The ‘McMansion’ Trend in Housing is Slowing

By Beacon Staff

ATLANTA – Complete with an Oval Office and Lincoln Bedroom, the Atlanta White House became a symbol of developers reshaping the urban landscape by tearing down modest ranches and bungalows and plopping McMansions in their place.

The religiously themed mini-White House – which required the razing of three brick ranches – is now up for sale, facing foreclosure this week if the builder, an Iranian-born entrepreneur, can’t get a $9.88 million selling price.

New York finance blogger Rolfe Winkler calls it a “delicious story” rife with symbolism about overheated real estate and leveraged dreams that sparked the biggest national real estate slump since the Great Depression.

But the plight of this White House also marks a major shift in the transformation of American neighborhoods – perhaps the end of the McMansion era. Indeed, it may allow thousands of communities from Pasadena to Pittsburgh to more accurately balance the living requirements of modern Americans with a widespread desire to maintain older neighborhoods.

“We’re advising communities to take advantage of this slowdown and use it as a cooling-off period,” says Adrian Fine, a regional director for the National Trust for Historic Preservation in Washington. “It gives them a little more time to have a less heated and less controversial discussion to protect a specific neighborhood and balance that with the need for growth and development.”

With housing prices off by 18 percent in 20 US cities in the last year and new home starts at a 26-year low, bulldozers have slowed their march across American cities and towns.

In Westport, Conn., teardown permits are down in the last year by 33 percent – a figure that experts say can be extrapolated nationwide, though teardown trends do have significant regional variations. Analysts expect the lull to last at least five years, perhaps 10.

Teardown trend slower but not over

“The idea that you’re going to make a lot of money tearing down an old house to build a new one, that’s gone,” says Morris Davis, a real estate economist at the University of Wisconsin in Madison who has advised the Federal Reserve on the teardown trend.

But from towns like Deal on the Jersey shore to Atlanta’s Kirkwood neighborhood, some builders are still seeing gold, especially in areas where there are fully depreciated houses sitting on valuable intown lots. Though the teardown pace has slowed, the trend itself has spread exponentially, now often driven by companies with registers where sellers list depreciated homes and builders find properties ripe for redevelopment.

“[Teardowns] are big in upscale markets [where] they haven’t fallen nearly as much,” says Karl Case, an economist at Wellesley College in Massachusetts, in an e-mail. “The real declines have been in the bottom tiers of the Sunbelt.”

Two years ago, the National Trust listed 300 “endangered” neighborhoods in 33 states. In March, the trust expanded that list to 500 neighborhoods in 40 states. Two main factors have driven the teardown trend: Suburbanites returning to cities and urban land values rising meteorically in relation to home values.

With some 75,000 homes a year being torn down across the country at the height of the market, hundreds of cities like Raleigh, N.C., towns like Ardmore, Pa., and upscale commuter communities like Westport, Conn., have endured bitter political battles over home heights and property setbacks on established lots.

Fred Milani, the Atlanta White House builder, sparked such a standoff in an Atlanta suburb that led to tougher height restrictions. Mr. Fine at the National Trust has seen community concerns shift from anger over the razing of homes – though venerable old Victorians are still tumbling – to “what’s going to go up in its place.”

Economic and social realities, including the popularity of green technologies, have had one major consequence in the last year. New home construction in older neighborhoods has, on the whole, become more compatible, as both builders and buyers have come to see the value of maintaining what architects call the “historical integrity” of older neighborhoods.

Homeowners value quality over size

In Atlanta’s 1920s-era Kirkwood neighborhood, teardown projects in the last year have been cast in the simpler Craftsman style, which have immediately found buyers. Indeed, US builders say their clients increasingly look for quality materials and workmanship rather than sheer size. Some families are even abandoning the one-bedroom-per-child model, builders say, in favor of larger, but fewer, shared rooms.

That aesthetic shift may have affected builders like Mr. Milani as much as the real estate bust.

“There’s an awareness now that some of the homes frankly are too big,” says Scott Van Duzor, a home builder in Illinois’s Fox River Valley. “The McMansion has almost become embarrassing to some people,” he says. “They’re listening not just to their wallet but their conscience.”