Traditional neighborhood developments work. But 20 years after their onset, the question is whether they remain a niche play or a major opportunity for builders. By Cati O'Keefe
"Let me get this straight," a prospective home buyer says, his voice rising a notch, "you want me to pay more money for a smaller backyard and less square footage than I can get at any other community around here?"
Leslie Kennedy is prepared for the incredulous face opposite her information desk at Lakelands, a traditional neighborhood development, or TND, in Rockville, Md. She cuts short her usually comprehensive sales pitch when noting that the buyer's peevish countenance holds. "Look, this place isn't for you," she says. "There's a great community right across the street you should look at. In fact, there are tons of other homes in this zip code that would suit you much better."
Kennedy says her style gets a nervous laugh from builders and marketing specialists alike, but she shrugs it off, noting that TNDs are so different from conventional suburban developments (CSDs) that they require a completely different sales touch. Plus, she adds, "If a person isn't right for a TND, you don't want them to live in it. They'll never be happy."
Kennedy also understands buyers' discomfiture. "They focus on the more-money-for-a-smaller-house deal, and they want to fight it," she notes. "They can't explain the TND concept in their own minds, let alone rationalize it to family and friends helping them house hunt."
This is the fundamental issue that's dogged the TND movement since the New Urbanist community Seaside swept onto Florida's shores in 1982: If you don't get it, you don't get it. Not only have buyers needed a crash course in the trade-offs of TNDs vs. conventional development, but builders themselves have been forced to swallow the iconoclastic premise that houses, like cars, can't be sold by the pound. Buyer confusion has caused many builders to wonder whether building in TNDs is worth the steep learning curve and patience needed to succeed. They wonder whether the TND movement is simply another fad that will stay vertical, fringe, and complicated forever or whether it's a big opportunity for future growth.
TNDs, most simply described as compact, walkable, mixed-use neighborhoods, run the gamut from communities that adhere rigorously to every TND tenet (there are 27 according to the Congress for the New Urbanism) to communities that hit the three major characteristics above but that are less strict about principles like architectural details or building materials.
Shallow or deep?
The unfortunate reality, notes urban demographer Dowell Myers, is that comparable sales information for TNDs is almost nonexistent. "There is no source of data neatly labeled 'walkable neighborhoods, demand for,'" he says.
Builders interested in developing or building in TNDs, then, are forced to make a heroic leap when trying to determine actual demand. Generally, TND consultants and developers put demand at about 30 percent of the housing market, but advocates vehemently dispute that number as too low.
What we do know, according to New Urban News, is that more than 300 New Urbanist towns, villages, and neighborhoods are planned or under construction in the United States (not including 100 small-scale infill projects). Moreover, 46 of those projects contain significant, and often risky, retail components.
Myers, a professor at the University of Southern California, attempted to gauge future demand in his study, "Current Preferences and Future Demand for Denser Residential Environments." In the report, coauthored by student Elizabeth Gearin, Myers points to studies from organizations like the NAHB and Fannie Mae, which would throw cold water on TNDs. These studies claim that as many as 83 percent of consumers prefer a large single-family house in a low-density neighborhood.
Tidal predictions
So what's a business-minded builder doing swimming against the tide of folks who want product that's already being delivered seamlessly by the millions of square feet? A builder who's looking ahead, says Myers.
Myers' study revealed a small but substantial demand for an urban or town-residential style. It ranges from 17 percent to 33 percent depending on the report, he says. (At the same time, he believes that less than 83 percent of buyers prefer the stereotypical suburban house: In the same surveys, respondents who claim they want a suburban house also say they'd like stores and services within walking distance of their homes.)
Jeff Speck, a planner with Duany Plater-Zyberk (DPZ), thinks true demand is hidden by analyses of so-called best-selling homes: "Real estate industry advisors do market studies on what sells the most. They recommend the new schlock because that's what's mostly been available and therefore has sold well."
There is also the overlooked fact that most studies focus on new-home buyers when the much larger market of consumers are resale buyers whose housing demands have not been met by new construction.
Last but not least, one must account for the boomers when assessing future demand. Rolling past age 45, flush with equity, and hip on urban areas, boomers have money, so they can afford high-end product--especially the typically more-expensive infill homes.
Todd Zimmerman, comanaging director of Clinton, N.J.-based Zimmerman Volk and Associates, refers to his firm's 160 market studies when debunking the market share estimate: "The 30 percent figure is a gross underestimate," he argues. He bullishly claims that the true market share for TND is, well, pretty much the whole home-buying market. "The only distinguishing characteristic of residents of neighborhoods planned according to New Urbanist principles is that they were fortunate enough to have had the choice: There was one where they wanted to live, and they could afford to live there," he explains. "If only 30 percent of the market wants TNDs, why is escalation of housing prices in TNDs two and three times higher than comparable conventional housing across the country?"
He's got a point. The homes at Kentlands in Maryland (precursor to Lakelands) sell at a 25 percent premium over CSDs in the same zip. Seaside's homes have appreciated about 27 percent per year since the community opened.
Wading in
More cautious about the TND market are production builders.
David Weekley, CEO of David Weekley Homes, is conservative about his company's foray into TND, even as he calls his company The TND Guys. Weekley built in the heavily publicized TND Disney's Celebration in Florida. "We will do more TND, but it's a niche market. There are places where it works; places where it doesn't." Weekley puts interest in TNDs at 20 percent of the market; they account for about 15 percent of his company's current product line.
John Wieland Homes and Neighborhoods, too, thinks more conservatively. Jay Kallos, architectural product manager, spoke at a sold-out NAHB TND seminar in Charleston, S.C., this past fall: "For us, TND is going from about 10 percent of our business to about 25 percent. Right now our biggest problem is disagreement within our company over whether TNDs are a legitimate trend with legs."
Peter Calthorpe, principal of land planner Calthorpe Associates, is nonplussed by the hoopla surrounding market share: "Builders have become aware that buyers like streetscapes, porches, diversification, and narrow streets for traffic calming. The marketplace, as always, is leading this and moving all the builders quite nicely."
So these builders--being herded along by market pressure--what's in it for them? The answer depends on their market, and maybe more important, their commitment level. At their disposal is an enormous collection of resources on the tenets of TND.
We think there are four major areas builders should explore if they plan to take the neo-traditional dive:
