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Well, here the Fayetteville government goes again.
There is a major rezoning hearing at Fayetteville City Hall on Tuesday, December 19. Not only is the city in danger of losing the Walgreens drugstore on the corner of Highway 54 and Gingercake Road, but they could also end up with a massive condominium complex on the site — 265 three-story condominiums on 22 acres.
The rezoning request is for a change from commercial zoning to townhouse-condominium zoning. The proposed development calls for plastering the corner lot with three-story condominium buildings, creating hundreds of new residential units in a small space.
As I have stated before, the Fayetteville city council has made a generational mistake with the over-approval and construction of multi-family housing. Predictable problems will follow. Solutions to those problems will be few.
Market impact
The first order of business is accurately identifying our multi-family market. The Fayetteville city council might mistakenly believe their market competition is the remainder of Fayette County.
The true multi-family market is the “Southern Crescent” counties south of Interstate 20. For example, Fairburn and Newnan have outpaced Fayetteville in multi-family construction. The rent comparisons and vacancy rates are dependent upon supply in Henry, Coweta, South Fulton, and neighboring cities in Fayette.
Nationally, multi-family construction is higher than at any point since at least 1970, and twice as large as the wave that preceded the Great Recession. The market is cyclical and a supply glut is very possible.
Recently, markets have benefitted from outsized in-migration in the wake of the pandemic. Fayette County has also had an increase in job creation, but the market faces the largest multi-family supply wave in modern history.
It appears that supply is outpacing demand in our true market. Owners financing condominiums and townhouses in our current economy are more likely to end up underwater or in foreclosure.
When the axe falls
Apartments, condominiums, and townhouses carry particular risks.
In addition to the supply risks, multi-family developers are facing challenges in financing, as well as rising construction costs that have placed pressure on development proformas.
Economic pressures lead to reduced construction quality, reduced maintenance, and low standards for renter approval to be profitable.
The bite of the condominium and townhouse sector is the younger and the older owners cannot afford significant increases in monthly maintenance fees or special assessments to keep up with sharply rising labor and material costs.
The condominium and townhouse sector deteriorates faster than other forms of residential dwellings. High rates of foreclosure are common.
With a possible recession, it remains unclear what the path of demand will be. Vacancies in rental units could increase substantially, and rents would fall as properties compete for tenants. The more units a community has the more volatile that scenario becomes.
Basic economics dictates that rents in rental units will decline in the face of oversupply. Watch for local multi-family complexes offering one to two months of free rent to renters on an initial lease to compensate for a declining environment.
The oversupply of new apartments and rental condo properties distress existing older developments without the latest finishes or amenity packages, increasing the need to lower rents to compete with their newer competitors.
If rents fall due to oversupply, a much more transient population will ebb and flow.
Waived application fees, reduced damage deposits, and similar inducements are signs of the market faltering.
Forcing operating expenses down, deferring maintenance, and asking assessors for lower tax valuation appraisals occur when the cycle goes downward.
The multi-family surge will impact traffic congestion. There will eventually be an impact on the school districts as well.
Solutions or mitigation
Once the developments are constructed, there is little the local government can do to rectify any problems when they occur.
Some jurisdictions in the north metro area have been forced to purchase rundown multi-family developments to rid themselves of crime and blight.
Condominium and townhouse complexes gone awry are almost impossible to resolve, having to deal with hundreds of individual owners.
Of course, the best plan is to maintain a very lean multi-family supply to avoid the pitfalls.
[Brown is a former mayor of Peachtree City and served two terms on the Fayette County Board of Commissioners. You can read all his columns by clicking on his photo below.]
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