Some of the nation’s largest homebuilders are getting into the infill movement, among them KB Home, John Laing Homes and Shea Homes.
With few remaining vast expanses of land suitable for large tracts of single-family homes, builders are buying lots in already densely populated neighborhoods to build mostly mixed-use projects that contain residential units above shops and restaurants.
“They’re not stupid,” said Christopher Thornberg, a senior economist for UCLA’s Annenberg Forecast. “They can see the writing on the walls.”
While infill development, as it’s called, has been a trend in urban communities for several years, larger homebuilders continued to focus on sprawling subdivisions on the outskirts of Los Angeles County in the Santa Clarita Valley and Simi Valley areas.
But new homebuyers have begun to rail at longer commute times and some are two-earner households without children who have less need for a traditional single family home.
Today only 25 percent of homebuyers are married couples with children, according to KB Home spokesman Derrick Hall. The rest are young professionals, parents whose children are fully grown and retirees. Those demographics, which are increasingly becoming more prominent, have led homebuilders to refocus their business plans.
A few years ago KB Home built no multifamily properties, but last year condominiums made up 6 percent of the company’s business.
“Condominiums were always considered second fiddle historically and there were always questions about their returns,” Hall said. “Today that’s not the case. In some areas they are just as popular as detached homes and are what people are seeking in the first place. We see a tremendous opportunity selling condominiums.”
John Laing Homes tried its hand at several infill projects before deciding to launch a separate multi-family division earlier this year called John Laing Urban, based in Culver City.
Already, John Laing Urban has purchased a nearly 2-acre site on North La Brea Ave. in Hollywood. The builder plans 180 condominiums above ground-floor shops and restaurants and several levels of underground parking.
John Laing Urban has also entered into an agreement to purchase a nearly 30-acre site on Crestridge Road in Rancho Palos Verdes for a 95-unit mixed-use condominium building that will be restricted to buyers 55 or older.
“The company has been doing urban developments for several years,” said Phil Simmons, John Laing Urban’s division president. “But as projects get more dense and complicated and there were just more of them it was decided we needed a division that focuses exclusively on this project type.”
For large homebuilders, there are several challenges in working on urban projects. Land and construction costs are typically higher, especially if a project requires a steel or concrete frame and underground parking, which can cost upwards of $25,000 a space.
Also, construction on a condominium or apartment typically can’t be stopped for a design change unlike a subdivision, where homes can be built to order and designs can be perfected after the first models are completed.
“From the time we break ground to the time we deliver the first condominiums is about 18 months,” Simmons said. “A lot can happen to a market in 18 months and once you start there’s no looking back.”
Hall said it’s only a matter of time before the larger homebuilders, especially publicly traded companies with deep pockets, will come to dominate the infill market. “You’ll continue to see large builders gaining market share building infill housing,” he said. “It’s inevitable.”
