They say that history always repeats itself. Housing goes through cycles. But this downturn is one for the books. Home foreclosures and defaults on land and commercial loans are at an all-time high, and banks aren’t making many loans to small businesses, land developers and home builders.

It all started with the collapse of the big banks and AIG, which insured toxic mortgage security bundles. Wall Street began acting more like a casino, spreading their misleading investments all over the world. Rather than let them fail, the government created “bailout funds,” saving the big banks. The Fed lowered interest rates to almost nothing, allowing Wall Street to book billions in profit while Main Street suffers. The stimulus package, which has had little impact at creating new jobs or assisting small business owners, has only increased the U.S. national debt to alarming levels.

When Congress repealed the Glass-Steagall Act, it permitted banks to become casino dealers. Freddie Mac and Fannie Mae made home loans to many borrowers who could not make their mortgage payments. The house of cards collapsed, sending our industry into a tailspin, the likes of which we have not seen since the Depression and hopefully may never see again.

Where Are We Now?

Land development in the United States is at a virtual standstill. True unemployment is over 15 percent. New jobs are scarce, and millions of homeowners are behind on their payments. Foreclosed homes abound in many markets. National builders and investors are snapping up finished lots at rock bottom prices, many utilizing rolling option contracts. In an effort to reach first-time buyers (utilizing the recently expired $8,000 tax credit), builders turned to offering smaller, stripped-down houses on discounted lots in an effort to meet the competition of foreclosure home prices.

The situation in the United States is markedly different from what’s happening north of the border in Canada, and there’s a lesson in that. The recession really only lasted for a few months in Canada, especially in the housing industry. When the world’s financial house of cards collapsed in the fall of 2008, Canadians stopped buying houses, but only until the following spring.

Once Canadians saw that their own banks, which are closely regulated, survived the bloodletting and remained mostly profitable, and the Canadian mortgage market remained intact, the housing market rebounded. You might even say it boomed. The biggest problem Canadian builders face today is that, influenced by the debacle in the United States, lenders there are still hesitant to fund acquisition and development of new projects. What will happen in the United States as the market recovers? Where will builders find the capital to meet five years of pent-up demand?

Roger Reinhart, executive director of the Denver HBA, estimates that approximately 12,000 finished lots are now available in the Denver market. Most of these lots are in outlying suburban B, C & D locations. Fewer than 1,000 lots are available in desirable, close-in locations west of I-25. Based on the current rate of absorption, (home construction in Denver is at less than 15 percent of its peak permit levels), it will take three or four years before this inventory is absorbed. But many of these lots are being purchased below replacement costs. The public builders are on a buying spree. What do they know that we don’t? The market is turning, and depending on how fast it turns, you may be amazed at how fast the bargain lots disappear.

Harvey Alpert, whose family has developed 30,000 to 40,000 acres of master-planned communities in the Denver area, is sitting this one out. He will play the waiting game until the economy improves, banks begin making A&D loans, and most of the discounted lots have been absorbed. Alpert states, “The era of developing large master-planned communities, with all the attendant upfront costs, with only a few exceptions, will not return in the foreseeable future. But opportunities for reconfiguring smaller parcels within these master-planned communities into smaller lots and/or detached cluster homes to serve new emerging markets may be feasible now or will be in the near future.”

Strategies & Opportunities

Fortunately, as Alpert indicated, there are still some opportunities out there for small and mid-size builders. In an effort to meet the emerging market head-on, I’d like to offer four unique, distinct design ideas that may spur your thoughts on how to proceed. These higher-density layouts provide more privacy between homes compared to the standard lot and block subdivisions now prevalent in the suburbs, which I think are not the way to go. These ideas reduce development costs and provide increased livability. Use easements allow concentrated exterior yard and patio spaces, providing better relationships between indoor and outdoor living areas. Most importantly, higher density development allows builders to get home prices down where they need to be, and allows homes to be designed to today’s emerging lifestyles, rather than forcing buyers to accept tired, old, stripped-down designs from a decade ago.

Millennial generation buyers, the offspring of baby boomers, are on the cusp of home ownership, but they don’t want their parents’ homes any more than their father’s Oldsmobile. And this is a huge generation, 50 percent bigger than the boomers.

While these concepts (5-16 dwelling units per acre) are much higher in density than recent subdivision layouts, they retain the look and feel of a lower-density neighborhood. These ideas reduce the monotony of rows of houses on wide roads and the impact of garage-dominated streetscapes. Study after study indicates today’s consumers are also looking for energy-saving homes, located close-in to services, and planned developments that focus on “walkability.”

"Clinger Cluster"

Density: 9-10 single family homes per acre
Market served: Young families and empty-nesters
Two-story, single-family homes: 1400-1800 square feet, with two-car garages

Homes are sited in a series of “T” courts, which provide ample turnaround for fire trucks. This concept features “pocket parks,” which provide safe, convenient open space and recreation areas for families. The pocket parks separate one cluster from another. Rear patios and decks are oriented to the pocket parks. A fenced area in the side yard, utilizing the “use easement” technique between the homes, provides a secure area for kids and dogs. Typical lot size is 40 by 75 feet. The cluster can be modified to accommodate three one-story empty-nester ranch homes at the end of the court.

"Courtyard Cluster"

Density: 5-6 single family homes per acre
Market served: empty-nesters
Single-family homes (exterior maintenance by home owners association): 1800-2300 square feet, with two-car garages

This informal layout, with varied setbacks, creates a relaxed cluster of homes on a shared auto court. The homes feature large great rooms, island kitchens, expanded master suites, secondary bedroom/study and privacy patios on one level. Optional tech areas, lofts and guest bedrooms are indicated on second floors. It is recommended that the clusters be built on flat sites unless ranch walkouts are utilized on steep hillsides.

"Mansion Homes"

Density: 9-15 units per acre
Market served: empty-nesters, singles, yuppie couples
Three-plexes: 750-1900 square feet, with one- or two-car garages.

This three-unit townhome/condominium is designed to appear as one large home. A pair of two-story townhomes is located on the ground floor and a ranch unit is placed over the garages. They can be fronted on public streets with access to garages via rear-loaded alleys or sited in a motor court configuration.

In this case, the architects, Godden/Sudik of Denver, Colo., developed six different designs suitable for long-term rentals or sales at low or moderate price levels. Alternate elevations include high country, craftsman, French country, farmhouse and contemporary, featuring a mix of faux stone, stucco, and hardboard siding. While the mansion home idea is built at higher densities, it has the look and feel of a semi-custom single-family community, which allows it to work well on infill sites, where neighbors in existing homes must be courted to support the new community.

"Pinwheel Cottages"

Density: 14-16 units per acre
Market served: rentals ,with future conversion to ownership for singles, young marrieds, empty-nesters
Four-plex townhomes with freestanding carports or garages with 2:1 parking
One-, two-, and three-bedroom units: 826-1200 square feet

These four-plexes have the look and feel of elegant, tasteful, single-family homes. Each unit features a private corner fenced patio. The homes are sited in a relaxed, informal “pinwheel” configuration, 16 cottage units per court, or can be sited as stand-alone units between clusters.

10 Tips for Creating Smaller, Smarter Home Designs for the New Market

In an effort to down-size your product designs and reduce costs to meet the needs of a new emerging housing market, don’t forget the following:

1. Create less formal, more flexible floor plan layouts. Develop open plans with furnishable walls.
2. Eliminate redundant rooms and dedicated amenity spaces. Share functions and utilize flex-spaces that can be optioned for different uses, i.e.: bedroom / study / parlor.
3. Shrink less important rooms, but don’t skimp on the kitchen or great room areas. And make sure there is sufficient storage space.
4. Reduce excessive interior volume and vaulted spaces. But utilize higher plate-heights at 9 or 10 feet.
5. Use fewer windows, but make them larger, taller and more standardized sizes and types.
6. Make smaller houses live large by focusing on interior rooms and access to planned outdoor patios and views.
7. Improve exterior elevation designs to create a more diverse streetscape. Curb appeal is still essential.
8. Develop fewer model plans, but with more elevation styles per plan.
9. Building smaller doesn’t mean cheaper. Buyers know the difference. Don’t skimp on quality. Focus on detailing, inside and out.
10. Simplify framing and roof layouts. Create efficiencies by stacking floors, minimizing foundation corners and utilizing framing module dimensions.

Dave’s 10 Land Planning Tips for High Density Infill Development

1. During due diligence, document all aspects of the site, meet with city planners and engineers, and prepare a “site analysis.” Know your costs!
2. Look for flat sites in second-tier locations close to existing services and amenities.
3. Look for multi-family pods in existing planned communities.
4. Design product after market research. Don’t “wing it.”
5. Hire an experienced team — architect, land planner, and engineer. Establish privacy, livability, scale, and feel by involving all team members early on.
6. Create a “niche” or “theme” for the project. Don’t copy others.
7. Don’t overburden the development with costly amenities (big clubhouses, etc.).
8. Focus on the entry. Create a sense of excitement and image at the entrance and models.
9. Reduce the impact of garages. Create “groups” of units (cluster).
10. Don’t skimp on landscaping. Create a development that’s warm and inviting. Buyers and renters can feel the difference the moment they arrive.

Bottom Line

While the national builders are buying most of the outlying finished lots, they aren’t focusing on smaller infill sites. Infill sites have not dropped in price like suburban lots have. Higher density is required to reduce costs, but your development must be designed with privacy, livability and sustainability in mind. Successful infill developments are no accident. They are winners because they are well-planned. Remember, it’s not how dense you make it, it’s how you make it dense.

Your business is not dead, it’s just wounded. There are opportunities out there! The housing market today is not as homogenous as it was in the past. It’s highly diverse and segmented. Many of these buyers can’t find homes that fit their lifestyles and pocketbooks. Many want to live close-in. They are tired of the commute.

Study your market, then design and build for it. That’s the way to succeed in our ever-changing future.

A nationally renowned leader and innovator in the planning and design field, David Clinger is an award-winning land planner and registered landscape architect. More than 300,000 individuals enjoy living in communities designed by David A. Clinger and Associates, recognized as one of the leading land planning firms in the United States. David can be reached at davidclinger@dclinger.com.