In Phoenix real estate, zombies start waking up

June 13, 2013

When the region’s housing market took a nosedive a few years ago, developers abandoned subdivisions that were only partially built. Estimates by the Sonoran Institute put the number of so-called zombie lots in Central Arizona at a staggering one million. Now, with the industry well into recovery mode, that empty land is starting to wake up.

Housing Construction is nearly finished at Gordon Estates, a formerly abandoned subdivision in South Phoenix that city officials targeted for resurrection.(Photo by Peter O'Dowd-KJZZ)

Since 2009, the City of Phoenix has gotten about $116 million in federal stimulus money to find new buyers of foreclosed houses and to rescue stalled-out housing developments like Gordon Estates in South Phoenix.

Construction on the subdivision stopped when the market crashed. But the city swooped in to buy the land with federal money and worked with a developer to finish 14 new homes that are just about move-in ready.

Now, instead of silence, the sound of a concrete truck dumping its payload can be heard in the neighborhood. 

Chris Hallett, who runs the Phoenix’s Neighborhood Services Department, said his agency is pretty much finished with projects like this.

“The inventory out here is slowing, and the turnaround when we sell these is faster,” Hallett said. “That’s a sign of a good economy, and a sign that our work here is just about done.”

The last of the stimulus money will run out by next spring, at which point the city will more or less leave the work of salvaging zombie subdivisions to private developers, Hallett said.

Of course, those developers have already geared up for the challenge.

“The opportunity to acquire distressed lots or failed communities is long gone,” said Dave Everson, the president of Mandalay Homes. It’s the same company that worked with the city to build the homes at Gordon Estates. “They’re now in the hands of people who are either building them or are in the process of building them.”

In fact, since last year builders have been scrambling to acquire land so they can ramp up production. According to Arizona State University’s W.P. Carey School of Business, the number of new-home sales last April was up 27 percent compared to the same month the year before. Cities like Gilbert and Goodyear are leading the way.

And all through the recession, there was a lingering question: When things get better, will developers make the same type of house, in the same way they always have? Or will a recovery bring something new?

Everson said he’s been thinking about that, too.

“My guess is it will be different, but not as different as we thought it was going to be," he said.

For example, new homes today are much more energy efficient than they were back in 2008, Everson said. But the idea that post-recession construction would bring demand for smaller homes and denser neighborhoods isn’t panning out.

“As an industry we tooled up for that,” Everson said. “But what we are finding is that as the market is healing we probably underestimate the consumers’ desire for a little larger home.”

Really, this is just the beginning of the conversation about the future of development in Central Arizona because the new-home market is still very much shaking off its cobwebs.

Builders still don’t have the labor they need to build fast. And realtor Greg Swann says all the talk in the world about pent-up demand for new homes doesn’t mean much until significant population growth comes back to the Valley.

“From now on whenever you’re driving on the freeway look for a truss,” Swann said, referring to a roof truss on the back of a truck. “And when you start to see a truss every day, then things have turned around. If you see three trusses a day, then things have really turned around. But if you can go five days without seeing a truss on the freeway, then no one is building anything.”

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