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Rancho Ortega Blog discusses matters of public interest in South Orange County, including the communities of San Juan Capistrano, Ladera Ranch and Rancho Mission Viejo.

The writings of Don Juan Ortega on the Rancho Ortega Blog are the personal views of the author. This blog is not authored by nor does it have any affiliation whatsoever with any other person, place or entity using the name "Rancho Ortega" (or any similar name).

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Speculating on the Prices of Gavilan (Age-Restricted) Homes

Ever since Rancho Mission Viejo announced that Planning Area 1 would contain a gated “active adult” community (later named Gavilan), potential homebuyers have been hungry for information about this proposed community.  While we aren’t privy to any information about Gavilan itself, we are able to provide some back ground on age-restricted housing generally.

The legality of age-restricted housing – and in particular, housing limited to seniors ages 55 and old – is only recently established.  That being said, there is now both Supreme Court and Congressional authority for so-called “active adult” communities that are limited to adults older than a given age.  According to one academic paper:

“The legality of relatively unrestricted “adults-only” housing stems from the Housing for Older Persons Act of 1995. Under this statute housing facilities or communities for occupancy by persons 55 years of age or older, where at least 80% of occupied units are lived in by at least one person 55 years of age or older, do not violate discrimination laws. The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) permitted an age exemption to its provisions if the project provided “significant facilities and services” that addressed special housing needs of the elderly. The 1995 statute eliminated the provision requiring special facilities and services in order to gain age exempted status.”

The qualifying age is typically 55 years or older, although that age may vary.  The restrictions often apply both to ownership of the properties and residence in the community.

There is also some disagreement over whether age-restrictions have a positive or negative effect on prices.  One the one hand, some argue that age-restricted senior housing reduces housing values by dramatically limiting the buyer pool to seniors who are not candidates for traditional 30 year mortgages and who have limited tolerance for equity loss.  Others have argued that properties subject to age-restriction covenants may enjoy a premium due to the elimination of uncertainty regarding future negative externalities.  In addition, many active adult communities contain amenities and medical facilities specifically designed for the senior population, enhancing the desirability of the properties.

Of course, when one talks about age-restricted housing in Orange County, one must mention Laguna Woods.  The city of Laguna Woods has a population of just over 16,000 residents with a median age of 78.  About 90% of Laguna Woods consists of Laguna Woods Village, an age-restricted community formerly known as Leisure World.

Laguna Woods is bordered on the south Aliso Viejo, and the housing stock is similar – master planned communities consisting of many condos, townhomes and small single family residences.  A comparison of property values between the two might give some indication of the effect of age restrictions on housing prices.  Below are two charts showing sold price (on a per square foot basis) for condos in Laguna Woods and Aliso Viejo.

Comparison of real estate prices for condo properties in Laguna Woods (age-restricted) and Aliso Viejo (charts courtesy of Redfin)

As you can see, in spite of the geographical proximity of the two communities and the similarity in housing stock and number of sold units, the sales price per square foot in Aliso Viejo is nearly twice that of Laguna Woods ($248 psf vs. $127 psf).   Likewise, the median sold price in Aliso Viejo is nearly twice that of Laguna Woods ($320,000 vs. $156,000).

This comparison isn’t the final word on property values in age-restricted housing.  For example, the housing stock in Laguna Woods is older, on average, than the housing stock in Aliso Viejo.  Even within the condo category, the mix of housing may be different.  But the comparative value of the two communities seems to be evidence that age-restricted housing tends to sell at a discount to unrestricted housing in Orange County.

Which brings us to Gavilan.  If we assume that the homes of Gavilan will be similar to the housing stock in Ladera Ranch, we can begin to speculate on what the price points might be.  First, a few assumptions:

  • We assume that Sendero will have a master HOA fee of approximately $200 per month.
  • We further assume that Gavilan has a supplemental HOA fee of approximately $200 per month to pay for the gate as well as the community’s private activities and amentities, bringing the total Gavilan HOA to at least $400 – consistent with gated Covenant Hills in Ladera Ranch and active adult communities in Laguna Woods.
  • We assume that most of the Gavilan homes will be detached homes with small yards, and between 1500 and 2500 square feet of living space.  They will have either two or three bedrooms.  We suspect they will be primarily single story, but the lack of single story properties in Ladera Ranch makes an apples-to-apples comparison difficult.

Thus for comparison purposes, a Ladera Ranch comp might look something like this charming 3 bedroom home:

Ladera Ranch Comparable (image courtesy of Redfin)

A second point of comparison might be a similar age-restricted house in Laguna Woods.  Most Laguna Woods properties are classified as condos, although they look and live like single family residences.  They are older properties, but membership in the $500+ per month Laguna Woods HOA conveys substantial benefits and amenities.  Some of the homes have views and Laguna Woods is more centrally located in Orange County than Gavilan will be.  Nevertheless, consider this single story Laguna Woods home with similar specifications to our Ladera Ranch example:

Laguna Woods Comparable (image courtesy of Redfin)

With a benchmark of $243 per square foot in Ladera and $301 per square foot in Laguna Woods, what might an equivalent home sell for in Gavilan?  We can consider a couple factors:

  • The competition for Gavilan homes will be lower priced resales in Ladera Ranch and age-restricted housing in existing communities like Laguna Woods.  If Gavilan is priced too high, buyers will simply buy in these other locations.  Thus, it seems the maximum price per square foot that Gavilan will be able to charge will be in the range of $250-300 per square foot.
  • Buyers will pay a premium for “active adult” amenities.  Laguna Woods residents pay more than $500 per month to the HOA for access to golf courses, exercise classes, entertainment and social events.   But these amenities are expensive and Gavilan will not be able to amortize the cost over a large number of residents.  With only 285 units in Gavilan, one might expect minimal amenities beyond a clubhouse and a pool.
  • Because Gavilan homes are single story, they will require a larger footprint than the two and three story homes in Ladera Ranch.  This will result in a higher price per unit.
  • There is always a premium attached to new housing, and we believe the lack of new age-restricted housing in Orange County has created a demand for a community like Gavilan.  Thus, we expect that Gavilan will benefit from increased demand from potential homebuyers.  Nevertheless, that premium will be held in check by the buyer pool – age-qualified home buyers are less likely to qualify for a conventional 30 year mortgage and are more likely to be all-cash buyers.  In many cases, buyers will need to cash out equity in their current homes in order to downsize – equity that has been squeezed during the recent real estate crash.

Our conclusion is that homes in Gavilan will likely sell for a price per square foot similar to Ladera Ranch and Laguna Woods — fetching neither a premium nor a discount.  We expect to see prices starting in the mid $200 per square foot range.  Like most new home developments, upgrades, options and landscaping will be extra.  It would not be inconceivable to see a ~2000 square foot home in Gavilan selling for over $600,000 with all things considered.   Regardless of these prices, given the scarcity of new age-restricted housing in Orange County, we expect the 285 units of Gavilan to sell quickly.  Keep an eye out for that interest list!

Please note that we are not affiliated with the developer and we have no inside information about the homes of Gavilan.  We’re merely speculating and like everyone else, anxiously awaiting more information about the new homes of Sendero.

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