Archive for Thursday, May 17, 2007

Slow start

De Soto records one new home permit in first quarter

May 17, 2007

On the day the city of De Soto marked the opening of a new wastewater plant last month, the De City Council heard an appeal to lower development fees and taxes as a way to stimulate growth needed to pay for the $9 million facility.

At that meeting, De Soto real estate agent Dan Gulley reminded council members the wastewater plant's approved debt retirement plan counted heavily on system development fees charged to new development.

The housing market in De Soto is indeed in a slump. As of Tuesday, only one permit for a new single-family home had been issued this year. And De Soto building inspector Steve Chick said that permit was for a large-lot home with a septic system, which will not hook to the sewer or pay the development fee.

At that pace, the city will fall far short this year of the 45 new single-family home permits it was assumed would be issued as the city starts paying off the new wastewater plant.

But City Administrator Pat Guilfoyle said the housing slump wouldn't necessitate higher sewer rates for customers in the short term. The new wastewater plant came in enough under budget to give the city a buffer of a couple of years.

Moreover, De Soto Mayor David Anderson said the number of housing starts was just part of the equation. Industrial development could offset a lot of new homes, he said pointing to Intervet Americas' recent announcement to the city that it intended to use the remaining industrial revenue bonds the city approved when it moved to De Soto in 2001.

That's good because it would appear to be risky to rely on housing starts. It isn't just De Soto that is in a slump, or as Kansas City Home Builders Association Executive Vice President Tim Underwood called it "a retrenchment mode."

Whatever the terminology, it's clear homes aren't selling as they did earlier in the decade. Chick said there was an inventory of 4,500 unsold homes in the metropolitan area.

The inventory backlog is partially a product of the hot market of two to three years ago, which saw builders try to cash in on rapidly increasing home prices. Unsold home now filled new subdivision when the market cooled because of increases in fuel costs and mortgage rate jumps -- which also sparked an increase in home foreclosures as risky borrowers who acquired variable-rate loans at what were attractive rates saw their monthly payments soar.

That in turn slowed housing starts.

Steve Thompson, codes administrator for the city of Lenexa, said new home permits were "drastically" lower in that city.

"At the end of March, we had only issued 26 new single-family dwelling permits," he said. "That compared to 58 the previous year. And the previous year was not a good year.

"This is the slowest we've been in more than a decade. It's been a long time since we've seen it this slow."

Things slowed in Olathe, too, but started to turn around in March and April, said Barbara Ozbolt, the city's permit coordinator.

"We had 91 in March after being in the 40s and 50s," she said. "We normally see triple-digits."

But nowhere in Johnson County, not even in Edgerton (which issued five new home permits in the year's first quarter), has activity slowed to the extent of De Soto.

To some degree, that reflects the lack of opportunity in De Soto with Arbor Ridge the only active subdivision, Chick said. By the end of the year, it should be joined by two more off 87th Street, he said.

Gulley told the council the problem was more complex than available building lots. He said homebuyers need a reason to come to De Soto. But what they hear is the city has the highest sales tax rate in the state and a high mill levy, he said.

Last month, Gulley asked the council to consider lowering development fees, which the city set in accord to those in other Johnson County cities, and, if possible, the local sales tax rate. The development fee slash could be temporary, he suggested, to give his builders a break until the housing market turned around.

Planning stressed

Development fees are important as cities look to development a housing strategy, Underwood said. While he didn't address those in De Soto, Underwood indicated pegging development fees to those in the county had consequences.

"Johnson County has a huge disadvantage when it comes to things like development fees," he said. "When you add them all up, it does become prohibitive."

Those fees should be considered as part of a larger strategy, Underwood said. Among the keys are sound planning done with an understanding of a city's place in the market and demographics.

"The demographic changes are huge," he said. "Sixty percent of households in the metropolitan area are two people or less. I don't think there's a good understanding of what the market is."

Also important is providing a mix of housing for all income groups coupled with sound planning about what type of housing and density is appropriate for given areas, Underwood said.

"It's an issue that ties to lifestyle," he said. "It doesn't make a lot of sense to build high density in a green field."

De Soto identified the area to the west of the city as its future growth area just before the last round of raising fuel costs. In the past, fuel costs didn't make much difference as the recent housing boom in Cass County, Mo., indicated, Underwood said.

"One of the things that affect housing patterns is the disconnect between transportation policy and jobs," he said. "People were willing to make that tradeoff to live in an area they find attractive and drive a long ways to work. That may be changing if gasoline prices continue to rise."

The current housing slump will end, and the long-term picture in the metropolitan areas looked good, Underwood said. But that did not mean traditional housing patterns -- such as the trend of expensive homes in Johnson County -- would flourish when the market bounced back, he said.

"I think there's been a concern about the market in Johnson County for a few years now about the ability to sustain what it has been like," he said. "Housing costs are way ahead of income."

Market 'up for grabs'

Underwood foresees the metropolitan housing market being "up for grabs" when it recovers. That would be an opportunity for cities that do the homework and understand the market, he said.

"The key for cities like De Soto is they have opportunities," he said. "People drive to Johnson County to work. The market can be captured."

Underwood mentioned a couple of planning efforts in the metropolitan area as noteworthy, including a downtown revitalization in Mission.

De Soto, of course, completed a yearlong revitalization effort in December 2006. Anderson said it would provide for diverse housing and provide the taps needed to help pay for the sewer in coming years.

The city also adopted a future land-use plan last year for the area west and south of De Soto. Still to be tackled is a more involved area plan for properties between the Sunflower Army Ammunition Plant and Kansas Highway 10.

The city should be planning so that it can be prepared to best take advantage when development at Sunflower and the railroad intermodal near Gardner start fueling the local market, Anderson said.

"We need to plan where the next residential subdivision is and where the commercial development will be," he said.

But the mayor said the community and city had to decide to "what degree is De Soto open for business." That could mean extending sewer lines and other needed infrastructure but also the attitude it presents to potential developers, he said.

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