Density Push to Shake Up the Building Industry

Jun 25, 2023 | Uncategorized

Most building industry professionals understand the inventory shortages we are facing now are a result of more than a decade of underbuilding. Strong demand, fueled by population growth, coupled with the ongoing issue of an inadequate number homes for sale or rent are causing housing prices to skyrocket. As was evidenced this last year, even doubling of interest rates was not enough to change the course of the real estate market.

However, builders have been challenged over the last 15 years in ways they never had before. The financial crash of 2008 caused our industry to lose a number of our building professionals and subs. Then we have increasing building code requirements, energy requirements, impact fees, stormwater mitigation, supply chain issues, inflation, increasing labor costs and now…the doubling of interest rates. Expecting that the building industry will be able to catch up doing things the way they always had is absurd and unsustainable. Furthermore, we don’t have the buildable land in our city cores to keep sprawl at bay.

In Washington State, the legislature tackled this problem head-on. According to the News Tribune, over 50 bills regarding housing were introduced in the legislature this year, many of them targeting strategies to build the over 1.1 million homes Washington State will need by 2044 (as determined by the Washington State Department of Commerce). Here is a quick summary of the two bills that passed that will have the biggest implications for our local market:

HB 1110 – This bill was designed to allow townhomes, duplexes, and multi-family up to six-plexes to be built in certain single-family home-zoned areas. The details regarding what can be built and where depends on local populations and transit. This bill requires cities and counties that meet the requirements to adjust their codes under the Growth Management Act (GMA) which will take effect up to six months past their next GMA update. Different counties have different deadlines for the GMA updates. You can find your county’s update date here: https://app.leg.wa.gov/RCW/default.aspx?cite=36.70A.130

Read the bill contents here: https://app.leg.wa.gov/billsummary?BillNumber=1110&Year=2023&Initiative=false

HB 1337 – Under this bill, cities and counties planning under the GMA will now be required to allow accessory dwelling units (for long-term rentals) as a method of promoting density. An owner-occupancy requirement will not be allowed and parking requirements are relaxed with proximity to transit. This bill requires cities that meet the requirements to adjust their codes under the Growth Management Act and will need to take effect six months past their next GMA update.

Read the bill contents here: https://app.leg.wa.gov/billsummary?BillNumber=1337&Initiative=false&Year=2023

Many areas already allow for more-flexible housing options when it comes to building. For example, last August, Spokane instituted more-flexible regulations on single family lots. The results? According to KREM, there are already nearly 300 new units in pre-development. Other states and cities (including Seattle, Kirkland, Tacoma, Burien, Kenmore, and others) have already adopted density-aggressive bills in the last few years and California recently overhauled its ADU rules to promote density. In fact, California even has an ADU grant program that provided up to $40K to homeowners who wanted to build an ADU on their property.

More density can offer for more-efficient usage of infrastructure such as sidewalks, bike routes, and parks. It can also offer increased demand for smaller neighborhood businesses. There are concerns, however, as parking becomes more-challenging, especially due to the relaxed on-site parking regulations in the new bills.

Not sure what to do with this information or how to put it to work in your business? Consider these five scenarios:

Your past client needs to add a multi-generational unit on their property.

Ten years ago, you helped The Smiths with a kitchen renovation. Now they need to add a space for their parents and they aren’t sure whether to build a separate detached unit in the backyard or add on to their house. They have heard something about ADUs, but aren’t sure what the rules and regulations are for that or whether they decide to go the ADU or DADU route will have a more-positive impact on their home value.

You get a call from someone who wants to add an ADU or DADU unit on their property to generate income.

Is this something your client can legally do? What are the rules and regulations? How do advise them? What should they build to generate the most income for their target tenant? And what if there is the potential to add TWO ADUs / DADUs?

A potential client calls you because they are about to buy a lot in town because they heard they might be able to build four units on there in a few years.

If so, what kind of units should be designed? What amenities should be included?

A client who owns several investment properties contacts you to renovate one of their homes and they may not be aware of the pending changes.

How can you best be of service and help them strategize their renovations by possibly including an ADU? OR, is a four- or six-plex something that could possibly be allowed?

You have the opportunity to build a new home community and decide you want to build something different that will appeal to younger homeowners.

As we see laws changing, we also have an upcoming generation of homebuyers who doesn’t necessarily want what we as a country have been building for the last 100 years. They want simpler, less to maintain, and they don’t necessarily want 5000 square feet of lawn. Really understanding your buyer demographic when developing is key to building the right product for the right buyer.

THE BOTTOM LINE:

The changes proposed will not happen overnight, but then again, some cities may go ahead and preemptively make code adjustments sooner than their six-month post-GMA cutoff. In fact, Bellingham and Ferndale have already moved ahead to adopt some of the 1337 ADU parameters. Now is the time for you to start getting ready and educated. Builders, you may have clients coming out of the woodwork asking about converting part of their home to an ADU or building a DADU in the backyard. You may have investor clients who own homes that are getting close to being functionally-obsolete that might be prime candidates for building multi-family as HB 1110 will allow. There may be entire blocks of neighbors who come together to sell their collective lots to a developer (as locally allowed).

You, as a real estate professional, need to be prepared to handle all of these situations or have referral partners for the type of questions you determine are out of your scope.

This article has likely raised more questions than proposed solutions, but that is the point! We don’t have all the information yet, nor do we have a clear understanding of what impact these changes will have on the building industry when implemented. What is clear is that we are in a moment of change and we need to put ourselves in a position of knowing of what is going on in order to explain the changing situation AND to pivot your building business to best take advantage of these opportunities. How should you stay informed?

1. 1. Subscribe to your local paper – in addition to supporting journalism, you can also stay on top of your local housing issue changes.
  2. Read Editorials and Comments – I also recommend reading the editorials as well as following the publication’s social media pages. Read the comments. This will allow you to get a feel for the overarching feelings involved on these topics as these are some hot-button issues.
  3. Attend City Council Meetings or Watch Recordings – A lot can happen at City Council meetings! Attend or at least watch the replay if it is locally available. I also recommend downloading the agenda packet before the meeting as a lot of the details to the points summarized at the meetings can be found in the packet.
  4. Ditto for County Council Meetings
  5. Get involved in the Growth Management Act updates – Cities and counties are now making changes to or getting ready to make changes to their comprehensive plans under the GMA. This is a public process and you should easily be able to find out information on upcoming meetings or the current status of your area’s updates by checking your city or county websites.
  6. Zoning Maps – We are going to see changes to zoning maps. Be on the forefront of these changes as these could spell opportunity and point to new building opportunities!

Builders, if you ever dreamed about buying Microsoft when it was newly-available on the stock market, if you ever thought about going back in time and buying that certain piece of real estate at rock-bottom prices, or if you have ever wished you could build a product that flies off the shelf as soon as you break ground, please consider this your a-ha moment. This IS the edge you are looking for. By investing your time now, being on the forefront of these changes, sharing this information with your clients, and looking for upcoming opportunities yourself, you will be richly rewarded in the years to come.

Want to discuss how these changes can be a boon to YOUR construction business and how we suggest you pivot? Set up a free consultation with us: [email protected].

The Lones Group Inc is a real estate brokerage that can assist you and your clients with real estate questions that come up with ADU conversations with your clients. Please consider ADU Specialist and REALTOR, Shauna Naf, your ADU real estate resource: [email protected].

SOURCES:

Density Push to Shake Up the Building Industry

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