Housing market shifts back to metro Phoenix's core
December 28, 2013New houses are sprouting up — but not on the usual far-flung lots.
In the heart of metro Phoenix's core communities, new houses and condo projects are in the works on vacant parcels, in half-built subdivisions and in teardown projects replacing run-down buildings.
Prospective buyers who want to live closer in instead of on the region’s fringes are spurring builders, big and small, to develop infill housing at the fastest pace in Valley history.
By percentage, growth of infill homebuilding is outpacing the rest of metro Phoenix’s new-home market.
In 2010, only about 200 houses were built in the region's central neighborhoods — defined as inside the Loop 202 and 101 freeways. So far this year, 1,311 houses have been built, more than six times the number of three years ago.
From a minuscule number of permits in past years, infill projects in 2013 now make up almost 13 percent of the estimated total of 11,500 new-home permits issued through November, according to a real-estate analysis by RL Brown Reports.
Big builder Meritage Homes just sold out at its Madison Place development in central Phoenix and is buying the former Paddock Pools headquarters in south-central Scottsdale, where it is planning a similar project, called Diamonte.
"There's tremendous demand for infill in the right Valley locations," said Michael IlesCremieux, a Meritage vice president.
New houses going up near the Metro light rail are selling within days and sparking bidding wars. For-sale signs posted on lots vacant for decades are being replaced by dirt movers and contractors’ pickups.
“There’s a lot of pent-up demand for infill homes. Many buyers don’t want to drive farther out to buy anymore,” said Phoenix City Councilman Tom Simplot, who is also CEO of the Arizona Multihousing Association.
“Look around the central Valley," he said. "New houses are going up and selling fast."
New developments can be spotted across Phoenix and in many long-developed areas, including south Scottsdale, east Mesa, downtown Chandler and a Glendale neighborhood just north of Maryvale.
Shea Beck travels a lot for his job as e-commerce director for the in-flight catalog SkyMall and wanted to be close to Phoenix Sky Harbor International Airport and the freeways, as well as near his friends and the places he likes to hang out at when he’s in town.
Beck, 31, looked for a house in central Phoenix for more than a year before buying his first home in Madison Place near 16th Street and Missouri Avenue. He moved in at the beginning of November.
“I like the area, and it's an affordable new home, which is rare in an established community,” said Beck, who bought a 1,200-square-foot condominium for $227,000.
“I drove by it several times on the way to bars and restaurants when the project was on hold status, so when I saw the building resume, I called and went in the next weekend.”
Analyst RL Brown of RL Brown Reports said competition for the best central Valley sites for homebuilding is bound to increase — meaning prospective buyers may be paying more, as well.
“Infill development is naturally constrained by the relative shortage of suitable land as well as the price of the land,” Brown said.
Big builders go small
Infill projects have lured big builders, who see they can profit on smaller developments because buyers often are willing to pay more to be closer in.
Meritage started building Madison Place before the crash. At the time, in 2009, the houses were selling for less than $200,000. The Scottsdale-based builder restarted the project early this year.
"We've sold out in six months at Madison Place and raised the price by $50,000," IlesCremieux said. "Now, we are going to build the same thing in central Scottsdale."
Near 32nd Street and Campbell Avenue in Phoenix's Arcadia neighborhood, Rosewood Homes is wrapping up an 18-home infill project that had so much buyer interest that Rosewood had to run a lottery system, literally picking prequalified homebuyers out of a hat.
Seventeen of its 18 single-family homes are sold; three of them were sold before the first model opened in April.
“At our grand opening, we had over 200 people on our interest list,” said David Kitnick, Rosewood Homes president. He said more than 1,000 people visited the sales office in the first 10 days.
The 3.76-acre lot was the former site of a neighborhood church. Rosewood Homes closed on the lot in June 2012. The final house in the 33 Campbell Place development is a model that will sell for about $670,000 when a final lottery is held Jan. 3. The rest have sold for $522,388 to $762,500.
"In this down cycle, we were really trying to find some unique opportunities," Kitnick said. "After the collapse, you had to have a compelling reason to buy a new home. It didn't make sense for us to just build more homes in suburbia. Those weren’t selling."
Kitnick said he started looking for land opportunities closer to city amenities, in part because those neighborhoods were more stable and new-construction homes were rare.
“A smaller neighborhood doesn't have the economies of scale of a larger neighborhood (for a builder)," Kitnick said. "But you have a lot more demand and a limited supply. There's advantages to not being inundated with so much competition.”
Small builders find a niche
Smaller builders are also finding their niches with infill lots. They're building eco-friendly and contemporary single-family homes aimed at young professionals who want to live closer to city amenities.
Since October 2012, local builder Evan Boxwell has lived in a home he built on an infill lot near the Metro light rail.
Boxwell quickly snapped up a nearby lot in Phoenix's Pierson Place Historic District to build a 1,746-square-foot spec home with a contemporary design. In August, that house sold for $420,000. It was on the market for only a week.
“We knew there was some potential there," said Boxwell, who is starting construction soon on a third, slightly larger, house in the same neighborhood. "There are a lot of young, urban professionals that want something a little more central.”
Boxwell — who worked with local architect Jeremy Kotter on the first two homes and Cavin Costello and Claire Aton of design firm Ranch Mine on the third — believes the contemporary design also fills a niche.
"My product is a little more unique. It appeals to a younger demo," he said. He added that he would like to continue similar projects in up-and-coming neighborhoods near the light-rail line.
"Prices for dirt are going up. The really good deals are few and farther between, but as long as the market can withstand it, I can see myself doing this for a while," said Boxwell, 31.
A few miles away in the city’s Loma Linda neighborhood, developer Austin Trautman of Vali Homes is building net-zero energy homes on two neighboring lots.
One of the two is complete and is on the market for $365,000. Built to be airtight and largely maintenance-free, the home creates all the energy it uses with its photovoltaic solar panels.
"We are still very committed to infill," Trautman said. He currently is working to get approval on a 15-home development in Phoenix, in which net-zero energy houses would share a common courtyard and the carports would contain solar panels.
"The key for us is finding a niche that most others aren't, can't or don't want to learn how to fill," he said.
A block north of the financial center in downtown Phoenix, a husband-and-wife development team just finished construction on two contemporary single-family homes sandwiched between commercial properties.
The homes, by RD Design Team’s Dora Castillo and Raphael Castro, are on the market for $419,000.
“Most people really love the flexible space and the architecture,” said Scott Jarson, a Valley real-estate agent who specializes in architecturally significant homes and is marketing theirs.
"We're really kind of re-residentializing that block," Jarson said. "It may not be for everybody, but I love the challenge of it. If we can do that, then all those empty lots that are not commercial in downtown Phoenix can come alive again."
Castillo and Castro already have designed homes for three more infill properties and are considering three more lots, Jarson said. The duo, both architects from Mexico, have been working on infill projects for years but recently have tried to fill a niche for affordable modern homes near central Phoenix.
"It's a great little niche," Jarson said. "The challenge is going to be finding sites to keep doing this. The tide has so obviously turned. The demand for properties in and around the central core of Phoenix, as opposed to going out to the desert, is greater than it has ever been.
“The younger generation does not want to go out to the desert.”
Needle in a haystack
Already, the number of lots available for infill is dwindling.
Available lots for new homes inside the boundaries of Loops 101 and 202 have fallen to about 2,350.
Kitnick, of Rosewood Homes, said he typically looks at 20 to 25 properties a month — two-thirds of which are infill or closer to a city center.
“It is a needle in a haystack to find these opportunities," said Kitnick, whose company is starting soon on a 59-home project in Ahwatukee Foothills.
He has plenty of competition for the best sites. There are more than 50 builders constructing infill houses in the central Valley.
Kitnick said that when there is a good property, it often comes with challenges, including an odd configuration or difficulty finding nearby comparable property prices that can justify the sales prices necessary for a new-construction luxury home.
“With infill, you often have to problem-solve because there’s usually a good reason the property wasn't developed,” Kitnick said.
This article original ran in the Arizona Republic, December 28, 2013