Investors stay away from multi-family projects because of slow
return
Hollister officials agree the city needs more rental housing.
Developers disagree about whether it is possible to make a profit
on rentals.
Investors stay away from multi-family projects because of slow return
Hollister officials agree the city needs more rental housing. Developers disagree about whether it is possible to make a profit on rentals.
There are two kinds of rental units, said Marilyn Ferreira, a broker associate at Intero Real Estate Services in Hollister and the developer of a project in Hollister that would build senior apartments for purchase.
One kind of rental housing consists of apartment complexes built from the ground up, Ferreira said. The other kind is preexisting houses put up for rent.
City staff do not track the amount of rental units in Hollister, said Mary Paxton, Hollister’s planning manager.
Tod duBois is a local developer who owns a two and a half acre lot on an undeveloped parcel on Park Hill. One option he is considering for the parcel would be a senior rental apartment complex.
“The fundamental issue over the last few years, I think, is that the price points of the housing versus what you can get for rental just hasn’t made any sense,” duBois said.
Land that is easily buildable, land that has power and water infrastructure and is flat, is very expensive, duBois said.
“With the impact fees on top of the high cost of land in Hollister, I’m not sure how we’re going to get rental properties built,” duBois said.
Impact fees are fees that a developer must pay to compensate for the impact that additional residents will have on city infrastructure.
“We have a pent up demand,” Ferreira said. “There are a lot of people who lost their homes, and they could make a decent rental payment, but there is nowhere to go.”
It was not economically feasible to build rentals before, Ferreira said. Mortgages were higher than rent, Ferreira said.
The cost of land was adjusted downward, Ferreira said.
“At least it will make up for itself, whereas before it wouldn’t,” Ferreira said. “Today with the lower interest rates, it will get investors back into the market. I’m hoping. I’m counting on it.”
Ferreira is representing someone who owns several plots in Hollister. They would be used for affordable apartments, Ferreira said.
Investors are interested in buying land to build rentals, Ferreira said.
They are also buying houses they will rent out, Ferreira said.
“I have people looking to buy rentals again, for the first time in a long time,” Ferreira said. “It makes economic sense, which is exciting.”
Rental housing is important, said Mary Paxton, Hollister’s planning manager.
“Not everybody is in a position to purchase a home,” Paxton said. “Some people don’t make enough money to make a down payment. I think some people need to rent until they can save up to buy.”
Bill Avera, Hollister’s development services manager, agreed.
“Rental housing is absolutely necessary,” Avera said. “If you don’t have a little bit of everything, then you’re leaving out a segment of the population.”
The last apartment complexes in Hollister were built in 2001 or 2002, before the sewer moratorium, Avera said.
“Prior to that, it was a long time before we had any significant market-rate apartment complex,” Avera said.
It comes down to quick profits.
“Most land developers or investors like to be able to get into an investment and get out,” Avera said. “Everybody is in that business to get the highest return on an investment as possible.”
The California Department of Finance staff track the vacancy rates of housing, Paxton said.
“Our vacancy rate is pretty low,” Paxton said. “It was pretty low in the 2000 census. It hasn’t improved since then.”
In a healthy housing market, the vacancy rate should be between 5 percent and 6 percent, Paxton said.
In 2007, Hollister’s vacancy rate for all housing was 2.1 percent, Paxton said.
If the vacancy rate is 2 percent, it might be hard to find rental housing because there is not enough available, Paxton said.
The lack of rental housing can increase prices, Paxton said.
“Just the classic supply and demand,” Paxton said. “If there’s a limited supply, there’s an ability to charge more.”
There are nearly 1,200 residential units scheduled for development after the moratorium ends, according to documents from the planning department, but less than 200 would be rental units.
The units that will be built when the moratorium ends are not reflective of current priorities, Paxton said.
“It’s reflective of past approvals,” Paxton said.
When the sewer moratorium ends, new residential development will be limited to 244 new homes per year.
City staff would encourage higher density projects through the housing allocation process, Avera said.
“I think it would be prudent of us to give higher points to a project that is actually a rental project, rather than a condominium,” Avera said. “Hopefully with that higher density, we’ll end up with a rental market that is greater than it has been in that past.”
A lot of land in Hollister is zoned for high density development, duBois said. It would be expensive to build on a lot of that land, duBois said.
“If the city council wants more rental,” duBois said, “they need to make more land available that’s less expensive to build.”
Hollister’s general plan, adopted in 2005, encourages the development of such policies that encourage affordable housing.
“It doesn’t have specific goals, but it has some policies and procedures for more rental housing,” Paxton said.
