Reaching for Sustainability in the Next Real Estate Cycle

Economists predict the real estate market will begin to rebound sometime in 2010 as the economy turns. However, real estate experts say the next round will look markedly different from the last one, with the industry adopting practices aimed at creating a sustainable marketplace.

Unlike the last housing cycle when developers aimed higher and higher, ultimately pricing out middle-income workers, home products in a sustainable market would target a mix of incomes, suggests Henry Cisneros, the former secretary of the U.S. Department of Housing and Urban Development (HUD) and chairman of CityView, a national real estate investment and pension fund manager based in Los Angeles.

Cisneros notes that the majority of housing would be priced to attract the largest group of consumers, those earning about 150% of area median income.

Project success would be measured by the “triple bottom line,” its impact on society and the environment, as well as profitability.

Affordable Housing Close to Work

California public pension funds managed by CityView already invest in projects that increase the stock of workforce housing in urban centers, says CityView Vice Chair David Martin.

This allows teachers, firemen, police officers and other middle-income workers to live in communities where they work, improving worker quality of life and reducing pollution by eliminating long commutes. It also improves community safety by reducing response time for emergency personnel in a crisis, Martin points out, noting that the majority of Beverly Hills police and fire officers live in the San Fernando Valley, which often is an hour drive in rush-hour traffic.

Similarly, school districts, colleges and universities are creating onsite housing for faculty and staff, notes Jim Dixon, a principal at Los Angeles-based Nadel Architects, some of which are being funded with money allocated for neighborhood stabilization programs by the American Recovery and Reinvestment Act of 2009.

A partnership of San Mateo County Community College District and Santa Clara Unified School District (SCUSD), for instance, has completed two teacher housing projects on campus parking lots, and another one is under way. The below-market rents at the three projects, which provide a total of 174 units, have helped the districts recruit and retain quality teachers, SCUSD says.

Restore, Renovate, Retrofit, Revitalize

Economic activities designed to address more than one need create efficiencies that make them the most successful and resilient, according to Storm Cunningham, author of The Restoration Economy and reWealth.

Working for Water, an anti-crime program established in post-apartheid South Africa, is one example that has been extremely successful because it was designed to address multiple issues. The program trained high-risk young adults to identify and remove invasive plant species growing in drainage ditches and waterways to sell on the biofuel market. The program reduced the number of youths on the streets, decreasing crime and unemployment while benefiting the environment and saving taxpayers money.

With real estate, Cunningham contends that restoration work is already the predominant force in the rebounding economy, with increasing construction activity impacting regional and local economies both directly and indirectly. He notes, however, that restoration activities are not generating the level of confidence in the economy that new construction does, because the government does not measure restoration projects properly, at least not in terms well understood like “new housing starts.”