The architectural handbook that Arcadia and LRK created to reassure the township and Tim Cassidy about the quality of design of New Daleville claimed the houses would be inspired by the villages of Chester County. Linthicum tells me that in some projects he has been able to convince the head office to develop new models, but since doing this costs about $40,000, it’s hard to justify for a project as small as New Daleville. The truth is that, despite DiGeronimo’s efforts, the New Daleville houses will be similar to the neotraditional models NVR builds from South Carolina’s Lowcountry to upstate New York.
“New Daleville is a remarkably picturesque neighborhood set in the rolling hills,” reads the Ryan Homes website. “Reminiscent of old-time neighborhoods, this lovely neo-traditional community has a central boulevard lined with picket fences leading you into tree-lined streets and alley ways. The lush landscape is laced with bench-lined paths and winding walkways to pocket parks and recreation areas where families and friends can gather and have fun.” On this sunny day in mid-April, New Daleville doesn’t look anything like that. The earthmoving crews have been working on the site for a week, and what was once a picture-postcard landscape of fields and pastures is now a sea of red earth. Jim Weidner, an athletic-looking man whose hobby is long-distance bicycle racing, is Arcadia’s construction manager. He takes me around and explains the work involved in preparing the site for the home builders. The first task is to deal with surface runoff, that is, rainwater, since environmental regulations require that all rainwater must be kept on the site. The water will be collected from the streets by a system of underground concrete pipes and drained into a retention basin, where it will sit long enough for the silt to settle. It will then pass through gravel filters before being discharged into the existing wetland area. The aim is to keep silt from clogging the wetlands.
There are two earthmovers and five assorted bulldozers, back-hoes, graders, and rollers scooting over the raw earth. This contractor builds interstate highways as well as suburban office parks and regional schools, so rolling out fifty acres of roads and sewers must be a piece of cake. The retention basin at the low end of the site is contained by earthen dams called berms. Temporary black-plastic diversion fences slow down runoff until the basins are operable. Orange security fences keep the earthmoving equipment away from the wetlands and the future drip field. “Once the basins are finished, they’ll bring on a second crew to build the streets,” Weidner tells me. “Then it’ll get really busy.” From a distance the machines looked like toys in a sandlot; close up they are enormous. A noisy grader rumbles past. Weidner points to saucer-like hardware on the roof. “That’s a satellite dish connected to a Global Positioning System. Inside the cab, a computer programmed with the topographical plan of New Daleville gives the operator a precise readout of the terrain, so he knows how much to cut or fill.”
We walk along the flat top of a berm that resembles an ancient bulwark. Once the basins are finished, the berms will be seeded and the crews will turn their attention to grading and compacting the streets and creating what Weidner calls the “pads” for the individual house lots. Storm water and sewer pipes will be buried, along with other utilities (houses at New Daleville will have individual underground propane tanks). Then, the streets and lanes will be paved and the granite curbs installed. Sidewalks will be built as houses are completed. “Our deadline is September 1,” he says. “If we miss that date, the home builders can theoretically walk away. We’ve had a slow start because of rain, which meant that the berms wouldn’t compact properly. In another project, we had so much water in the soil that we had to drill wells to pump it out. Fortunately, that wasn’t the case here.” Weidner expects to have the pads ready in June or July, when the contractor will begin grading the streets. “We’ll start with the boulevard, which is where Ryan and NV will build their model homes. Then we’ll do the side streets and the back lanes,” he says.
The topsoil has been scraped off and stored on the future township park, which now resembles an earthen mesa. Since most of the site had no trees, the churned-up landscape looks especially desolate, as if someone had dropped a bomb onto Dr. Wrigley’s pretty cornfield. “It’s scared my neighbors to death,” Tim Cassidy later tells me. “Their unspoken message is ‘How could we have approved a plan like this?’ Oh well, I’m sure they’ll calm down once the grass starts to grow.” But I sense that even he is shaken by the extent of the disruption.
Three months later the grass is growing on the berms, the storm water and sewer pipes are buried, and the roads are graded. The central boulevard, which is the main feature of the plan, is clearly discernible, its wide median planted with grass. Concrete street drains poke out of the earth, and the future streets are churned into mud by the massive tires of the earthmoving equipment. The finished house pads are anything but flat; they are actually several feet lower than their final elevation, since they’re designed to accommodate the earth that is excavated from the basements and foundations. I was expecting something neater. But Weidner sounds pleased and tells me that the builders are very happy with the way the grading has been done.
Work has not yet started on the drip irrigation field. The state environmental agency has already given its planning approval, but because New Daleville is discharging treated wastewater into the ground, it also needs a federal permit. This permit consists of two parts: the first certifies the quality of the effluent; the second is basically a building permit for the treatment plant. Arcadia has the first but not the second. Weidner says that the reason for the delay is unclear but that he’s not worried. It will take twelve months to build the plant and the drip field, which means it won’t be in operation when the first houses start going up. This sounds like a complication, but Weidner explains that the treatment plant cannot function properly at less than about 50 percent capacity, so until half the houses are occupied, all sewage will have to be trucked away from the site.
It’s now June 2005, but water supply continues to be an issue. Two and a half years have passed since Arcadia first talked to Chester Water, and construction of the trunk line has still not started. This has nothing to do with the opposition of the neighboring township, which, as the lawyers predicted, has faded away. The difficulty concerns a delay in the negotiations between Chester Water and the Honeycroft Village developer, who seems to be in no hurry to sign. Since Honeycroft is the lead client for the trunk line, Arcadia can’t finalize its own contract, and without a contract it can’t apply for a permit to build water mains. Since the contractors have finished grading the site, they are ready to lay pipe — or leave. To avoid further delays, Arcadia decides to do something a little risky: install the water mains without a permit. “We think the risk is minor,” says Jason Duckworth. “The problem with Honeycroft is simply one of timing; they are definitely going to build the pipeline. We have the township inspector on site, and we’re videotaping our installation so that Chester Water can give us a retroactive permit.” He is upbeat, as usual, but the delay is potentially serious. The construction of the Chester Water pipeline is expected to take two to three months, and the longer it is postponed, the later the water will arrive. And without water, homes cannot be occupied. “We can pump sewage out,” Weidner says, “but we can’t truck water in.”
When New Daleville was in its early planning stage, three years ago, I remember Joe Duckworth showing me one of the worksheets that outlined the schedule for the project. The chart resembled a staircase, each step neatly following the previous one: rezoning, township approval, state permits, land acquisition, site preparation, model homes, and so on. The actual process hasn’t been like that at all. The sequence has gotten jumbled — it’s now like a twisted stair in an Escher drawing, seeming to go up but frequently going sideways or down.
Yet there is progress. In July, the builders bring in two double-wide trailers that will serve as temporary sales offices until the model homes are built. The trailers are set up in the space that will be occupied by the commercial build
ing. NVR erects a gazebo between the two offices and puts up a white-painted horse fence around the parking lot.
Jason doesn’t like the fence. “Our landscape architect has designed several structures that include a gazebo and two pergolas. We plan to build these out of unpainted barn wood — we’ve actually bought an old barn. The idea is to make New Daleville look a little more rustic. We might use barn wood for the street signs, for example. We’re also thinking of buying an old windmill tower and installing it as a landmark. We suggested that the builders also use cedar fences to fit in with our theme, but they didn’t want to. They also rejected our suggestion to use unpainted wooden fences around the houses. They’re concerned about maintenance, and their corporate policy for neotraditional developments is to use white vinyl picket fences. They’re going to build fences along the length of the boulevard. I’m not happy with it, but they’re paying for them. At this point, there are some things that are not worth arguing about.”
There has been friction between Arcadia and the builders on other issues. “For example, we can’t agree on the ‘weekend directionals,’ the roadside signs that will direct buyers to the sales trailer,” says Jason. “We want to emphasize New Daleville, but they have a standard template that features their own brand. Similarly, in the sales brochure, we want to highlight community issues but they want to focus on the houses. What it really comes down to is: Whose development is this, anyway? They’ve bought the lots, so they feel it’s now their operation. But we still have a vested interest in the overall concept.”
It’s understandable that NV and Ryan now think of New Daleville as their project. They’ve paid a lot of money for the lots, and they believe that they know best how to market the development. As the risks and rewards shift from the developer to the home builders, the latter want to be in control. Judging from the way NV and Ryan have handled the design guidelines, they will probably get their way.
Although the builders have set up sales trailers and are advertising New Daleville in local newspapers, they haven’t actually bought any lots from Arcadia. “Without a water contract, we can’t get a permit for the water mains, and without a permit, the builders won’t buy any lots and start building their model homes,” says Jason. “Everything is held up.”
It’s now September. Honeycroft and Chester Water have finally reached an agreement, but Arcadia still doesn’t have a contract with the water company. “They’re unhappy with the fact that we went ahead and put in the water pipes without their approval, so now they’re dragging their feet,” says Jason. “They’re going to send an inspector to review our videos of the installation. He’ll probably want to open up a few holes to examine the work. Although we’ve put in the street curbs, we’ve held off paving the streets, just in case. If the contractor did his job right, there won’t be any trouble.” Meanwhile, the weather is turning colder. The only good news is that DEP has issued a building permit for the treatment plant, and the township has finished reviewing the builders’ house plans and has issued building permits for the model homes. Building permits in hand, and assured that the water permit is imminent, the builders start work on three model homes.
It is January 2006 before New Daleville gets its water agreement. Chester Water insists on inspecting the individual connections between the houses and the street mains. At one point it appears that the water company may demand to check each of the 125 house connections, but they finally settle on a sample of half a dozen. After several more delays, the inspection is completed without a hitch. Since it is now midwinter, paving of the streets cannot resume for at least another three months. Weidner figures that the testing delay alone has cost Arcadia $20,000. But at least the trunk line that will supply water to New Daleville is finally under construction.
24
The Market Rules
House prices generally rise slowly, reflecting rising construction costs, increased demand (due to population growth and obsolescence), and inflation. During a housing bubble, by contrast, the increase is significantly greater as people bid up the prices of houses on the assumption that they will be worth considerably more in the near future. In other words, they act more like speculators than like home buyers.
For the last decade, the United States has been experiencing a housing boom. In 2004 sales of single-family houses passed 2 million, a record. But not only are more Americans buying houses, they are also willing to pay more for them. In the last four years, new home prices have risen almost 50 percent, which is dramatically more than the historical average of about 5 percent a year. These are national figures; the four-year increase in selected markets has been even more dramatic: 92 percent in Miami, 103 percent in Los Angeles, and 119 percent in San Diego.1 Such spectacular and unprecedented jumps led some economists in the summer of 2005 to characterize the present housing market ominously as a “bubble.”2
An economic bubble is defined as “a situation in which excessive public expectations of future increases cause prices to be temporarily elevated.”3 House prices generally rise slowly, reflecting rising construction costs, increased demand (due to population growth and obsolescence), and inflation. During a housing bubble, by contrast, the increase is significantly greater as people bid up the prices of houses on the assumption that they will be worth considerably more in the near future. In other words, they act more like speculators than like home buyers. Since the high prices are not justified by what economists call the fundamentals (population growth, construction costs, inflation), sooner or later they have to stop rising. At that moment, the expectations that have been fueling the market are dashed, and as panicky investors sell, prices fall precipitously and the bubble “bursts.”
The media love the idea of a bursting housing bubble, which seems to go along with the rest of the bad news: the faltering war in Iraq, Hurricane Katrina, and a series of business and political scandals. At the same time, the evidence is inconclusive, and many of the newspaper reports are contradictory. Sales are up, they’re down; prices are up, they’re down; builders are selling more houses, they’re selling fewer. I decide to ask an expert. “There is no single-family housing bubble,” says my friend Peter Linneman, who is a professor at the Wharton School and also manages a real estate consulting firm. “It’s just a bubble of stories about a housing bubble.” He agrees that there has been an unusual run-up in prices, but he sees this not as the consequence of a buying frenzy but as the logical result of the market.
Here is his explanation. Over the last four years, mortgage rates have declined 23 percent. Lower mortgage rates mean that more people can afford to buy a house, and Linneman’s research shows that for each 1 percent drop in rates, housing demand increases 1 percent. Thus, the current rate decline has produced a 23 percent increase in housing demand. Household disposable income has a similar relationship to housing demand; as incomes rise, more people can afford a house. Since real incomes have risen approximately 12 percent in the last four years, housing demand has gone up a similar amount. Population has increased by about 4 percent over the same period, which likewise fuels demand. Last, an inflation rate of 8 percent over four years can be expected to raise home prices a similar amount. Adding these figures yields an overall increase in demand over four years of 47 percent.
On the supply side, in the same time period, 2 percent of existing houses were destroyed by fire, demolition, or abandonment, while builders added only about 6 percent. This surprisingly small increase in the housing stock is caused by local constraints on development, particularly in California and the Northeast. (In Chester County, for example, despite consistent demand, fewer building permits for single-family houses were issued in 2004 than in 2003, and fewer in 2005 than in 2004.) Thus, while national demand has risen 47 percent in four years, supply has increased only 4 percent. “Given the massive imbalance between real demand and supply, it’s no wonder that housing prices have risen dramatically,” Linneman says. “Home prices have risen exactly as one would have expected.”
Home buyers may be amateurs, but they know something important about the housing market that seems to have eluded the media: the sticker price is not necessarily the most important factor. The cost of ownership is a function of interest rates, taxes, and the cost of utilities. Low interest rates and higher household incomes (which allow families to devote a larger percentage of income to housing) have made expensive houses more affordable.5 The cost of owning is also a function of what economists call “the opportunity cost of capital,” that is, the income one would have received if one had chosen to be a tenant rather than an owner. When interest rates are low, mortgages are cheaper and opportunity costs are low. Simply put, buying a larger house makes more sense than leaving one’s money in the bank or investing in a lackluster stock market.
Last Harvest: From Cornfield to New Town Page 21
