Residential Redevelopment Can Be Tricky

Invest in What Works When Redevelopment Balloons

ARTICLE | Aug 27, 2017

By Scott Neal

Edina, Minnesota, is an affluent inner-ring suburb of 50,000 people and 16 square miles on the southwest side of Minneapolis. Like other prosperous suburbs in the United States, it is characterized by tree-lined streets, exceptional public parks, responsive public services, great schools, and strong real estate values.

This valuable combination of qualities has created a sort of tidal phenomenon in the local real estate market that is characterized by such terms as teardowns and McMansions. In Edina, we prefer to call it residential redevelopment.

To describe the term residential redevelopment, one must first define it. In Edina, we define it to have occurred when a home is purchased, razed, and replaced with another home on the same lot.

It's not as easy as one would think to determine when, exactly, this trend began taking place in Edina, but the city first started seriously tracking it in 2008 when it measured the impact of 35 residential redevelopments.

In 2008, the average assessed value of the home that was purchased to be razed was $512,000; the average assessed value of the home that was built in its place was $1,332,000.

The total new net market value added to the city's tax base that year was $28.6 million—a substantial sum in a small, fully developed suburban community, especially when considering that just 35 new houses made it possible.

Pros and Cons

Edina residents were noticing what was going on with residential redevelopment, and their reaction to it was decidedly mixed. For those who opposed it, redevelopment was destroying the character of their neighborhoods, driving up property values, and depleting the community's supply of affordable housing.

For those who favored redevelopment, it was revitalizing the city's housing stock, increasing the city's tax base, and allowing long-time homeowners the opportunity to make fantastic profit margins on the sales of their homes, which was the fundamental fuel for the residential redevelopment fire.

The community was torn about how to respond to the phenomenon because all sides had good points. There were community forums, yard signs, and city council campaigns focused on redevelopment, mostly opposed to it. The market continued to push it forward, however, even as the country slid into the Great Recession.

In 2009, 21 residential redevelopments added $14.5 million of net new valuation to Edina's tax base. In 2010, 34 more added $19.8 million, and in 2011, we saw an uptick with 57 of them producing $42 million in new tax base. It was a wonderful time for the budget.

As the national housing sector started its recovery in 2012, Edina's residential redevelopment activities took off. We experienced 99 residential redevelopments in 2012. In 2013, it was 104. In 2014, we hit a high of 116, but saw a slight dip in 2015 to 109. We had 93 of them in 2016, and we're on pace to have another 100+ year in 2017.

Since we started measuring the impact of residential redevelopment in 2008, we have experienced the phenomenon 668 times. The average assessed market value of the "before" home of these 668 was $409,000; the average assessed value of the "after" home is $1.1 million.

The net new market value added to the tax base by all of these homes is more than $420 million. These 668 homes alone account for just under 4 percent of the city's total assessed market value. If these 668 homes were a city themselves, that city would have a total assessed market value higher than 50 percent of the cities in Minnesota.

Many Types of Disruption

Adding more than 100 residential homes to a town is more disruptive for the community than appending a new 100-lot subdivision to the edge of town. The disruption comes in many forms.

The initial disruption faced by the immediate neighbors to redevelopment is psychological, fueled by rumors and fears. Neighbors hear that long-time neighbors down the street sold their home without ever seeing a for-sale sign in the yard. They hear rumors about the extraordinary price of the sale, and they experience the anxiety of wondering if they should put their own home on the market.

They hear rumors about the builder who bought the property and perhaps even speculate on who the new neighbors will be. Fear and anxiety fill the gap between what they know and don't know.

An obvious form of redevelopment disruption is physical in nature. Disruption includes the sporadic noise of a backhoe ripping down an exterior wall, repetitive shots of a nail gun attaching shingles, and voices of construction workers yelling to each other over other construction noise. This noise can be constant from 7 a.m. to 7 p.m. on weekdays and 9 a.m. to 6 p.m. on Saturdays.

On top of the noise, the physical disruption includes dirt tracked into neighborhood streets by construction vehicles; unsightly piles of construction garbage that accumulates over time; unintentional and unnecessary petty trespassing by construction workers onto neighboring properties, and the occasional damage they do to lawns, irrigation systems, and fences. It can be a real mess for people living in the redevelopment areas.

Perhaps the most trying form of disruption is the emotional disruption, which is caused by what feels like an unstoppable, unwanted wave of change marching down the street.

Residents who try to resist the wave tell us they don't want their old friends and neighbors to cash out and move away. They don't want to face the choice of cashing out themselves. They love their homes, their neighborhoods, and all the memories they have created.

They don't want the architectural character of their post-WWII bungalow and Cape Cod neighborhoods to transform into neighborhoods of big, new homes with contemporary styles and materials. The new looks much different than the old. It can be startling.

Residents don't want their neighborhoods to transition away from a place where most people had the same quality, age, and size of home to one in which the new neighbors have the big, new homes and the older people have the small, older homes. The social-emotional implications of this change cannot be underestimated.

Managing the Phenomenon

The neighborhoods in our community that are experiencing the redevelopment phenomenon are mostly composed of modest-sized homes on small lots in low-density neighborhoods. In 2015, for example, the average gross living area of a home that was purchased for redevelopment was 1,556 square feet.

The average size of the home that replaced it was 3,381 square feet. The look and feel of this transition is palpable. If a city bureaucrat like me can feel it, I can only imagine what it must be like to live through it.

Since city leaders have started paying greater attention to residential redevelopment over the past 10 years, it means that Edina's management team has had to do the same. I can offer some advice and lessons learned to local government managers who may be about to experience this building trend for the first time or are already in the midst of it.

Neighborhood character. Perhaps the most common cry Edina staff members hear about residential redevelopment is that it spoils the character of a neighborhood. "Character" can be a metaphor for many things; however, we have interpreted it to mean architectural character, and we have made changes to Edina's zoning code that have quelled this cry substantially. In 2008, we made these code changes:

• Enacted new building height restrictions to a maximum of 40 feet at the ridgeline.

• Began to measure building height from existing grade rather than proposed grade.

• Limited the elevation increase of a new home's first floor elevation to a maximum of one foot higher than the existing home's first floor elevation.

• Increased the side-yard setbacks on lots 50 to 75 feet in width, on a sliding scale.

• Eliminated a "bay window setback exception" when calculating home widths.

As we gained more experience in managing redevelopment issues, we made these additional code changes in 2014:

• Tightened drainage and retaining-wall regulations.

• Required access from front yard to back yard on one side.

• Increased side-yard setback by 2 feet for lots less than 75 feet in width.

• Reduced maximum building height for homes on lots less than 75 feet in width from 35 to 30 feet.

• Required side-wall articulation.

• Required the garage setback to match the home's setback.

Construction management.A more tangible complaint we often hear in neighborhoods is the disruption caused by the construction activities themselves. We have adopted new regulatory provisions regarding construction management, including job-site signage, safety, noise, dust control, shoring, portable toilets, and tree protection.

We also began to require the builder to host a preconstruction neighborhood meeting with the neighbors of the site. These neighbors do not have the power to change the home or site design, but they are offered the chance to give their opinions on these subjects, as well as learn about the logistics and timeline of the redevelopment project. This communication has been helpful.

Regulatory enforcement. In 2013, the city hired a new full-time employee to manage new regulatory practices and to be the single point of contact for the public and construction contractors. We funded this residential redevelopment coordinator position by increasing the cost of residential demolition permits from $250 to $1,500, which raises enough new revenue to more than pay for the position.

The coordinator is charged with enforcing all aspects of the city's construction management ordinance and coordinating the enforcement of general building and zoning regulations at sites. Hiring a coordinator has been, in my judgment, the single most effective change the city implemented to improve the redevelopment experience for residents.

Continuous improvement. In 2015, a group of Edina staff went on a two-day field trip to visit city government colleagues in the Chicago, Illinois, suburbs of Highland Park, Glenview, and Park Ridge to learn from their experiences managing the same phenomenon for the past 10 to 20 years.

Two regulatory areas we have improved based on their advice are tree protection during construction and stormwater drainage before, during, and after construction. Since getting a better handle on addressing issues of neighborhood character and construction management, tree protection and storm drainage are now the two most common neighborhood concerns staff need to address at redevelopment sites.

Tracking Residents' Views

One way to find out if we are on the right path with our residents on the issues is to ask them. We conduct a biennial quality-of-life survey. Responses to two recent survey questions gave us a glimpse into what our residents think of our performance in this area.

In 2013, we asked a randomly selected sample of residents if they supported or opposed continued single-family residential redevelopment and 72 percent said they supported it, while 25 percent said they did not.

In a 2015 survey, residents were asked to answer a slightly different question and rate the city's performance in managing the tensions around residential redevelopment: 66 percent said we did it well and 33 percent said we did it poorly. By 3:1 and 2:1 margins, Edina residents told their government leaders they want residential redevelopment to continue and that they think we are doing a good job at managing its tensions.

Residential redevelopment is rebuilding the housing stock of Edina every day. The private investment into home construction activities translates directly into the growth of the town’s tax base; however, it also comes at a cost. Managing those costs so that everyone benefits is the key to success.

Scott Neal is city manager, Edina, Minnesota (sneal@edinamn.gov).

 

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