Pleasant Hill Housing Study

LELAND CONSULTING GROUP, INC.

1

The Situation Despite widespread rural declines, Iowa’s metropolitan areas are booming The Des Moines metro is leading the way Downtown renaissance including resurgence in both jobs and housing Fast-growing western and northern suburbs, with new employment clusters emerging and booming residential development (especially towards the fringes)

Pleasant Hill has meanwhile experienced steady but slower growth Lagging behind Ankeny and the upstart Dallas County communities, led by Waukee

While Pleasant Hill’s job growth has been strong over the past decade, just 200 of the 3,000 people working in the city also reside there Continued sluggish residential construction means less property tax revenue growth to support the city’s growing capital and operations budget

2

Key Questions for Pleasant Hill What national trends are shaping the housing market? in terms of shifting

generational needs, affordability, preferences, etc.

Who does Pleasant Hill compete with? for housing development (i.e. what’s the residential market area?)

How does Pleasant Hill compare on basic demand drivers? in terms of population growth, lifestyle, age & household demographics, employment trajectory, etc.?

How do commuting patterns fit in? Does the shifting employment landscape in the Des Moines metro affect the housing market?

What are the housing supply conditions in Pleasant Hill? How much & what types

of new residential development are occurring in Pleasant Hill vs. the wider region? How do the products compare?

How much new demand can Pleasant Hill expect? over the coming years – for housing by type and price/rent ranges?

What could move the needle for Pleasant Hill? By leveraging its market strengths

and countering weaknesses to strategically address its housing situation.

3

A Peek at Some Answers What national trends are shaping the housing market?

Boomers hit the senior years demanding a wide variety of housing choices, from a desire to age-inplace, to need for smaller/low-maintenance homes, to senior-specific options such as age-restricted independent living up to assisted living. The smaller Gen X is at the age to buy move-up ownership housing (and can finally afford to). Millennials have been driving the boom in apartments and the older portion of them are finally beginning to buy starter homes (although they took longer to do so, because of delayed marriage, student loans, general thriftiness, etc.). Millennials are a big enough group that the tail end will continue to support healthy multifamily demand for a few more years.

Who does Pleasant Hill compete with?

Location, location, location drives consumer housing choice, and proximity to employment is the number one geographic factor. Realtors cite familiarity with the east along with working downtown (or out east/south of the metro) as being the perfect storm for a person, couple, or small family looking at Pleasant Hill. While some Pleasant Hill buyers/renters may consider (or have considered) other west or north-side suburbs, most competitive shopping narrows down based on location. This analysis uses a 6-mile radius (10-15 minute drive time) as a rough market area – encompassing Altoona, most of Bondurant and some of eastern Des Moines (stopping short of the East Village).

How does Pleasant Hill compare on basic demand drivers?

Although a bit overshadowed by booming by suburbs like Ankeny and Waukee, the Pleasant Hill market area has a respectable population growth rate of about 1.5% annually (almost double the national rate). Pleasant Hill’s age mix generally skews higher on Boomers (and most Gen X’ers) and lower on Millennials. The high percentage of Pleasant Hill population age 0-5 reflects the city’s appeal to young families.

As the Fed tries to keep the growing economy from triggering inflation, mortgage rates are rising from their historic lows. This won’t help the increasing affordability problems (worse in the largest metros, but also being felt in Des Moines). Developers, for a variety of reasons, have been lagging production of new supply – often cherry-picking the highest margin upper-midscale price range while neglecting the bottom 1/3 of the market.

Pleasant Hill median incomes are higher than the metro ($81K versus $68K), with a strong concentration of households in the $100-150K range (but actually a smaller share of households earning $200K+). Healthcare and Finance/Insurance, generally high-paying, are the top job sectors for city residents.

4

A Peek at Some Answers How do commuting patterns fit in?

Despite the recent addition of considerable new employment to Pleasant Hill, those 2,700+ jobs tend, almost exclusively, to be staffed by people commuting in from other cities. Conversely, the vast majority of employed Pleasant Hill residents drive to some other city to work (about 4,900 daily). In 2015, just 210 people managed to both live and work in Pleasant Hill – a clear indicator of a jobs-housing mismatch and a potential sign of pent-up jobs/housing demand.

One factor complicating the commuting situation (and weakening Pleasant Hill’s position in the market is the emergence of new major employment concentrations in the western (and to a lesser extent, northern) metro area – lessening the dominance of downtown as a commute destination. Between 2002 and 2015, the City of Des Moines moved from having 49% of all metro jobs to having just 39%.

What are the housing supply conditions in Pleasant Hill?

Pleasant Hill has had a much more subdued housing recovery since the 2008-2011 recession period – in part because other fast-growing suburbs have been much more willing/able to develop multifamily projects in recent years. Rents and home prices are generally lower in Pleasant Hill (and other east-side communities) relative to the metro total and fast-growing west/north suburbs. Newer PH homes are similarly sized, if not smaller, relative to other suburbs, but the lot sizes tend to be larger.

How much new demand can Pleasant Hill expect?

With 1.5% annual growth and assumptions of reasonably steady income distribution and share of owners vs. renters, the 6-mile Pleasant Hill market area could see demand for just over 15,000 new units over the coming decade.

This is both a strength and weakness – helping to define the Pleasant Hill “brand” as good value for modest houses and big yards (consistent with the town’s inherent “pleasant” association). The weakness goes back to the jobs/housing mismatch as Pleasant Hill’s housing offering has narrowed, rather than diversified – foregoing some growth in the process.

Of this, Pleasant Hill could capture some 1,000 to 1,900 new market rate units over 10 years, based on historical market shares and competitive position. Hitting those absorption levels would likely require 180 to 360 of those units to be apartments and another 140 to 230 units to be in the form of attached ownership housing (condo/townhouse/plex). Pricing diversity, likewise, needs to expand at least somewhat – primarily on the low-to-moderate end, but also on the higher end – to accommodate those growth targets.

5

1

U.S. Generations & Housing Needs Annual US Births

4 million 3 2 1

Age in 2018 Shifting Housing Needs

54 to 72 Many still heading singlefamily households with children nearing college age – holding on to larger, higher-priced ownership housing Increasingly empty-nesters, with shrinking households and less need for big high-maintenance house, but decision on when and where to move is complex.

Coming decade will see housing demand spread across a spectrum from low density legacy homes to smaller attached ownership (condo, townhouse) & rental units (with or without age restrictions). Some will need assisted living & related.

38 to 53 This age group usually makes up the bulk of “move-up” ownership housing demand, but Gen X has had below-average home ownership rates (partly due to the recession) and many have held on to a preference for renting.

Beginning to rebound as a source of home sales, but because the generation is smaller, the market also needs support for Millennials to enter at the lower-priced starter home end.

22 to 37

The movement of America’s generations through their agedriven life stages is a remarkably useful lens for understanding the shifts in housing demand – especially when overlaid with national business cycle ups and downs over the past two decades.

Has been the driving force behind a housing recovery largely driven by apartment construction.

The leading half of Millennials is set to enter their 30’s and 40’s – typically prime age for child-rearing and homebuying – but analysts have seen sluggish postrecession movement into home-ownership, with reasons ranging from delayed marriage to financial risk-aversion.

Regardless of timing, the sheer size of this group will eventually bolster the home-building market (although their apartment demand may last longer than expected).

Source: Pew Research Center, U.S. Census; and Leland Consulting Group

6

Other Important National Trends Turning a corner with homeownership 2005 through 2016 saw steady annual declines in homeownership, from a high of 69% down to just over 63%, reflecting both the shakeout from the recession and the smaller sized of Gen X as the nations primary home-buyers. The prolonged recovery cycle and aging of Millennials have finally combined to produce an uptick in ownership for 2017.

Rising mortgage rates The recession produced nearly a decade of historic lows in mortgage interest rates, even as lending practices tightened considerably. Although rates are still low relative to long-term averages, 2018 has already produced a 4-year high in 30-year interest rates. Increases have been fairly gradual, however, and most analysts seem to think they should not pose too much deterrent in the face of mounting generational demand.

Affordability declines and lagging supply Steady employment gains over the past eight years have spurred general economic momentum, but real (inflation-adjusted) wage growth has been slow to materialize. In combination with a sluggish rebound in construction of new housing supply, this has created a widening affordability gap, or difference between median home prices and median incomes. This problem is worse in core (especially coastal) urban areas with dwindling land supply, but the booming Des Moines metro has been affected more so than other Midwest locales.

Renters, especially in lower-income populations, are increasingly cost-burdened, even as rent increases show signs of leveling off – a problem made worse by a multi-decade trend among developers of increasingly favoring higher-end apartments, with more room for profit-taking through value-added amenities.

Sources: Leland Consulting Group, drawing on Pew Research Center, Harvard Joint Center for Housing Studies, U.S. Census and others.

7

2

Residential Market Area

Determining a market area for residential is not as straightforward as for retail – where the location of shopper households is key.

Some prospective renters and home buyers are moving from nearby, but many are coming from out of town or out of state, so residential market geographies are competition-based – based the answer to the question:

A household considering renting or buying a home in Pleasant Hill would also consider what other locations?

The answer is based on a number of factors including employment (often split across family members), local familiarity, friends and family.

8

Residential Market Area

Distance/Drivetime Although pedestrian appeal is important, it is access by automobile that primarily ties people to the things they want in a home: jobs, friends, family and desired amenities.

Even though Pleasant Hill competes to some extent with many suburbs across the metro, most direct buyer and renter comparisons will likely be made within a more narrow geography.

A 10-15 minute drive is a good starting point for understanding what people will consider a reasonable distance to a home-shoppers expected daily destinations.

9

Residential Market Area 6-Mile Radius A 6-mile (from the rough center of Pleasant Hill) radius straddles the 10- and 15minute drive time area (in purple).

While radius-based trade areas can be somewhat arbitrary, this ring also happens to be generally consistent with realtor perceptions and buyer behavior in the east Des Moines metro area.

This market area definition also stops short of downtown Des Moines –a logical boundary given steep transition from suburban to more dense, highly urban residential development beginning in the East Village area.

10

3

Demographics, Employment & Trends

In a nutshell, Pleasant Hill‌

-enjoys the same basic growth drivers as the rest of this expanding

(and infilling) metro, although at a somewhat reduced pace.

-epitomizes many of the metro area’s demographic averages: especially in terms of age, income and household size.

-remains quintessentially suburban: with almost all employed residents commuting out daily and low density land uses leaning heavily residential (although in-town employers are on the rise).

-has seen its growth outpaced by the north and west suburbs more willing to accommodate some multifamily demand and better able to attract local employment land uses.

-is the closest suburb to downtown Des Moines– but that relevance is shifting for homebuyers and renters as job clusters expand west and north.

11

Population & Households Suburban Size

2018 Estimates City

Population

Households

Des Moines

227,308

90,475

West DSM

69,299

29,492

Ankeny

59,010

22,309

Urbandale

45,828

17,742

Johnston

22,704

8,293

Waukee

19,254

7,222

Clive

19,233

6,951

Altoona

18,669

6,974

Grimes

11,819

4,399

Pleasant Hill

10,102

3,867

5,504

1,909

Bondurant

It bears reminding throughout this analysis that Pleasant Hill is among the smallest of Des Moines’ major suburbs. As such, realistic expectations for job growth, infrastructure spending and major civic amenities – all dependent to some extent on “tipping points” and “critical mass” thresholds -- should be adjusted to account for this size difference.

Source: US Census, ESRI; and Leland Consulting Group

12

County Growth by Source Migration and Natural Growth

2010-2017 Population Growth 55,000 50,000 45,000 40,000

Foreign Migration Domestic Migration

25,515

35,000

Natural Growth

30,000 25,000 20,000 15,000

16,043

10,000 5,000

9,581 1,805

0

In Dallas county, fast growing suburbs (led by Waukee) were much more dependent on migration (especially domestic) for rising populations.

5,740

13,324

Population growth in Polk County since 2010 has been due in roughly equal parts to natural growth (births minus deaths) and net migration from outside the county. More than one-third of net migrants into Polk county came from outside the U.S.

3,169 -932

1,096 2,760 105

Story

Warren

5,702

-5,000 Polk

Dallas

13

Population Growth by County Pct. Growth Since 2010 35.0%

Recent Growth

30.0%

30.7%

Dallas

Polk

Story

Warren

25.0% 20.0% 15.0% 11.5%

10.0% 5.0% 0.0% 2010

2011

2012

2013

2014

2015

2016

While Polk county added a robust 11.5% to its population since 2010, Dallas county has added a remarkable 30.7% over the same time period – again, largely driven by the city of Waukee.

Both Story and Warren County, further towards the fringe of the metropolitan area, have also grown steadily, but at a somewhat slower rate than Polk.

2017

14

Population by Age Share of Population by Age (Percent Difference from Metro-wide Share)

Johnston

Pleasant Hill

Urbandale

Waukee

West Des Moines

Altoona

Ankeny

Bondurant

Clive

Des Moines

0-4

13%

17%

30%

-1%

3%

-6%

7%

-8%

31%

-7%

5-9

12%

19%

29%

6%

-4%

4%

-3%

-1%

38%

-11%

10-14

11%

11%

27%

18%

-10%

20%

2%

6%

30%

-9%

15-19

6%

-2%

8%

10%

-1%

13%

-3%

-2%

2%

-10%

20-24

-1%

-9%

-11%

-18%

19%

-18%

-6%

-19%

-32%

8%

25-29

-1%

-1%

-2%

-28%

16%

-22%

-5%

-22%

-24%

35%

30-34

-7%

14%

16%

-21%

7%

-14%

-2%

-12%

9%

23%

35-39

1%

21%

32%

-5%

-4%

-4%

5%

1%

40%

5%

40-44

9%

12%

11%

7%

-8%

10%

5%

8%

33%

-1%

45-49

4%

1%

-3%

12%

-7%

21%

-2%

9%

6%

-3%

50-54

-2%

-10%

-7%

13%

-5%

16%

-10%

6%

-15%

-6%

55-59

-8%

-18%

-31%

12%

-3%

2%

-1%

9%

-27%

-9%

60-64

-12%

-19%

-35%

7%

-3%

-4%

9%

10%

-34%

-8%

65-69

-10%

-18%

-33%

12%

-4%

-9%

16%

11%

-33%

-6%

70-74

-10%

-21%

-39%

6%

-4%

-11%

12%

10%

-36%

-4%

75-79

-9%

-22%

-47%

-8%

-2%

-16%

3%

6%

-40%

-3%

80-84

-15%

-26%

-52%

-22%

3%

-16%

-20%

9%

-44%

-4%

85+

-36%

-40%

-54%

-38%

13%

7%

-32%

10%

-45%

-12%

Green shows a higher than average share of a given age group Red shows a lower-than-average share

Age Comparisons This chart shows each suburb’s population share by age group differs (by percentage) from the metro-wide average.

Population skews by age are especially noteworthy for Waukee and Bondurant, both dominated by children under age 15 and their parents (mostly age 35 to 44).

Source: US Census, ESRI; and Leland Consulting15 Group

Population by Age Population by Age (2017 est.)

9.0% Pleasant Hill 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Des Moines MSA

Age Distribution Pleasant Hill’s largest age groups by population are adults aged 35 to 39 and infants under 5. Both these groups have proportionally higher population shares than found across the metro overall (blue line in the graph).

Pleasant Hill has a higher than average share of residents across all the Boomer age brackets (roughly ages 60-74), but a lower share in the heart of the Millennial bracket (ages 20-30)

Source: US Census, ESRI; and Leland Consulting Group

16

Shifting Age Demographics Metro Des Moines Growth by Age Group 85+

775

80 to 84

2,011

75 to 79

2017 4,914

70 to 74

5,026

60 to 64

4,232

55 to 59 Age Group

Approx.

21,000 Boomers

6,652

65 to 69

50 to 54

Projected Growth by 2022

427 -302

45 to 49

985

40 to 44

6,877

35 to 39

4,548

30 to 34

4,070

25 to 29

Approx.

18,000 Millenials

1,127

15 to 19

4,329

10 to 14

4,367

5 to 9

The Des Moines metro area is projected to add approximately 21,000 Baby Boomers in their early to mid-senior years and over 18.000 Millennials—a group transitioning into their (historical) prime home-ownership stage.

Both these age segments already higher in Pleasant Hill, boding well for increased local growth.

2,922

20 to 24

Near-term Growth

by Generation

2,699

0 to 4

4,093 0

10,000

20,000

30,000

40,000

50,000

60,000

Population Source: US Census, ESRI; and Leland Consulting Group

17

Household Composition 2018 Average Household Size

Household Size

Bondurant

2.88

Clive

2.77

Johnston

2.71

Grimes

2.68

Waukee

2.66

Altoona

2.66

Ankeny

2.62

Pleasant Hill

2.60

Urbandale

2.57

Des Moines West DSM

Pleasant Hill’s average household size is well within the average range for Des Moines suburbs, at 2.6 people per household.

Neighboring Bondurant, at 2.88 has the largest households among major suburbs, while employment-heavy West Des Moines is lowest at 2.34.

2.44 2.34

Source: US Census, ESRI; and Leland Consulting Group

18

Household Incomes vs. Metro Totals Income Curve Pleasant Hill’s estimated median income of $80,500 is well above the Metro median of $68,300.

Average (mean) incomes are closer together: $91,500 in Pleasant Hill $89,400 Metro-wide Almost one-quarter of Pleasant Hill’s households earn in the $100-150K range annually

Source: Census-based ESRI estimates

19

Household Incomes vs. Market Area Households by Income (2017 est.) $200,000+ $150,000-$199,999 $100,000-$149,999

2%

Income Curve The 6-mile market area around Pleasant Hill displays a typical bell curve peaking around the $50-75K bracket.

3% 7%

4%

Pleasant Hill 6-mi Market Area

22%

12%

$75,000-$99,999

15%

20% 21%

$50,000-$74,999 11%

$35,000-$49,999 6%

$25,000-$34,999

6%

$15,000-$24,999 <$15,000

21%

4%

10% 11% 11%

15%

Pleasant Hill itself is shifted upwards, with almost 2/3 of households occupying a plateau ranging from $50K on up to 150K annually and relatively fewer households occupying either the lower half or upper extremes of the income spectrum.

This translates into a narrower band of housing choice and somewhat less diverse population base relative to the surrounding area.

Source: Census-based ESRI estimates

20

Educational Attainment College Grads (as Pct. of Adults 25+)

Educated Populace

Johnston

59%

Clive

57%

West Des Moines

53%

Urbandale

47%

Waukee

46%

Ankeny

45%

Polk County

36%

Des Moines MSA

35%

Altoona

32%

Pleasant Hill

32%

USA

31%

Bondurant

30%

Des Moines

25%

Pleasant Hill actually has a higher proportion of college grads than the nation as a whole, a fact somewhat overshadowed by the gaudy educational attainment rates of some of the north and west metro suburbs.

Coupled with Pleasant Hillâ&#x20AC;&#x2122;s above average incomes, this is somewhat typical of solidly middle to upper-middle class suburban areas anchored by a base whose on-the-job training has proven as valuable as advanced degrees.

Source: Census-based ESRI estimates

21

Pleasant Hill Employment Employees by Industry (2015) Health Care & Social Assistance Finance & Insurance

600 577

42

536

Retail Trade Educational Svcs.

Accommodation & Food Svcs.

355

Construction

Professional, Scientific & Tech Svcs.

Mgmt. of Companies & Enterprises Information Arts, Entertainment, & Recreation Real Estate & Rental & Leasing Utilities Agriculture, Forest, Fish, Hunt Mining, Oil & Gas Extraction

291

74 236

39

224

9 173

Other Svcs., except Public Admin.

Transportation & Warehousing

322

119

Administrative & Support Svcs.

477

332

83

Wholesale Trade

666

389

221

Manufacturing

Educated Populace

408

122

Public Administration

683

164

43 102

19 33

298

95

68 45 67 25 22 11 18 0 1 0

Live in Pleasant Hill

Pleasant Hill actually has a higher proportion of college grads than the nation as a whole, a fact somewhat overshadowed by the gaudy educational attainment rates of some of the north and west metro suburbs.

Coupled with Pleasant Hillâ&#x20AC;&#x2122;s above average incomes, this is somewhat typical of solidly middle to upper-middle class suburban areas anchored by a base whose on-the-job training has proven as valuable as advanced degrees.

Work in Pleasant Hill Source: Census LEHD On the Map

22

Tapestry (Lifestyle/Psychographics) Tapestry Segmentation ESRI Business Analyst uses a system of 67 segments found in neighborhoods across the US. The latest generation of Tapestryâ&#x201E;˘ Segmentation, a market segmentation system designed to identify consumer markets in the United States, incorporates the effects of growth and decline in the last decade on established consumer markets plus the emergence of new markets populated by the Millennials and immigrants. Tapestry Segmentation combines the "who" of lifestyle demography with the "where" of local geography to create a classification model with 67 distinct, behavioral market segments.

Tapestry is a geodemographic segmentation system that integrates consumer traits with residential characteristics to identify markets and classify US neighborhoods. Neighborhoods with the most similar characteristics are grouped together, while neighborhoods with divergent characteristics are separated. The resulting market segments depict meaningful groupings of consumers based on lifestyles and lifestages â&#x20AC;&#x201C; useful for understanding markets from a more human, versus just statistical, perspective.

The following map shows the dominant Tapestry segments in the Pleasant Hill market area and vicinity, followed by ESRIâ&#x20AC;&#x2122;s descriptions of the key segments shown.

Source: ESRI Business Analyst

23

Tapestry (Lifestyle/Psychographics)

Tapestry Segments This number (4A) corresponds to a unique socio-demographic group: Soccer Moms, one of 67 segments found in neighborhoods across the US. Each neighborhood has residents from multiple segments, but the mapped number shows the dominant segment.

Tapestry segmentation (ESRI, Inc.) groups households based on similarities in age, income, housing and cultural variables to help understand and predict consumer behavior.

Source: ESRI Business Analyst

24

Tapestry (Lifestyle/Psychographics)

25

Tapestry (Lifestyle/Psychographics)

26

Tapestry (Lifestyle/Psychographics)

27

Tapestry (Lifestyle/Psychographics)

28

Tapestry (Lifestyle/Psychographics)

29

3

Commuting Patterns Weekday Driving

2015

As of 2015, almost all of Pleasant Hillâ&#x20AC;&#x2122;s 5,000+ working adults commuted to jobs outside the city.

At the same time, nearly 3,000 workers commute into Pleasant Hill each day for work.

Just over 210 residents managed to both work and reside in the city limits.

Commute IN

Live AND Work In Pleasant Hill

Source: Census LEHD On the Map (above graphic) and Census-based ESRI estimates (average commute time)

Commute OUT

Average commute times for Pleasant Hill residents is estimated to be 22.6 minutes in 2018 â&#x20AC;&#x201C; better than the national average of 26.1 minutes, but a bit longer than the metro average of 20.1 minutes.

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Commuting Times Ankeny Bondurant

Johnston

Urbandale Altoona

Waukee Downtown Des Moines

Pleasant Hill

West Des Moines

Getting Downtown Morning commuters from Pleasant Hill can reach downtown Des Moines in as little as 12 minutes (legally), a time equaled only by Urbandale and parts of West Des Moines.

Scott Ave. to MLK Jr. Parkway is typically the fastest route from Pleasant Hill, but Dean and University Avenues offer alternatives with little added drive time.

Source: Google Maps, based on morning commute from each suburbâ&#x20AC;&#x2122;s city hall for Tuesday 8:50am arrival.

31

Commuting Patterns Where Do Pleasant Hill Residents Work?

2,067

1,178

484 285

Des Moines

West Des Moines

236

230

Ankeny Urbandale Altoona

210 Pleasant Hill

117

106

97

53

Clive

Johnston

Ames

Grimes

All Other

On the Road While downtown (and elsewhere in Des Moines proper) is still the top workplace for Pleasant Hill commuters, the range of possible destinations across the metro (and beyond) has grown to account for almost 2/3 of all daily commutes.

Source: Census LEHD On the Map (2015 data)

It is likely (but not provable with available data) that most Pleasant Hill home choices are often first driven by downtown job proximity, with that initial advantage getting diluted by job moves or a spouseâ&#x20AC;&#x2122;s employment outside downtown.

32

Time Spent Commuting On the Road

Average One-Way Commute (minutes) USA

26.1

Pleasant Hill

22.6

Grimes

21.3

Altoona

21.3

Ankeny

21.0

Waukee

20.7

Johnston

20.2

Metro Total

20.1

Des Moines

18.8

Clive

18.0

Urbandale

17.7

West DSM

A U.S. household moving to Pleasant Hill from outside the metro area is likely to see a reduction of about 3 ½ minutes in average daily commute time.

Because of the steady westward (and northward) shifts in employment away from downtown, however, Pleasant Hill now has a longer commute than other major suburbs of Des Moines.

The time differences are not huge, but help to explain the recent growth of suburbs where the hassle of commuting downtown is increasingly offset by the expansion of westside job options.

17.0

Source: ESRI (2018 estimates); and Leland Consulting Group

33

Pleasant Hill Employment Wages of Pleasant Hill Jobs vs.

Pleasant Hill Residents

2015 Employment Residence & Workplace Workers who LIVE in Pleasant Hill

1500 Work in Pleasant Hill

1400 1300

49%

Live in Pleasant Hill

Office Sectors

1200

34%

33%

1100

33% 29%

1000

22%

900 800 700

Healthcare

Service & Hospitality

600

Retail

Logistics

500

Education Pub. Admin.

400 300

$1,250 per $1,251 to $3,333 month or less per month

Out-commuters Make More

Construction

Manufacturing

Jobs in Pleasant Hill are growing, but still lower-paying than those found elsewhere. For example, about 1,300 Pleasant Hill residents work in the relatively high-wage office sector (primarily finance, insurance), but there are less than 200 office sector jobs based in Pleasant Hill.

200 100 0 0

100

200

300

More than $3,333 per month

400

500

600

700

800

900

1000

WORK in Pleasant Hill

On the flip side, the city is home to nearly 700 (lowerwage) retail sector jobs, but only 536 city residents work in retail.

34

Who Moves to Polk County?

Migration into Polk County (2015-16) Est. Households (based on tax returns filed)

From Other States From Other Iowa Counties From Foreign Countries

Polk County NonMigrants

6,384

Est. Population (based on exemptions taken)

Adj. Gross Income

12,382

$336 million

Est. Average Household Income $52,596

Est. Average Household Size

(exemptions per return)

1.94

6,747

11,309

$382 million

$56,597

1.68

238

551

$14 million

$57,643

2.32

174,964

378,952

Source: Internal Revenue Service; and Leland Consulting Group Note: Tax return data approximates, but doesnâ&#x20AC;&#x2122;t match Census data (usually based on ~80-85% of households)

$14 Billion

$79,482

2.17

IRS Migration Data By tracking the changes of address across income tax filers, the IRS is a good source of approximate migration flow data, which they release at the county level.

As is common in almost all growing counties, Polk Countyâ&#x20AC;&#x2122;s new arrivals tend to be younger than current residents, with smaller households and lower average incomes.

In 2016, in-migration was balanced between in-state and out-of-state counties of origin.

35

Who Moves to Polk County?

Top Out-of-State Sources

Top Sources of Out-of-State Migrants to Polk County, 2016 $100,000

Kansas City (Kansas), Minneapolis, and Lincoln sent higher income migrants, on average, to Polk County

$95,000 KC, Ks

HH Income (adj. gross, 2015 average)

$90,000 $85,000 $80,000 $75,000 $70,000

Lincoln

Minneapolis

$65,000 Omaha Moline Houston

$60,000 $55,000

Los Angeles Denver Phoenix KC, Mo Chicago San Diego

$50,000 $45,000

Foreign

Austin

$40,000 $35,000 1.55 1.60 1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2.15 2.20 2.25 2.30 2.35 HH Size (Exemptions per Return)

Source: Census LEHD On the Map; and Leland Consulting Group

36

4

Supply Conditions

What national, regional and local trends in residential development are shaping Pleasant Hillâ&#x20AC;&#x2122;s market for ownership and rental housing?

Generation demographic and housing demand Building permit trends Recent sales & listings for new home construction Multifamily supply, vacancy & rents Senior and student housing

37

Building Permit Activity

Annual Total Units Permitted by County

Polk County and the Region

6,000

5,000 4,544 4,000 Polk Dallas

3,000

Story

Despite the impressive surge in Dallas County development activity, Polk County still accounts for nearly four times the annual units permitted (single and multifamily combined)

Warren 2,000

Jasper 1343

1,000

902 368 77

0 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 Source: HUD, using Census collection of local 38 jurisdiction data

Building Permit Activity Pleasant Hill Permits by Unit Type

Pleasant Hill

500

Source: HUD, using Census collection of local jurisdiction data

450 400 Single Family

350 255

300

Multi-Family (2+)

Multifamily continued as a sizeable share of all units until the bust period beginning in 2009.

250 43

200 23

150 38

100 50 0

70

93

72 17 93

156

190 190 123

Permit activity in Pleasant Hill surged in the early 2000s, peaking in 2005 (well before the national recession) largely on the strength of 255 multifamily units.

60 96

55

62 37

35

31

33

41

16 29

45

139 46

While construction began to rebound slightly in 2015, Pleasant Hill has seen a much slower recovery than suburbs better able (or willing) to attract apartment development â&#x20AC;&#x201C; as seen on the following figures.

39

Building Permit Activity 500

Contrasting Recoveries

Pleasant Hill Permits by Unit Type

A survey of permit trends from other suburbs illustrates the unusually early and strong residential recovery experienced by much of the metro area.

400 Single Family 300

Multi-Family (2+)

In these and other cases, that rebound was spurred largely by riding the wave of Millennial-driven multifamily demand.

200 100 0

1800 1600 1400 1200

Ankeny Permits by Unit Type

1200 1000

Single Family Multi-Family (2+)

1000

400

200

200

0

0

Altoona Permits by Unit Type

1200

450 400

250

Multi-Family (2+)

400

600

300

Single Family

600

800

350

800

Waukee Permits by Unit Type

West Des Moines Permits by Unit Type

1000 Single Family Multi-Family (2+)

800

Single Family Multi-Family (2+)

600

200 150 100

400 200

50 0

0

Source: HUD, using Census collection of local jurisdiction 40 data

Single Family Active Listings & Recent Sales Newer Houses Dallas County and Ankeny are attracting most sales and listing activity for newer homes â&#x20AC;&#x201C; especially for higher-priced units.

Market area competitive activity is strongest in south Altoona.

Source: Redfin; 41 and Leland Consulting Group

Single Family Active Listings & Recent Sales Active Listings for Post-2015 Construction Ankeny

242

West Des Moines

153

Waukee

144

Grimes

101

Urbandale

91

Altoona

58

Des Moines

56

Johnston

54

Bondurant Clive Pleasant Hill

Limited Market Area Home Choice Market area competitive activity is strongest in south Altoona. Most Bondurant new construction is technically occurring north of the 6-mile market area, but probably does compete to some extent with Pleasant Hill.

Ankeny, Waukee, and West Des Moines, in combination, accounted for most of metro area sales and new listings (for recent construction in incorporated areas).

50 25 21

Past Year Sales (Post-2015 Construction) Ankeny

557

Waukee

227

Des Moines

133

Grimes

131

West Des Moines

122

Bondurant

119

Altoona

109

Urbandale

83

Johnston Clive Pleasant Hill

66 38 33

Source: Redfin; and Leland Consulting Group

42

Single Family Active Listings & Recent Sales Active Listings for Recent Construction (Post-2015)

Past Year Sales for Recent Construction (Post-2015) 13,000

13,000 Urbandale

12,500

12,000

Pleasant Hill

West Des Moines

11,000 10,500 Waukee Des Moines

9,500

Ankeny

11,500

Clive Avg. Lot Size

11,500 Avg. Lot Size

Pleasant Hill

12,500

12,000

10,000

West Des Moines

Johnston

Altoona

Grimes

9,000 8,500

8,000

8,000 1,600

Clive

Waukee Grimes

10,000

8,500

1,500

Bondurant Ankeny

10,500

9,500

Bondurant

9,000

Altoona

11,000

1,700

1,800

1,900

2,000

Avg. Home Size

Des Moines

1,500

1,600

Johnston

1,700

1,800

1,900

2,000

Avg. Home Size

Smaller Homes & Larger Lots In Pleasant Hill Although the sample size is small, Pleasant Hillâ&#x20AC;&#x2122;s offering of newly constructed houses have been an outlier among metro suburbs in combining modest-sized homes (averaging around 1,600 s.f.) with quite large lots (averaging over 11,000 s.f. for active listings and nearly 12,500 s.f. for past-year sales).

Source: Redfin; and Leland Consulting Group

43

Single Family Active Listings & Recent Sales

Past Year Sales and Current Listings for Newer Construction (Post-2015) Clive West Des Moines

410,000

price = $199 x Size R² = 0.75

390,000 370,000

Avg. Price

Urbandale

Johnston

350,000

Price per Square Foot Estimating recent listing and sale prices for newer homes last year based on home size alone shows an average of $199 per square foot – represented by the dotted line (an equation that explains 75% of the variability in price).

Waukee

330,000

Grimes Ankeny

310,000 290,000

Altoona

East-side (Pleasant Hill, Altoona, Bondurant, Des Moines) metro sales and listings have been for smaller homes at lower prices – and below average price/s.f..

Pleasant Hill

Des Moines Bondurant

270,000 250,000 1,500

1,600

1,700

1,800

Avg. Home Size

1,900

2,000

Source: Redfin; and Leland Consulting Group

44

Single Family Pricing: vs. Altoona Price of New Homes (listed now or sold in past year) 30% Metro Cities Total Altoona Pleasant Hill

25% 20% 15% 10% 5%

150 160 170 180 190 200 210 220 230 240 250 260 270 280 290 300 310 320 330 340 350 360 370 380 390 400 410 420 430 440 450 460 470 480 490 500 510 520 530 540 550 560 570 580 590 600

0% (x $1,000)

Price Distribution Keeping in mind the limited sample size for Pleasant Hill (54 newly-built homes sold or listed in the past year), the chart above illustrates a concentration of PH home prices in the $260K to $270K range, in contrast to a wider offering in Altoona, with available new homes more evenly spread across the $230K to $340K.

Source: Redfin; and Leland Consulting Group

45

Single Family Pricing: vs. Bondurant Price of New Homes (listed now or sold in past year) 30% 25%

Metro Cities Total Bondurant

20%

Pleasant Hill

15% 10% 5%

150 160 170 180 190 200 210 220 230 240 250 260 270 280 290 300 310 320 330 340 350 360 370 380 390 400 410 420 430 440 450 460 470 480 490 500 510 520 530 540 550 560 570 580 590 600

0% (x $1,000)

Price Distribution Bondurant new homes fill some of the gaps in price left by Pleasant Hill (particularly at the $240K and the $300K to $310K price points), but otherwise generally conform to the same distribution.

Neither Bondurant nor Pleasant Hill provide many options above the $330K range popular elsewhere in the metro (with the exception of a handful of Pleasant Hill sales around $450K).

Source: Redfin; and Leland Consulting Group

46

Multifamily Supply

Apartment Inventory & Activity Under construction (bold outlines) and proposed apartments (dotted), like singlefamily homes, are springing up along the west-to-north edge of the metro. Unlike the singlefamily market, considerable new activity is also happening downtown and nearby (especially in the East Village).

Source: Costar; and Leland Consulting 47 Group

Multifamily Supply

Source: Costar; and Leland Consulting Group

48

Multifamily Supply Sustained unit production leading to vacancy upswing

Metro Des Moines Apartment Deliveries & Vacancy

9.0

700

8.0

600

5.7

7.0 Vacancy Rate

800

500

vacancy

6.0

400

5.0 4.0

300

3.0

200

2.0 1.0

100

Annual New Units Delivered

0.0

New Units Delivered (4Q moving avg.)

9.3

10.0

After years of steady apartment construction (with a brief hiatus in 2012) and seemingly bottomless demand, the metro apartment market has finally seen vacancies rise on the heels of record deliveries.

0 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 Source: Costar; and Leland Consulting 49 Group

Multifamily Supply by City City Des Moines

Existing Units

Recent (post- Under 2009) Construction

21,121

4,184

1,029

Proposed 1,452

West Des Moines

9,978

2,249

548

1,022

Ankeny

4,735

1,891

764

30

Urbandale

2,512

24

Johnston

2,236

1,029

408

Waukee

1,944

1,352

425

Altoona

1,416

356

98

Clive

1,093

198

Grimes

653

405

Norwalk

575

120

Pleasant Hill

516

62

Bondurant

136

Carlisle

92

Windsor Heights

86

Polk City

78

Granger

24

Elkhart

20

44

365

30 49

Apartment Inventory & Activity Under construction (bold outlines) and proposed apartments (dotted), like single-family homes, are springing up along the west-to-north edge of the metro. Unlike the singlefamily market, considerable new activity is also happening in Downtown Des Moines and nearby (especially in the East Village).

Source: Costar; and Leland Consulting 50 Group

Multifamily Supply

Metro Des Moines Asking vs. Effective Rents $950 $919 $895

$900 $850 $800 $750

Recent inventory additions (and vacancy rise) has created some separation in asking versus effective rents

$700 $650 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Costar; and Leland Consulting 51 Group

Multifamily Supply Growing Rents and Growing Units

Metro Unit Sizes and Effective Rents

Average Unit Size (sf)

900

$900

880

$880

860

$860

unit size

840 820

874

838

$840 $820

800

$800

780

$780

760

$760

740

$740

720

$728

700

The overall average size of a metro area apartment (regardless of room count) has increased from 838 to 874 square feet over the past decade.

Meanwhile, rents grew even faster, surpassing the $1/sqft mark in 2016, before stalling just under $900 as a per unit monthly average.

$720 $700

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Average Rent

$897

Source: Costar; and Leland Consulting Group

52

Multifamily Supply by City Apartment Vacancy by City (excluding 2018 construction) Bondurant Pleasant Hill

3.3%

Grimes

3.7%

Polk City

3.8%

Granger

4.2%

Clive

4.2%

Carlisle

4.3%

Elkhart Windsor Heights Urbandale Altoona West Des Moines Norwalk Des Moines Ankeny Johnston Waukee

Vacancy Highest in Cities with Heavy Recent Construction

2.9%

Pleasant Hill has a relatively small inventory of apartments, but among the lowest vacancy rates in the Metro.

5.0% 5.8% 6.2% 6.6% 7.4%

Vacancy if also exclude 2017 construction

7.7% 8.6% (6.7%) 9.4% 9.8% (6.0%)

18.9% (12.3%) Source: Costar; and Leland Consulting 53 Group

Vacant Apartment Units by City East Village (incl. 50 units completed in 2018 and 198 units built in 2017) Downtown (incl. 111 units completed in 2018, 213 units in 2017)

298

Des Moines

642

West Des Moines

1,954 734

Ankeny

586

Waukee

367

Johnston

220

Urbandale

Signs of saturation (finally) in fast-building suburbs

156

Altoona

93

Clive

46

Norwalk

44

Pleasant Hill has a relatively small inventory of apartments, but among the lowest vacancy rates in the Metro.

Grimes

24

Pleasant Hill’s Low Vacancy

Pleasant Hill

17

Up to a point, a lower vacancy rates indicate a healthier market, but sustained vacancy below 5%, as now seen in Pleasant Hill, can create problems. Rising rents, reduced bargaining power and lack of product selection in overly “tight” submarkets may drive away prospective renters – including some who might otherwise become life-long eastside residents, graduating to starter homes and larger as they progress through life.

Windsor Heights

5

Bondurant

4

Carlisle

4

Polk City

3

Granger

1

Elkhart

1 0

200

400

600

800

1000

1200

1400

1600

1800

2000

Source: Costar; and Leland Consulting 54 Group

Occupancy by Rent Range Metro Units by Rent Range & Occupancy

Higher vacancy rates at upper rent ranges

25,000

While apartments with rents below $1,000 have current vacancies in the 6-7% range, those with rents ranging from $1,000 to $2,000 have approximately double the vacancy rates.

7%

20,000

Occupied

6%

Vacant

15,000

This is consistent with a national trend showing increasing weakness at the upper end of the rental market (largely from older millennials moving up to home ownership as their household sizes expand and finances improve).

11%

10,000

5,000

14%

13%

6%

0 under $750

$750 to $999

$1,000 to $1,249

$1,250 to $1,499

$1,500 to 1,999

$2,000+ Source: Costar; and Leland Consulting Group

55

Multifamily Vacancy

Recall that many units shown as vacant, especially in Waukee, West Des Moines and downtown Des Moines/East Village, are for recent construction still leasing up

Source: Costar; and Leland Consulting 56 Group

Senior & Student Housing

Targeted Segments

Apartment Units by Segment (Metro Total)

Both senior and student construction has been strongest along with the rest of the apartment market, with student housing production being a bit more sporadic.

400 350

587 Senior apartments have been completed post-recession (2012 or later) metro-wide, including 62 Pleasant Hill units built in 2016.

300

Senior 250

Student

200

379

Approximately 3 out of 5 existing senior units are in Des Moines proper, although Waukee, Ankeny and West Des Moines have begun adding major new supply.

225

150 100

181 121

50 46

0

40

47

62 134

117

111

80 37

50

62

62

31 Source: Costar; and Leland Consulting 57 Group

5

Estimating Demand

We calculate 10-year expected demand across income groups and housing types for the 6-mile study area using the following assumptions: • Overall household growth of 1.49% annually (consistent with historic trends and ESRI 5-year projections) • 32% renters, 68% owners (matching current proportions, given lack of compelling rationale for a major shift) • New households will conform to overall existing income distribution (again, no evidence to support a significant shift) • Projected increase in households will result in need (demand) for a slightly (5%) higher increase in housing units, to maintain healthy vacancy rates, while accounting for replacement of any demolished units and a modest amount of second homes.

Then, for major product types, we determine a reasonable market share or “capture rate” for Pleasant Hill, shown as a range, based largely on historical performance – resulting in conservative and attainable estimates for citywide housing demand.

58

Demand Estimation Households

2017

41,683

Residential Market Area

2022

48,327

Ten Year Demand Estimates

2027

56,030

Household Growth (20172127)

14,347

Adjust for 2nd homes, demolition, natural vacancy

5.0%

Current Pct. Renter

32%

Adjusted Unit Requirement (2017-2027)

15,065

Pct. Renter (new demand)

32%

Annual Growth Rate

1.49%

Trade Area Unit Demand from New Households (10-yr) Annual Income Range (2017 dollars)

Approx. Rent Range

Approx. Home Price Range

Current HHs in Income Bracket

New HHs by Income Bracket

Total Units

Est. Pct. Rental

Total Rental Units

Total Ownership Units

up to $15K

up to $375

n/a

10.8%

10.8%

1,627

75%

1,220

407

$15-25K

$375 - $625

up to $125K

10.7%

10.7%

1,612

65%

1,048

564

$25-35K

$625 - $875

$125 to $160K

9.9%

9.9%

1,491

50%

746

746

$35-50K

$875 - $1,000

$160 to $230K

14.6%

14.6%

2,199

35%

770

1,430

$50-75K

$1,000+

$230 to $320K

20.9%

20.9%

3,149

20%

630

2,519

$75-100K

$1,000+

$320 to $390K

14.8%

14.8%

2,230

10%

223

2,007

$100-150K

$1,000+

$390 to $540K

12.2%

12.2%

1,838

7%

129

1,709

$150 -200K

$1,000+

$540 to $640K

4.0%

4.0%

603

5%

30

572

$200K+

$1,000+

$640K and up

2.2%

2.2%

331

5%

17

315

100%

100%

15,065

32%

4,812

10,268 59

Totals

Demand Basics Per-Decade Market Area Residential Demand by Income 15,065 units total Rental

Over 15,000 units

Owner

Units

This chart shows approximate expected unit demand for new ownership and rental housing over the next 10 years, for the 6-mile market area.

2,519 407

1,220

564

1,048

1,430

2,007

746 746

770

630

223

1,709

129

572 30

315 17

Household Income (2017 dollars)

60

Pleasant Hill Capture Summary of Market Area Demand and Attainable 10-year Pleasant Hill Capture by Product Type Conservative Pleasant Hill Attainable 10-year PH 10-year PH Market Area Capture Capture Absorption Absorption Unit Demand* Rate Rate (low) (high)

Rental Apartments

Approx.

Units Per Approx.

Acreage Acre Units Per Required (low) Acre (high) (low)

Acreage Required (high)

3,590

5%

10%

180

360

18

30

10.0

12.0

990

14%

24%

140

230

10

18

14.0

12.8

Single Family Smaller Lot

4,733

10%

16%

460

750

5

10

46.0

150.0

Single Family Larger Lot

4,603

5%

12%

240

530

2

5

48.0

265.0

13,916

7%

13%

1,020

1,870

118

440

Attached Ownership (Townhome, Condo, Plex, etc.)

Totals

*Totals above exclude demand from households earning below $15K (1,657 units)

Demand Through 2028 Over 10 years, Pleasant Hill should be able to attract 1,020 to 1,870 new total housing units, with single family starter homes as core of demand, but apartments and attached ownership housing as major component.

Potential land requirements vary widely, mainly due to range in possible single family densities.

61

6

Towards a Market Strategy

The following slides look at Pleasant Hills position in the housing market from a SWOT (Strengths – Weaknesses – Opportunities – Threats) perspective

62

Pleasant Hill Strengths/Weaknesses Strengths

Weaknesses

Downtown proximity

Limited housing choice/variety in terms of pricing, style & density

Idyllic setting, neighborhoods (with hard-tobeat city naming) Quality schools Strong, expanding park system A relatively affordable â&#x20AC;&#x153;hidden gemâ&#x20AC;? among DSM suburbs Excellent value in terms of lot size per home price First- and last-stop homes and shopping for origins/destinations in more rural areas east of metro (Kum-N-Go on NE 60th is busiest in metro)

Relatively unattractive gateways (although some of the problem lies in City of Des Moines) Aging transportation infrastructure Weak bike/pedestrian amenities Limited upside for regional retail growth (market dominated by Altoona) Not top-of-mind for realtors or developers (seen as niche catering to people with eastside upbringing and/or eastside jobs)

Relatively ample supply of developable land 63

Pleasant Hill Opportunities/Threats Opportunities

Threats

â&#x20AC;&#x153;Grow your ownâ&#x20AC;? housing demand through economic development (boosting eastside job opportunities)

Westward drift of metro employment center of gravity (resulting in Pleasant Hill having the longest average commutes among DSM suburbs)

Capitalize on excess ownership demand from aging Millennial population bulge (should be primarily starter-home focused Demonstrate best-practices for moderatedensity / moderate-income housing with a less controversial project such as senior low-income apartments Improve gateway aesthetics where possible Improve bike/ped amenities and awareness Focus on small-area specific plan for potential catalyst site(s) identified in comp plan (such as 12th & University) Consider ag-oriented housing development (with active culinary farming & educational core amenities) as good potential fit with PH vibe

Reflexive NIMBY resistance to density and workforce housing Boom phase of Millennial-driven apartment demand is probably over (although younger Millennials, older Gen Z, and renters-by-choice among Boomers & Gen X will sustain more moderate demand) Decreasing housing variety/choice relative to west- and north-side suburbs (lower overall unit absorption upside and less likely to provide fit for local workforce) 64

6

Moving Towards a Market Strategy: Top Priorities

Recognize linkages between housing & economic development. Prioritize and fund aggressive economic development focused on employment generators.

Begin to flesh out small area planning for catalyst opportunity sites identified in comprehensive plan (such as 12th & University)-- particularly to consider horizontal mixeduse with moderate-income or mixed-income housing elements along with groceryanchored retail/services. Goal to provide a best-practices demonstration for compact, walkable, mixed-income development.

Consider policy updates, incl. zoning code tweaks, to gradually increase density (through higher maximum FARs, smaller setback minimums, etc.), plus more explicit recognition of pedestrian/bike friendliness.

Craft messaging to multiple potential target audiences (builder/developer, NIMBY groups, City leadership, ec/dev recruitment, etc.) to foster political will to consider higher densities and more variety in form & price.

Conduct sensitivity analysis to demonstrate fiscal scenarios with and without housing growth-supportive policies

65

Contact Us Leland Consulting Group 610 SW Alder Street, Suite 1200 Portland, Oregon 97205 503-222-1600 www.lelandconsulting.com 66

Master Planning and Development Advisory Consulting Services

Master Planning and Development Advisory Consulting Services

67