Is Houston Ready for Micro-Unit Housing﻿?

Is Houston Ready for Micro-Unit Housing?

3/1/2016

Steve Spillette
CDS Community Development Strategies

A non-local developer has undertaken plans to develop a high-rise tower of “micro-unit” condominiums in the emerging East Downtown area (formally known as the “EaDo District”) of Houston. This project, named the Ivy Lofts, seeks to offer would-be home buyers an affordable option near Downtown and other urban core neighborhoods which have experienced a massive boom in popularity and development since 2000, along with significant home price appreciation.

Renderings of the Ivy Lofts, courtesy of HAR.com and Swamplot.com

“Micro-units,” as the term implies, are residential units that are notably smaller in living area than standard urban apartments or condominiums. In the Ivy Lofts, units would be predominately under 500 square feet, which is well below the size of a typical 1-bedroom urban apartment or condominium in Houston, with some only 300 square feet. This necessarily requires design accommodations such as Murphy beds, small closets, etc. Prices start as low as $119,000, which is below the price of other new condominium developments in central Houston, or townhomes for that matter. Indeed, the monthly mortgage payment on such a unit could be well below rent on a 1-bedroom Class A apartment.

Renderings of Ivy Loft's standard floor plan, courtesy of HAR.com

Still, Houston would seem an odd choice of cities for this type of development. The vast majority of micro-unit developments of which I’m aware are in denser, more walkable cities such as San Francisco, New York, and Seattle – places which also much higher typical housing prices in the desirable parts of their urban cores. Many are also rental apartments, rather than condominiums. I’ve also seen references to projects in Denver and Charleston, which don’t have reputations for such high prices, but are similarly walkable in their core areas. Houston is progressing toward walkability, but has only isolated islands of it, and the Ivy Lofts location isn’t one of them.

So, does a project like Ivy Lofts have similar prospects for success as those in the other cities? It’s true that the project will be unique in offering new units for sale in the urban core at prices below other new properties. It has also received a number of reservation payments, though the actual cash outlay for a reservation is reportedly pretty low, so easy to walk away from. It could also be an option for parents looking to buy homes for their students at nearby universities rather than rent student housing or dorm space.

However, as previously mentioned, the nearby walking distance amenities are few at present; even the nearest light rail station (for access to the University of Houston) is a fairly long walk. And on-site amenities are also limited, compared to Class A apartment developments. The conventional wisdom is that urban residents are willing to exchange interior private space for high quality common area and public space / walkable neighborhoods, but is that an even trade in this case? Potential residents have other relatively inexpensive options for rent or purchase, with more interior space, if they’re willing to consider older properties a bit further from Downtown in the eastern half of the Loop. So, it’s hard not to look at Ivy Lofts as a risk – and at 24 stories and 550 units, it seems a pretty big one.

About the Author: Steve Spillette is President of CDS Community Development Strategies and has performed a variety of market studies and financial pro-forma analyses for both private and public clients. Mr. Spillette has several years of experience in retail market analysis and multiple degrees related to real estate and planning--including an MBA from Texas A&M University.

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