Walking Distance

Indeed, many builders are constructing more affordable units right next to luxury homes, sometimes in the same building.

In downtown Seattle, where 8,000 condominium units are on the drawing board, mixed-income housing is slowly becoming a fixture. Historically, says architect John Savo, a principal with NBBJ, downtown housing has catered to two market extremes: the luxury home buyer and the low-income renter. Lately, though, “Developers have been coming in and recognizing that there's a real opportunity here for middle-income housing,” says Savo, whose firm has designed homes that Seattle's downtown working people can afford to buy.

URBAN CHIC: Toll Brothers' One Ten 3rd sits betweens New York's eclectic East Village and the trendy Union Square Park and is selling to singles and childless couples in their 30s. The 21-story building (below), which will open this summer, will feature 76 condo units starting at $850,000.

To cater to that crowd, says Emsiek, who is seeing more mixed-income properties in California as well, builders are cutting the cost of construction: The units aren't on the water; they don't have sweeping views; and the buildings lack spas, for example. Kimball Hill Homes in Chicago is redeveloping two major public housing sites into mixed-income communities, which will include a mixture of 800 affordable rental, affordable for-sale, and market-rate for-sale properties. “The goal is to realize an economic continuum,” says Doug Guthrie, president of Kimball Hill urban centers. “It results in a healthy community.”

Indeed, says Emsiek, well-heeled empty-nesters and cash-strapped first-time home buyers often want the same community amenities, even if they can't afford the same interior designs.

So his firm sometimes designs “airspace condos” with no completed interiors. The wide-open loft spaces range from $280,000 to $3.5 million in the same building—depending on size and view—and allow the buyer to customize the interior with walls and finishes according to taste and budget. “We see a very broad cross-section of socioeconomic status and demographics,” says Emsiek. “They're all after the same thing, but they can't do it the same way.” So a buyer who can afford a $300,000 unit will have a sparsely appointed bohemian-style loft; the buyer with $3 million will opt for lavish finishes on the top floor.

Likewise, Lander Group has built condominiums in downtown Minneapolis that sell for $149,000 to $800,000 in the same building and has sold some “shells” that buyers later finished with the help of a custom builder. And the firm builds a basic unit and offers lots of upgrades “so folks can size the pricing to their needs,” notes Lander.

Phoenix builder Eric Brown, a regional manager for Engle Homes, says builders will have to find creative ways to keep prices reasonable so downtowns can grow into bustling residential neighborhoods. “We know who wants to live downtown,” he says. “The question is at what price? They may want to live downtown but may not be able to afford as much as it costs to build there. The question is: How much are young people, teachers, and hospital workers willing to spend?”

Still, he notes, “2007 is going to be the make-or-break year for most projects. ... It's never too late to try to bring back your downtown.”

Twenty-somethings and their 50-plus parents are redefining downtown living.

• The reuse of existing downtown property will continue as builders convert historic hotels and factories to condominiums.
• The demand for urban housing will remain steady and, over time, so will the increase in property values.
• The temporary pullback in home sales could begin its recovery in the cities as more empty-nesters and young, first-time home buyers opt for an urban, walkable lifestyle.
• Single women, whose incomes are on the rise, will become an important target for downtown builders as cities become safer.
• Cities will increasingly require builders to mix residential with retail and offices so residents can walk to work, restaurants, and shops.
• Population declines in downtowns will continue to reverse as cities lose fewer people than they gain. Cities will be home to smaller, childless households, while suburbs will remain appealing to young families.
• City homes will be almost exclusively condominiums and townhomes, and the square footage will both expand and shrink. High-earning empty-nesters will move from large suburban homes into large condominium units and townhouses, while their 20-something children will sacrifice square footage for the opportunity to own.
• The well-off will share neighborhoods and even buildings with the just-getting-started. Older, wealthier buyers will buy bigger, more lavish units with views, while young, entry-level buyers will settle for smaller units, inexpensive finishes, and ordinary views.
• Because of a lack of downtown land, the potential for new center-city housing will be quickly exhausted. Once it is, second-tier downtowns will blossom in town centers within driving distance of large cities.
• Fringe downtowns will sprout up around big-city waterfronts and new sports venues.
• More builders will focus on workforce housing—affordable units for downtown workers within walking distance to jobs.
• Developers will consider apartment buildings as an alternative to condominiums in the most condo-saturated markets.