According to ULI – The Urban Land Institute, master-planned communities (MPCs) “are usually a product of long-term, multiphase development programs that combine a complimentary mix of land uses…(that) typically occur on ‘greenfields’, that is, tracts of formerly undeveloped land often at or beyond the urban fringes.”1 The classic MPC is primarily residential in nature with a mix of dwelling units of several different sizes and configurations as well as price points. They often include commercial and recreational components.
In today’s market, MPCs are the redheaded stepchild. The reasons are manifold:
- MPCs are usually large-scale developments that have multiyear life cycles which means a commitment of substantial capital at the beginning, and capital is not currently interested in MPC development – too risky, thus too expensive;
- With the current huge overhang of residential properties in most areas, there isn’t sufficient demand for more new housing;
- The recent plunge in housing prices makes it impossible, in many instances, to build and sell new housing that is priced competitively with existing;
- This often produces zero residual land value, and, so far, no one is giving land away;
- In addition, in most areas where there might be some demand, the regulatory environment has produced added costs that at the present time eliminate any opportunity for competitive pricing.
That’s the story today, but what about the future? There is a lot of palavering to the effect that the day of the exurbs has passed, and all future development will consist of dense, compact (smaller units), mixed-use, high-rise properties on infill urban parcels. I’m not buying it and here’s why:
- The job market will recover eventually;
- When it does, the overhang of existing properties will be absorbed, thus creating demand for new;
- This will result in an increase in housing starts, and not all of them will be compact urban development;
- Why? Because Generation Y will age, and when it does, its members will begin to turn away from the live-work-play in the same place. They will start families and many will want detached single-family residences with yards. That’s not a desire that’s unique only to a particular generation.
Most of the residences in new MPCs undoubtedly will be smaller than in the past for at least two reasons:
- The party’s over in the United States. The changes currently occurring in our world as well as our economy are imposing a downward shift in lifestyle affordability, which in turn affects quality of life. We will not see a return of the rising tide that lifted the Boomers’ ships to incredible highs. There will always be an affluent class, but the middle class will be poorer;
- Housing costs, including the added costs of ever-increasing regulatory measures, as well as the costs of transportation from the exurbs to workplaces, schools, etc., will eat a greater hole in Generation Y members’ budgets.
These factors and others will be met only by downsizing the residence. But, the good news for the residential development community is that MPCs are not a class of dinosaur.
1Trends and Innovations in Master-Planned Communities, 1998, Schmitz and Bookout, ULI-the Urban Land Institute, ISBN 0-87420-800-9.
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