Real estate development backdrop

Renovation activity has been high for several years in East Arlington. The Covid-19 pandemic disrupted the supply chain for renovation materials, causing bottlenecks. During 2021 it was common for the delivery of cabinets, appliances, lumber and other materials to be delayed by weeks or even months. Despite these challenges, developers executed renovation projects to capitalize on high demand for renovated homes and low inventory. The supply chain issues eased to some extent in 2022. Now in 2023 we are still facing a shortage of skilled labor such as plumbers and electricians, which has added to the project delays.

The zoning and permitting process presents additional challenges to renovation projects. Some homeowners find the process cumbersome and also worry that their projects might not be approved by the municipality, which would result in wasted time and effort. Periods of high renovation activity can create backlogs for the inspection department, increasing delays.

Despite the challenges of renovating in the current environment, many homeowners and developers are finding a way to undertake and complete beautiful renovation projects in East Arlington. Most of the houses in East Arlington were built in the early 1900s, and many of them have not been updated in recent years. It is common to see homes last renovated in the 80s or 90s that are due for updates. Renovated homes with new, modern features fetch premium prices in the market.

Unlike the rest of Arlington, which is made up of mostly single family homes, most residential buildings in the East Arlington neighborhood are two-family homes. Developers sometimes convert two-family homes into pairs of condominiums. In East Arlington, these conversions often coincide with a complete interior or “gut” renovation.

Home offices

One of the biggest changes caused by the Covid-19 pandemic is the increased popularity of working from home. As more people started working from home, the search began for a good space to work. Traditionally, all kinds of spaces have been used for this purpose. For example, a guest room, a corner of the dining room, or even a bed can become a work space. Increasingly, work-from-homers are realizing the benefits of having a home office for efficiency (no commute!), comfort, and flexibility.

Almost any room can be turned into a home office. Considerations include the size, location relative to the other rooms in the house, and the presence of windows and other features. The noise level can be affected by proximity to noisy/high activity rooms and appliances such as dishwashers, washing machines, and dryers. Noise can also come from outside– for example, from cars, kids at play, and barking dogs.

Maximizing livable space

Since the residential buildings in East Arlington tend to be relatively small, a priority for developers is maximizing livable space (finished space with a comfortable temperature, floor, and ceiling height).

Finished basements

Finishing a basement is a very efficient way to add livable space. Basements are large, since they take up the whole property’s footprint. A basement is already sealed to the weather, so the cost to finish this space is usually less than building an addition.

A limitation of finished basement space is that it is at least partially underground. Ceiling height could be an issue– sometimes the presence of pipes prevents an ideal ceiling height. Windows in a basement are usually smaller, and the space gets less sunlight. Heating equipment could be an eye sore and/or noisy. Also, consider air flow for heating equipment: Some HVAC systems need sufficient circulation to operate efficiently. When it comes time to sell your house, finished basement space will command a lower price per square foot compared to other finished space. Still, finished basements add value and usually provide a developer or homeowner with a good return on investment (ROI).

Storage

If a basement is finished, it significantly reduces the amount of potential storage space available. Sometimes a developer will allocate a small amount of unfinished basement space to storage, using fencing and doors to allocate it between the units.

Homeowners can consider putting a shed in the yard, particularly if the yard is spacious. A shed is a good storage option, especially for items that are not sensitive to cold, heat, and humidity.

Finished attics

Finishing an attic is a great way to add livable space. You can keep the frame of the existing roof to seal the space, or you can add dormers. Adding dormers is relatively expensive because it requires new roof construction. Either way, the space will probably be nice where the headroom is sufficient. If you have a slanted roof, you’ll have slanted ceilings. At the edges of the rooms, where ceiling height is inadequate to stand up, you can use short walls with doors to create crawl space for storage purposes.

Sun porches

A sun porch, or sunroom, is an enclosed porch on the side of a home with enough windows to provide sunlight. Sun porches are closed to the weather and are fairly common in our East Arlington neighborhood. A sun porch can be used as a home office, play room, or for some other purpose.

Open layouts

An open layout is one in which there are fewer interior walls, creating an “open” feel. Open layouts started gaining popularity in the early 1970s and have only increased in popularity since then. Many homes in the Arlington area that were renovated in the last 20 years have open space between the kitchen, dining room, and sometimes living room.

In older home designs, the philosophy seemed to be to hide the kitchen. This is possibly because the kitchen is a practical room with a specific purpose (like a bathroom), and developers in the past saw little benefit of integrating kitchens with the rest of the house. Now, the kitchen often fulfills a more social purpose. Guests and family members may want to keep the cook company while they prepare a meal. Cooks may want to keep an eye on young children from the kitchen. Modern renovations sometimes provide a nice counter around which people can gather. The trend toward a more social kitchen also tends to make homeowners care more about their kitchen’s appearance.

White kitchen cabinets

One of the clearest trends in new renovations in East Arlington is towards white kitchen cabinets. When an owner replaces the kitchen cabinets, one choice is between wood or painted surfaces. “Wood” shows the grain of the wood and is available in different shades, from white oak to dark chestnut. Painted cabinets come in many colors, but the most common are white, black, and gray. Sometimes blue and green are used, and they come in a spectrum of shades. Various off-white shades like cream are also used. The paint used on kitchen cabinets is different from the paint used on walls; it is a special paint sprayed on in the factory. This means that chipped paint on cabinets can be tricky to cover up, although touch-up kits are available.

Developers are often choosing satin nickel cabinet pulls for white cabinets. Popular shapes these days are modern ones like straight bars. The combination of white cabinets with satin nickel cabinet pulls in straight shapes provides a clean, modern, and urban feel.

White countertops

Many developers are opting for white granite countertops, even matching white cabinets. Although granite is the most popular, quartz and marble are sometimes used.

The white countertop trend is so pronounced that we have to wonder whether it is just a fad or whether we are moving to a more durable stylistic norm. If it is the former, then all of these white-on-white kitchens are going to look dated in future decades– like period pieces of a bygone era (think about medium-dark wood paneled walls or pastel colored appliances). Time will tell whether white cabinets with white countertops are here to stay or merely a passing fad. What do you think?

Stainless steel appliances

Appliances with stainless steel finishes became popular in the 2000s for their modern appearance, and hey have seen continued popularity since then. Despite showing smudges more easily, stainless steel is currently the most desirable finish for an appliance. Like wood and glass, metal is a natural material, which might give the look longevity in interior design.

Costs

Traditionally, interest expense is a significant “carrying cost” of real estate development. Between the purchase date and the date of sale or leasing, the homeowner typically pays interest on a mortgage. If the building is being renovated, no rent is coming in to offset that expense. During the 2009-2021 period, when interest rates were at or near record low levels, interest expense was a smaller percentage of the total project cost for a renovation. Recently, mortgage rates have moved higher, though they are still not high by long-term historical standards.

While interest expense was incredibly low the last few years, labor and materials were expensive. High real estate values encouraged homeowners to make renovations at a time when the supply of labor and materials was limited. Supply chain bottlenecks induced by the Covid-19 pandemic exacerbated the problem, pushing up prices and delays.

Supply chain issues have eased, but inflation has appeared. After lying dormant for decades, general price inflation is affecting both good and labor costs.

The overall situation is that development is expensive to undertake, but still holds significant profit potential. A scarcity of homes, especially renovated ones, ultimately provides sellers with high prices.