New construction:  Nirvana or snare and delusion?

As I've said before, most of my weekly articles come from interacting with clients and prospective clients.  Lately a number of both have been interested in new construction.  First was the father looking for a new condo for his son to crash while he goes to medical school.  Next were the clients who briefly considered a new townhome development in Willow Glen before buying a thirty-year-old townhouse in a location they liked better.  Then came the clients who, while working with their previous agent, nearly got in contract on a new townhouse in Palo Alto before a tiny voice—and several co-workers—told them it might not be the right decision.  And just the other day a first-time homebuyer emailing me for my opinion about a new townhouse development in Santa Clara.

New construction has strong appeal, especially to first-time buyers, because its floor plans are modern and its finishes fancy, and because it has the new-home equivalent of that new-car smell.  New construction is what almost everyone is looking for:  turn-key, low maintenance, high on ostensible sophistication and genuine ego reinforcement, and big on perceived bang for the buck.

Certainly there's something to be said for buying a new home from a large developer, whether you're a buyer or a buyer's agent.  Buyers often get to personalize their new home, picking the finishes, piling on the options.  The buyer's agent gets to do business, not with a skittish seller and with a seller's agent who thinks the transaction is all about her, but with seasoned professionals who don't let ego get in the way of a transaction. 

So far, so good, except that virtually every new development I’ve seen has baggage. 

First, they’re invariably built next to a freeway, expressway or busy street, and often in an area that was (or is) zoned commercial.  Why?  Because all the good locations around here were built out by 1960, maybe 1970 at the latest, and the NIMBYs and city planners aren't going to let anyone build a high-density high-impact development in a prime residential area.  Easy freeway access enhances the value of any office building but not necessarily any residential development—you can be too close, even to a benefit.  No office worker is going to try to have a barbeque party fifteen feet from six lanes of traffic, but a homeowner might—once, at any rate.  And as anyone who's looked at an environmental hazards report can tell you, being in or near a former or current industrial area puts you in or near chemical clean-up sites, cleaned up or not.  Back in the day, toxic spills seem to have been a routine cost of doing business.

Another drawback is that new construction always has lots of stairs—air is cheaper than dirt—which isn’t what most buyers, particularly those over 50, are looking for.  If they were, builders would have been cranking out three-level homes back in 1946. 

Yet another drawback is that the thing almost every buyer really wants—dirt—is in short supply in new construction; lots (or yards) are minimal.  So is common area landscaping.  Almost every new development I've seen over the past ten years or so is heavy on black-top and light on greenery.  Instead of pleasing vistas, you get a close-up view of the clutter on your neighbor's balcony.

One more problem with most new construction is that it's built in less-desirable areas way out on the outskirts, relatively far from shopping, services and anything else you'd care to be near.  Which means that, in a way, you get the same upside and downside as buying in Modesto:  lots of house, and not much else.

And finally, be aware that, at least in the good old days, developers often turned the homeowners association dues into a marketing tool.  Think HOA dues are too high?  Of course you do—every condo buyer does—which is why developers would set them artificially low.  Which made everybody happy until five years after the last unit was sold and the Board found out it didn't have nearly enough money in reserves to cover the first round of major maintenance costs.  Can you say "hefty raise in dues"?  Can you say "special assessment of $20,000 per homeowner, payable in three easy installments over one year"?

Speaking of endearing developer quirks, I should caution that “new” doesn’t necessarily mean “perfect”.  Back when I was managing homeowners associations two of the seven I managed were suing their builders for construction defects.  Not only is construction defects litigation expensive, it puts a damper on sales.  Bad for morale all around.

I've also noticed that the advertising claims for new developments can get a little overheated.  A description I read recently, of an ordinary development in a humdrum neighborhood near a stretch of main thoroughfare noted less for its ultra-hip attractions and more for its boarded-up marine equipment dealers, made it sound like a jewel in the navel of paradise.  Add to this a neighborhood school with low test scores and I'm thinking this is the kind of place people will be dying to get out of, once that new car smell wears off and the tedium of post-industrial high-density living sets in.

Which isn't necessarily the kind of neighborhood you'd want to live in, let alone "invest" in.

So let's review that new-construction checklist:

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