Terry Mitchell

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Presentation from Bring Workers Home regional workforce housing forum in Austin, TX on August 12, 2010.

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Terry Mitchell

  1. 1. Bring Workers Home: 2010 Regional Forum on Workforce Housing <ul><li>The Growing Cost of Place: Why Workforce Housing Matters in Austin </li></ul><ul><li>Terry Mitchell </li></ul><ul><li>August 12, 2010 </li></ul>
  2. 2. Workforce Housing <ul><li>Provided by the market only in the fringes of our metro area. </li></ul><ul><li>Traffic congestion makes these commutes very costly. </li></ul><ul><li>Continual regulatory changes drive up costs. </li></ul><ul><li>Neighborhood opposition makes affordable development difficult. . . Density needed. </li></ul><ul><li>Financing limitations hurting availability of “for sale housing”. </li></ul><ul><li>Current capital environment making projects expensive. </li></ul>
  3. 3. Sample Capital Cost During &quot;Normal&quot; Times     Project Investment 10,000,000   Debt Interest Rate 7% (IF AVAILABLE)   Required Equity Return 20% (COMPOUNDED)           Debt $ 8,000,000   Equity $ 2,000,000         End of First Year End of Year Two End of Year Three End of Year Four Totals     Debt Interest $ 560,000 $ 560,000 $ 560,000 $ 560,000 $ 2,240,000 (8,000,000 x Debt Interest Rate)   At 20% (compounded) $ 400,000 $ 480,000 $ 576,000 $ 691,200 $ 2,147,200     Total Capital Costs $ 960,000 $ 1,040,000 $ 1,136,000 $ 1,251,200 $ 4,387,200
  4. 4. Sample Capital Cost During &quot;Boom&quot; Times     Project Investment 10,000,000   Debt Interest Rate 7% (IF AVAILABLE)   Required Equity Return 13% (COMPOUNDED)           Debt $ 9,000,000   Equity $ 1,000,000         End of First Year End of Year Two End of Year Three End of Year Four Totals     Debt Interest $ 630,000 $ 630,000 $ 630,000 $ 630,000 $ 2,520,000 (8,000,000 x Debt Interest Rate)   At 13% (compounded) $ 130,000 $ 146,900 $ 165,997 $ 187,577 $ 630,474     Total Capital Costs $ 760,000 $ 776,900 $ 795,997 $ 817,577 $ 3,150,474
  5. 5. Sample Capital Cost During &quot;Capital Crunch&quot; Times     Project Investment 10,000,000   Debt Interest Rate 7% (IF AVAILABLE)   Required Equity Return 30% (COMPOUNDED)           Debt $ 5,500,000   Equity $ 4,500,000         End of First Year End of Year Two End of Year Three End of Year Four Totals     Debt Interest $ 385,000 $ 385,000 $ 385,000 $ 385,000 $ 1,540,000 (8,000,000 x Debt Interest Rate)   At 30% (compounded) $ 1,350,000 $ 1,755,000 $ 2,281,500 $ 2,965,950 $ 8,352,450     Total Capital Costs $ 1,735,000 $ 2,140,000 $ 2,666,500 $ 3,350,950 $ 9,892,450
  6. 6. Sample Capital Costs in Differing Times       End of First Year End of Year Two End of Year Three End of Year Four Totals     Total Capital Costs &quot;Normal&quot; Times $ 960,000 $ 1,040,000 $ 1,136,000 $ 1,251,200 $ 4,387,200     Total Capital Costs &quot;Boom&quot; Times $ 760,000 $ 776,900 $ 795,997 $ 817,577 $ 3,150,474     Total Capital Costs &quot;Capital Crunch&quot; Times $ 1,735,000 $ 2,140,000 $ 2,666,500 $ 3,350,950 $ 9,892,450     So, what does this mean for us? Here are some POSSIBLE conclusions:         • Money is available, but not many deals fit the capital requirements.   • To make deals fit, investors try to obtain lower land costs and construction/development costs.   • In Austin, however, there is NOT a lot of excess lots available   (some, but not a tremendous amount), so heavy discounting has not hit this market.   • In the Austin area, there is a lot of available raw land (that could be discounted), however,   raw land typically comprises 15% to 30% of the cost of a residential lot. This means that   heavy discounting of raw land will not produce substantial lot cost savings -- certainly not enough to pay for the additional capital costs being sought today.   • Offsetting any land price reductions are the continual development cost increases that occur due to regulatory changes This is NOT a complaint -- just reality. Examples would include capital recovery fees; new code requirements; boundary road fiscal; increased code requirements; increased detention and water quality requirements; top soil changes; affordable housing requirements; fiscal requirements. • Austin is still growing: positive job growth in the last three months; Austin grew 32,000 people through in-migration last year; Austin is ranked first or second in lists for the best places for job growth and in-migrations. Demand will grow. • If the capital does not return to &quot;normal&quot; structures, Austin could face a tight housing market in the next few years.      
  7. 9. Site Transit Access
  8. 11. Property with Topo and Trees
  9. 15. Homes For People

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