A New Role for Older Community Association Neighborhoods?

By Tyler P. Berding

Have we finally reached the end of the move to the northern California suburbs that started after World War II? The gradual shift of the population from inner city San Francisco, Oakland, and San Jose to the Peninsula, San Leandro, Walnut Creek, and Concord started about then, later followed by further shifts to Antioch, Brentwood, Morgan Hill, Fairfield and even Stockton and Modesto. Similar movements could be found in Sacramento as former residents of that city moved east into the foothills and south to the Central Valley. And of course, entire new cities were created in southern California as immigrants from Los Angeles and populations from other states migrated to Orange, Ventura, and San Bernardino Counties.

As the middle classes moved out, the inner cities deteriorated, often followed by an increase in lower income population, the homeless and an increase in crime.But no one really cared because gas was cheap and California had the best system of highways in the country. Also, the Interstate Highway system begun in the late fifties and early sixties created additional four lane freeways between jobs in the inner cities and the new single family housing in more distant suburbs. Prior to 1940, the bulk of California's population lived in Los Angeles, San Diego, San Francisco, San Jose, the East Bay, and Sacramento. A lot of that housing was high density. Even single family homes were generally built close together on small lots. Everything outside of these cities was largely agricultural and rural. But when the population shift began, it was unstoppable and the new suburbs became the destinations of choice for the World War II generation and eventually their baby boomer children. Land and houses were relatively cheap, crime was low, and the lifestyle there fit their expectations and California's good weather.

Gradually, however, these commuters began to pay the price for their homes in the suburbs. Long drives to jobs in the cities, traffic tie-ups that made the trip even longer, and the cost of automobile maintenance and gasoline began to represent a higher percentage of a family's disposable income. Some jobs followed the population into the suburbs. Office parks in cities like San Ramon, Cupertino, and Walnut Creek offered the chance for companies to move where their workers lived, but commute traffic around northern (and southern) California remained heavy and one to two hour commutes from places like Stockton and Tracy or Morgan Hill, to jobs in the Bay Area were not unusual by the end of the last decade. While rapid transit, like Cal Train and BART helped to some degree, the central problem was that affordable housing was gradually getting farther and farther away from jobs.

Then came the new millennium and high oil prices and we began to see the cost of the commute rising above the average worker's ability to pay for the daily drive. Finally, the “California Golden Rule”—that housing prices would always rise—was broken last year, housing prices dropped for the first time in many years, and the wisdom of investing in homes 50 and 60 miles from a job was finally being seriously questioned.

The reason to re-develop the (old) suburbs

This new economic reality was recently discussed in an article written by Eduardo Penalver, an associate professor at Cornell Law School entitled "Silver Lining links housing crunch with high gas prices."

"If prices at the pump continue to increase, as many analysts expect, the eventual recovery of demand for new housing may not be accompanied by a resumption of America's relentless march into the cornfields.The death of sprawl will present enormous challenges, chief among them the need to provide affordable middle-income housing in areas that are already built up. Accommodating a growing population in the era of high gas prices will mean increasing density and mixing land uses to enhance walkability and public transit. This must happen not just in urban centers but in existing suburbs, where growth is stymied by parochial and exclusionary zoning laws."

The need to provide affordable middle-income housing in areas that are already built up! What this means, of course, is that we may have to stop building in the distant (new) suburbs such as California's central valley and in those southern California counties like Ventura and San Bernardino, and instead concentrate on re-developing the (old) suburbs which are easier commutes and have public transit connections to jobs in the inner city. In fact, many of those office parks that moved to the (old) suburbs twenty and thirty years ago might be ideally located if we can provide middle class housing nearby. Why should we spend billions of dollars extending rapid transit to low density new suburbs when we can increase the density of those areas that already have transit?

The old suburbs are generally in areas that have seen a big increase in housing prices in the past three decades. Middle class housing is scarce in places like Walnut Creek, Pleasanton, Cupertino, and San Mateo. The challenge in bringing people closer to jobs is to find a way to add more affordable housing in those areas by more efficiently utilizing available space. One urban planning professional who has studied the expansion of the suburban area and has found (new) suburban low density housing wanting, has said: "We could easily direct all the growth into existing urbanized areas… (however) we would still have the problem of how to serve the existing low density development and we would still need to build high-speed rail to connect the existing towns." When asked about increasing density to provide more housing in the urban core he states: "There is overwhelming evidence that people are willing to relocate to higher-density housing." which he terms “smart-growth." "I've never heard of a smart-growth project not selling out."

What locations are candidates for new housing in (old) suburbs?

There are a number of obvious locations for building “smart- growth” housing that would attract middle income workers back to close-in suburban cities. Abandoned industrial sites are sometimes an option. The cost to clean up these sites can make development there more costly, but that can be overcome if sufficient density is permitted by the local municipality. Even obsolete low-density retail sites such as malls, which no longer attract sufficient revenue to support them, are candidates for re-development. The same is true for former military installations like the old Concord Naval Weapons Depot or the Alameda Naval Air Base. (100 years ago, Alameda was actually a (new) suburb of San Francisco, with trains and ferries used to commute to work in that city!)

The problem with these sites besides the cost of any environmental clean up is that they represent enormous planning and financing challenges, attract a lot of public attention, and hence take a long time to convert to housing or mixed uses. Also, we cannot expect one big project alone in a county to deliver the amount of new housing that would be necessary to bring middle income workers back to the (old) suburbs. Further, regional planning is absolutely necessary if a region, and not just a city, is to re-develop with higher density and at the same time deliver a high quality lifestyle.

"Overcoming low-density, single-use zoning mandates so as to fairly allocate the costs of increased density will require coordination at regional levels…" That means that other residents of Contra Costa County should not expect the City of Concord to shoulder the burden of providing all necessary new density within the confines of the Concord Naval Weapons site, for example. Walnut Creek, Pleasant Hill, Pittsburg, Danville and San Ramon also have to assist.
But these other cities have no available open space or any significant industrial or commercial sites that could be re-developed, so how do we acquire more middle income housing in those cities? The answer is two-fold: (1) Accept the idea of a new urban core in some previously low-density suburbs, by (2) making changes in zoning to allow higher density structures and re-develop some existing uses into higher density housing or mixed use.

Are the old suburbs ready for a new urban core?

Not every suburb can accept high density housing, nor do they have the municipal services that it would require. But isn't it really just a matter of scale, after all? Maybe Concord could support several thousand middle income housing units, but other cities could accept something less ambitious, maybe a couple thousand in Walnut Creek and Pleasant Hill, and a few hundred in Danville or San Ramon? And similarly-sized projects in other Bay Area suburbs. And what do we mean by “high density” housing? That depends on what you are comparing it to. In San Francisco, higher density means taller buildings. The same in Walnut Creek, Pleasant Hill and Concord, but whereas in San Francisco that means going up perhaps 40-50 stories, in the (old) suburbs that might mean ten stories in, say, Walnut Creek, or even just three or four stories in San Ramon, but increasing height limits to allow even buildings of those heights would dramatically increase the density of the housing on a particular lot.

The density that can be supported depends a lot on the services available. BART does not go into the San Ramon Valley, so truly high densities there may be decades away. But in Walnut Creek, Pleasant Hill and Concord, where BART and retail services are already clustered around a central commercial core, a change in zoning to permit buildings of say 6-10 stories in height would not greatly change the character of the downtown. It would, however, provide a tremendous boost to plans for new mixed use buildings that would include a lot of housing and other services located within walking distance of transit, jobs, shopping and entertainment.

Hidden opportunities for new housing

But there is another, less obvious, some might say hidden, opportunity to increase density in old suburban areas—one that few people have really considered because it involves separate projects, all smaller in scale than those discussed above. We're talking about re-developing existing multi-family housing projects into higher density, energy efficient housing for middle income families.

There are many apartment complexes that are being converted to condominiums, but that doesn't increase density and simply shifts ownership of an old, inefficient and often obsolete building to those who cannot really afford to own it—low and middle income buyers. But if instead of merely shifting the existing structures' ownership from rentals to owned-units, we were to re-developed the site and increase its density perhaps by two or three times, there could be sufficient financial incentive to create a whole new project, built to modern codes and incorporating energy-saving technology, for example.

But how do we do that in the space now occupied by say, 200 low-rise units built thirty years ago? We have to start by identifying projects which are within, or are on the edge of the projected new urban core, and adjust the zoning so that these parcels can be re-developed with a more urban footprint—say a low to mid-rise building of perhaps 6-7 stories which would support 400-600 homes in or adjacent to the downtown core. By going up in these locations, we can still preserve some of the abundant open space that abounds in older low-density projects, while providing affordable housing located close to the downtown areas of the larger suburban cities. The same model could apply to other locations with smaller downtowns, but the size of the project would be reduced in proportion to the scale of the existing commercial district.
What is the role for community associations?

Like old apartment complexes, there are many older common interest developments that were built in the sixties and seventies when land was abundant and densities were low. These projects are often spread over many acres and rarely exceed two stories in height with very low density per acre. That limitation might have been appropriate when their locations were semi-rural, but today many of the cities we have been discussing in the San Ramon Valley, and in similar suburban areas elsewhere, have vibrant commercial districts which support a great deal of automobile and pedestrian traffic. These sites could easily handle taller, higher density buildings and would be ideal candidates for re-development.

But whereas old industrial or commercial sites or apartment buildings usually have owners who can act unilaterally to make decisions on the disposition of these projects, the same is not true for common interest developments. Title to those complexes is fragmented among many individuals who each get a vote as to what happens to the development. The attempt to reach consensus on a decision as major as selling the entire complex for re-development would be a nightmare scenario.But it has happened. In our treatise, "The Uncertain Future of Community Associations" we discuss the disposition of two old condominium complexes in the Sacramento area which had become obsolete and were beyond the financial capability of the owners to repair. In those cases it took the housing authority of the City of Sacramento to marshal the horsepower and the funding to re-develop the project, in that case using the condemnation power of the city to achieve it and to aggregate numerous individual titles to the property. But it can be done, and there are private sources of financing that could work equally as well.

Increasingly, as we have often written, community associations are finding themselves in impossible financial situations—repair costs which exceed any hope of financing by the owners, even including through borrowed funds. Where those projects are well-located, in or adjacent to expanding urban cores in old suburban cities, re-developing them and increasing their density in the process, makes more sense every day. Exactly how this can legally be done without necessarily undergoing the trauma of condemnation is a topic for another discussion, but as we have said, we believe it can be done, and have been considering at least two projects that are candidates for such re-development. The trick is to create enough new value in such a project to be able to protect the interests of the present owners while also covering the costs of the re-development and some incentive for those providing the financing for the venture. As these projects mature, we will provide additional details.

The five critical aspects for determining candidates for community association re-development
Anyone seriously thinking about re-developing an existing community association project must consider the following five criteria:

1. Financing. Regardless of how worthy a re-development project may be, unless necessary financing can be secured, it's not going anywhere. In Sacramento, the financing was obtained through a public agency. But private financing, or even self-financing by the owners, are also possibilities. None are easy. All are possible.

2. Zoning. The most critical aspect for common interest development (CID) re-development after financing is the existing zoning and the potential for higher (read, significantly more density) zoning. We have illustrated how zoning determines density. It is our opinion that for a CID re-development to succeed, the density of the new project will have to greatly exceed that of the old one. This has two distinct benefits: (1) build more value into the project, and (2) achieve goals of more middle income housing close to the new urban cores.

3. Location. The third most critical aspect is location. For a project to fit the new urban core model, it must be within the designated area, or immediately adjacent to it. To convince cities to change zoning so as to increase density, the project has to be part of a larger zone where such increased density makes sense. No city is going to allow a mid-rise building in the middle of a single-family neighborhood, for example.

4. Physical Condition. If the first three criteria are met, potential financing; appropriate zoning; and the right location; then we can begin to look at the project itself. Candidates for re-development are often those which have suffered the ravages of time and are close to obsolescence. Repairs, expected or unexpected, which have been deferred for so long that it is unlikely that they will ever be completely done are one indication. Visible deterioration, such as rot in the wood exterior portions of the building; overdue painting; no control over owners' use of exterior living areas; leaks into units or common areas that cannot be readily overcome, and deterioration of the building structure due to moisture intrusion, are some examples of conditions that may make a complex ripe for re-development.

5. Economic Condition. The criterion which will deliver the coup de grace to an existing project is its own financial condition. If the accumulated assessments are insufficient to get control over the problems above; if the owners are unwilling to assess themselves sufficiently, or at all, to gain the resources to repair the building; if assessment delinquency exceeds the norm; or if units are abandoned or likely to be due to foreclosure, then this project is a candidate for re-development, assuming it meets the other criteria.

If these five criteria are met or are close, someone should begin to give serious thought to re-development of the project.

Conclusion: The (old) suburbs will be the new urban core

Old suburban cities will identify downtown commercial districts as locations for a new regional urban core. Why? Because there is no real alternative. People can no longer afford to work in San Francisco or even San Ramon, and live in Tracy. Many of the old suburban cities provide perfect locations for new urban cores. They have transit, they have services, and they have space—if they can embrace the necessary increase in density, which is of course, the basic point--you can't have an urban core without urban density. But these areas also have something else—an aging population that increasingly does not want to move away from the familiar suburbs where they raised their families—if they can find suitable alternative housing close to the services they need. Old apartments and community associations are the stealth locations for providing new housing for middle income people—we just have to re-think the existing land use.

"We may discover that it's not so bad living closer to work, in transit- and pedestrian-friendly, diverse neighborhoods where we run into friends and neighbors as we walk to the store, school or the office. We may even find that we don't miss our cars and commutes, and the culture they created, nearly as much as we feared we would."

Indeed. And if we can find a new use for old condos in the process, we may have found the alchemists' dream--turning base metal into gold--but in this case into new, well located, energy efficient, affordable housing created from the relics of the past.

Tyler P. Berding, J.D., Ph.D. is a founding partner of Berding & Weil, LLC, a community association law firm located in Alamo, CA. He has taught real estate and community association law at California State University East Bay and is the immediate past president of ECHO. He is a frequent contributor to the Journal. Questions or comments can be directed to him at http://www.berding-weil.com/ or http://www.condoissues.com/.©2005 Berding & Weil LLP. All Rights Reserved.DisclaimerSite Map