsible.”
With the cost of development higher than ever before, financing mechanisms and flexible zoning are required to build at scale, said Dustin Davidson, Hines managing director of land development and build for rent. Cooperation between the public and private sectors is the only way developers will be able to meet the unprecedented demand for housing that exists.
“We are not evil developers that are always the bad guys in rom-coms,” he said. “We want to work with the city, achieve the same goals.”
