Reform of home-building permitting processes is essential to economic recovery, according to members of a residential real estate roundtable hosted by The Daily Transcript.
The construction industry blames cumbersome, outmoded bureaucratic permitting policies for its dramatic under-delivery of new homes to the local housing market.
Population growth estimates suggest the county needs to build 15,000 new homes per year just to keep pace.
For the second consecutive year, permits are expected to be issued for just 3,000 new homes.
Borre Winckel, chief executive officer and president of the San Diego Building Industry Association (SD-BIA), explained that the costs for housing permits rose during the mid-2000s.
Local governments wanted their share of the boom, he said.
“Your fees are based on old growth projections,” Winckel said. “The growth projections have changed, so adjust the fees.”
Alan Nevin, director of economic research at MarketPointe Realty Advisors, quantified the newfound disparity.
“Fees were 10 to 15 percent of the cost of the retail price of a home,” he said. “Prices dropped, the fees didn’t, and now they represent 20 to 25 percent of the costs.”
Or said another way, costs associated with permits account for $100,000 of the price of a new home, without paying for any tangible feature, according to Winckel.
The “low hanging fruit” of the industry’s requests, Winckel said, is that impact fees for new-home construction are deferred to the back end of the process, allowing builders financial flexibility to deliver more units.
“That’s not good enough. It doesn’t really help,” he said. “High-production national builders cannot compete with the resale market.”
This year, SD-BIA managed to receive concessions from a number of jurisdictions to defer impact fees until delivery of a certificate of occupancy, affording builders a six- to eight-month lag time in cashflow, Winckel said.
The organization also convinced multiple jurisdictions to lengthen the lifetime of a building permit to the maximum allowed by state law.
“These are not insignificant matters, but they didn’t create a comeback for our industry,” he said. “These were bottom-line things we needed.”
Decreasing the costs of the fees themselves, Winckel said, is the industry’s primary concern.
The inability to meet the housing needs of a growing population creates a pent-up demand scenario that threatens to produce the next artificial spike in home values, said Debbie Riddle, agent with Lee Mather Company Realtors.
Lou Galuppo, residential real estate director at the Burnham Moores Center for Real Estate at University of San Diego, said a coming leap in home values is inevitable.
“We’re willing to say that between 2013 and 2015 we’ll see the spike,” he said.
Nevin said new-home construction has systemic effects on the rest of the housing market.
“Every time you build one home, you sell four resales,” he said.
Because of that far-reaching effect, along with general market effects of job creation in the construction industry following increased homebuilding, Winckel said simplifying the permitting process should be a priority for local governments everywhere.
“Please don’t see this as a gift to my industry,” he said. “If this is a cyclical problem, the solution is to re-create value at the home level, starting by adding jobs from construction.”
After Winckel’s explanation that before construction for the first home in a new neighborhood can begin in Carlsbad, builders first must provide amenities like sidewalks, playgrounds and parks, Riddle reminded the table that rules of that sort were born from abuses by certain builders during the previous cycle.
Galuppo agreed, in part.
“There were some builders, if they could sell a house and walk away, some builders would do that,” he admitted. “But when you have professional builders, they know they’re partners with the city.”
He said the solution could be solved by deferring fees to closing and putting bonds in place for infrastructure construction.
Lou Galuppo, Residential Real Estate Director
USD Burnham Moores Center
Rick Hoffman, President/COO
Coldwell Banker Residential Brokerage San Diego/Inland Empire
Patti McKelvey, Realtor
Alan Nevin, Director of Economic Research
MarketPointe Realty Advisors
Joe Perez, Tax Partner
Debbie Riddle, Realtor
Lee Mather Company Realtors
Borre Winckel, CEO
BIA San Diego