Post #308: The tear-down boom (again), and the McLeanification of Vienna

Posted on June 28, 2019

The main point of this article is to show you a few graphics that I stumbled across.  So let me get that out of the way up front.  I’m not sure there’s a lot of point to this posting beyond that, other than quantifying what you already know:  They sure are building a lot of big houses in Vienna.  And, at the end, I suggest one possible change in zoning policy:  Letting them cut those big houses in half — as duplexes — would provide a type of less-expensive family-oriented housing that is really getting scarce here in Vienna.

The data:  Single family homes for sale

Per Redfin (with full attribution and acknowledgement of copyright), below is a map of single-family houses for sale in Vienna VA.   I’ve followed that with equivalent maps for Oakton, Fairfax City,  Falls Church, and McLean. These are followed by table showing relevant data for each location.

Take a minute to study the dollar values on the maps, or on the summary table following the maps. Scan for houses under $1M and under $500K.  Do the dollar values for Vienna seem a bit “rich”, compared to your understanding of these communities?

Single-family houses for sale, Vienna:

Ditto, Oakton (Census Designated Place boundary)

Ditto, Falls Church City area

Ditto, Fairfax City

Ditto, McLean (Census Designated Place boundary)

Here are the relevant data, tabulated:

If you look at all homes that are in these areas (“Median property value, all houses”, right side of table), Vienna looks much like Oakton or Falls Church.  The average existing house is a little pricier in Falls Church, a little less so in Oakton.  Fairfax City is a bit downscale, and McLean is definitely upscale, compared to Vienna.

But if you look at what’s currently offered for sale (“Median Price, $M”, left side of table), we look much more like McLean.  The price of the median single-family home currently for sale in Vienna ($1.3M) is just slightly below that of the equivalent property in McLean ($1.4M).

The yellow figure in the right-hand column of the table summarizes the disparity between what is currently here (median price, all houses) and what is for sale (median price, homes for sale).  And by that figure, the face of Vienna really is changing from one that resembles Falls Church or Oakton, to one that more closely resembled McLean.

Analysis of the tear-down boom

Why did I look up the data above?

In the course of the last Town election campaign, I drove every street in the Town of Vienna at least twice.  I was struck by the acceleration of the tear-down boom (tearing down small houses to build large ones).  South of Maple, it was hard to find a street with traditional ramblers that did not have at least one tear-down in progress.  On some streets — particularly south of Tapawingo — it was difficult to travel down some streets due to the construction vehicles parked on either side of the road, for the multiple houses under construction.

In Post #275, I noted that recent changes in Federal tax laws materially increased the cost of buying a large house, with a roughly 24% increase in the “carrying cost” of a $1.4M new house purchase, compared to prior law.  Most of that cost increase was concentrated on the amount of the purchase price in excess of $850,000 or so.  I also noted the apparent mediocre price appreciation of these large houses relative to smaller houses in my immediate neighborhood.

And yet, the reason for the high asking price for homes for sale in Vienna is that, if anything, the tear-down boom has accelerated.  The Vienna data above show 76 single-family houses for sale.  Of the 76 homes for sale, about half (36) are new construction.  (Redfin defines “new construction” more-or-less as homes built in the last 1.5 years.)  No “new construction” house was listed below $1.1M.  Of the 40 houses that are not “new construction”, a) a significant fraction have not yet been built, b) another chunk is new construction that was not properly labeled, and c) almost all the rest are slightly older tear-downs.

In other words, to a close approximation, the only houses for sale in Vienna, currently, are a) brand-new tear-downs, b) houses slated to be torn down, where the new replacement house is being offered for sale, and c) slightly older tear-downs.  Eyeballing the listing for Vienna, I counted 15 houses that plausibly were not current or recent tear-downs.  They accounted for all of the houses listed under $1M.

As I understand it, almost all small houses listed for sale in Vienna will be bought by developers as tear-downs.  Ignoring that, a young family looking to settle in Vienna, and looking for a (say) 3 or 4 bedroom single-family home, would have a choice today from about 15 houses.  Of those, likely the majority under $800K will be bought for tear downs.  Realistically, they probably have a choice of fewer than 10 houses.

An unpopular policy proposal, or, what does this have to do with Vienna zoning laws?

The prevalence of the super-house as the only new construction mode has left something of a hole in the Vienna housing market.  There are almost no mid-range single-family house options available.  Everything at the low end is bought for conversion to super-houses, and then almost everything else for sale is either brand-new tear-downs or slightly older-tear downs, starting at $1.1M.

Plausibly this was a sustainable situation prior to the change in the tax laws.  Now, however, any incremental housing value above about $850K, for a new house purchase, has substantially higher carrying costs than it did just two years ago.

As an economist, I’m not willing to say this lack of mid-range housing for sale in Vienna is “a problem”.  The markets do what they do.  Perhaps Vienna is in the process of becoming the new McLean, and this is just the result of more-or-less unstoppable market forces.

What I am willing to say, however, is that, in part, this situation may be an artifact of long-standing zoning law interacting with radically changed market conditions.

Put these two items together, and see if you get to the same solution I do.  1) Builders cannot afford to build anything less than a very large, roughly $1.5M house, as a tear down.  2)  Young families would like a house about half that size, and maybe half that cost. 

How about cutting those giant houses in half?  That is, in selected neighborhoods where parking would not be an issue, allow duplex houses in what is current zoned for single-family-homes only.  Instead of one $1.5M six-bedroom house, you’d have a building that looked like a single-family home, but was in fact two $750K three-bedroom houses.

Turns out, this is already a thing.  Minneapolis recently moved to eliminate single-family-only zoning within the core of the city (NY Times writeup, Washington Post writeup).  Minneapolis would allow duplex and triplex houses as “by right” construction within certain zones currently reserved for single-family-only houses.

Beyond a doubt, this would meet with significant resistance from the neighbors.  But let me point out a few things.

First, it sure looks like any small house currently up for sale in Vienna is going to be converted to a mega-house, one way or the other.  The tear-down boom is eating those up.  So long as a duplex didn’t look radically different from a “standard” mega-house, the impact of this on the appearance of the neighborhood would be minimal.  You’re going to get a mega-house next door, one way or the other.

Second, it spreads any population increase out over the entire Town of Vienna, and does not, as MAC zoning does, concentrate it on Maple Avenue.  For a given number of new residents, this would lessen the impact on congestion on Maple Avenue.

Third, it retains the family-oriented nature of Vienna by catering primarily to people who want to buy a modest-sized house.  MAC, by contrast, has so far produced apartments as the predominant dwelling unit.  That’s a housing choice that caters to a different population.

It’s far from clear that there would be any market for such housing.  As it stands, tear-down mega-houses dominate the listing of homes for sale in Vienna.  There is no indication that they are particularly hard to sell.  And duplexes are an almost-unheard-of housing model in this area.

Anyway, it looks like the alternative, for now, is the McLean-ization of Vienna.  The combination of market forces and zoning rules means nothing but mega-houses will be built.  Possibly they will never saturate the market for those, and that housing constraint will slowly move Vienna away from a population economically similar to Oakton and Falls Church, toward one more McLean-ish in composition.  That’s neither here nor there, really.  It just means that the future Vienna will be quite different from the current Vienna.

Some people make quite a big deal out of the original “Yeonas”-type houses here in Vienna.  I moved into one when I first move here.  I used to joke that I lived in “workers’ housing”, as I trudged the mile to the Metro every morning.  No great shakes in terms of construction, not much to look at, and not a lot of room.  But it was a place I could afford to buy that was within plausible walking distance of Metro.  It was there so that a regular working stiff could have a decent place to live and raise a family.  I now have to wonder if replacing those with duplexes would adhere to the spirit of keeping affordable “workers’ housing” in Vienna.