The building boom? Just more expense for you and me.

I have posted about this so regularly over the past year, I am almost dreading beating this dead horse again;

The city already has issued a record $524.3 million in construction permits this year, slipping past the previous mark established in 2007.

“Can we imagine any other city across America that wouldn’t want to trade places with Sioux Falls today?” Mayor Mike Huether said last week, when he and city planning director Mike Cooper announced the record.

As I have mentioned in the past, this is a good thing, on SOME levels, on others not so much. The one thing that stuck out in the article was the hesitant public buying homes;

In the early 2000s, every new house going up in Sioux Falls was matched by a corresponding new apartment unit, he said. But the 928 multifamily units permitted this year is a record, and combined with 265 townhome units is twice the number of single-family housing permits issued.

Part of that apartment push is tied to a low vacancy rate in the city, a reality shared in places such as Omaha, Rochester, Minn., and Des Moines, developer Craig Lloyd said. People hit hard by layoffs and the housing bust see opportunity in Sioux Falls with jobs and the quality of life, Lloyd said, but often are wary of taking out another mortgage.

“We’ve had people over the last couple of years say, ‘If I never see another house payment, I’ll be happy’ … because they lost their shirt with the last house payment they had,” he said.

Part of the multifamily construction surge is changes in lending laws and downpayment requirements, said Steve Van Buskirk, director of land development for Van Buskirk Cos. For younger residents and potential first-time homebuyers, the downpayment requirements are just too high, Van Buskirk said. And the tightening of financial regulations on credit scores and histories makes it difficult as well.

“The starter home market is the weakest point in this market,” Van Buskirk said. “People are choosing apartments rather than the new starter home, which averages in the $150,000 to $180,000 price range. Right now, they’re going to the monthly rent route.”

To me this says a couple of things. 1) a cautious public, people got their asses handed to them during the economic downturn, mostly because they were sold houses they could not afford, that they paid too much for to begin with. 2) People really can’t afford to buy a home in SF.

I know what you are thinking about my second statement, but believe it or not, while the developers in SF are getting bank loans to build everything from hot dog stands to luxury hotels (and TIFs to boot) the average Joe is just happy he didn’t lose his entire retirement, and he is certainly not looking to be chin deep in a mortgage.

What does this all really mean? Well, if you are investing in an apartment building, you are gonna make some money. Developers are also doing well by building new properties that are leased before the paint dries and paying off their bank loans with the use of TIF’s instead of paying property taxes.

While I could go on a very long rant about money these folks are making using public incentives, I really am not in the mood for a novel comment from Craig 🙂

I will say this, we have learned NOTHING from the last time we went full boar on development, the market dropped, platting fees went in the toilet, and sales tax payers were left holding the bag for arterial roads.

My bigger question is whether this growth is sustainable? Remember, as taxpayers (sales, property and enterprise funds to utilities) we pay the lion’s share to infrastructure maintenance and new construction. Is all this new growth sustainable 10-15 years down the road? Are we creating new annexation that is unneeded?

But the real question to come from this announcement is “When is the development community going to pay their fair share towards infrastructure?” It’s one thing to brag about a half-billion dollars in growth, it is entirely something else to brag about how this growth is helping to supplement our infrastructure. All I hear is crickets on that front.

But I guess that’s not how we do things in Rome, uh, I mean, Sioux Falls.



18 comments ↓

#1 rufusx on 10.27.13 at 3:26 pm

I learned my home-buying lesson in the early ’80’s. That housing market was even stinkier to the one that crashed 5 years ago. Never again. I WAS tempted in the SoCal market in the late 90’s, but reflected back on my previous experience and stuck to the lesson.

#2 Detroit Lewis on 10.27.13 at 3:59 pm

Doesn’t it seem funny how the consumer has learned their lesson (even though owning your own home is better then paying rent, that is if you buy something affordable and sustainable) but the development community has learned nothing. It goes back to our society wanting instant satisfaction.

#3 pathloss on 10.27.13 at 5:22 pm

If you have income, the only way to get ahead is the mortgage interest deduction & assign some of your home as office. My circumstance now is that, considering tax benefit, it would cost me double to rent. The next cycle will be empty apartments and everyone buying homes in suburbs. Lloyd will take his profit and retire. The city will start bulldozing apartments that have become vagrant conclaves & crackhouses. When there’s government involved (tif, fnma, sd housing) t’s always to much one direction before recognizing

#4 pathloss on 10.27.13 at 5:38 pm

Huether had nothing to do with Sioux Falls thriving. By default, we’ve become the landing metro for energy (coal, oil, wind, ethanol). Banks are here because they can name their interest rate. We’re a central location for medical related business. Crop prices are high. However, let Huether think he did it all by himself. Otherwise, we’ll get citations and our only TV channel will be propaganda 16.

#5 LJL on 10.27.13 at 8:17 pm

The prioritizes of the new generation are to blame for the new mortgage quandary. $100 a month cell bill, $100 a month satellite/cable bill, $250 a month car payment and continuously eating at restaurants leaves very little left to save for a down payment and nothing left for health insurance.

Buying a home with at least 15% down is hands down the best investment you can make. It was the bankers/developers and builders that kept leading young homeowners into 110% loan to value mortgages. When I read in 2006 that the interest only mortgage was the hottest selling banking product, I knew the gig was up.

The good news for us that have home equity is the bank practically begs you to borrow money.

As far as having to pay for the aterial streets, we will never win when asslicks like Huether, Jameson, Karsky, Rolfing and Entamen,Erpanbach keep getting in

#6 Craig on 10.28.13 at 9:05 am

I see several issues at work here, but one of them that isn’t often discussed is how people are taking longer to ‘grow up’.

Decades ago, many people were married in their upper teens or low 20s. They had two kids by the time they were 23-25 and they needed a house to raise a growing family. Universities used to have massive demand for married housing where students who were married and had kids could live together as a family while one (or both) of them attended school.

In the more modern era, people are getting married later in life. They aren’t having kids right away. They are finishing school first and in some cases getting a few years of work experience behind them before thinking about a family.

A new mother in her 30s is not at all uncommon. So this delays other aspects of life. Often times people move to homes because of need – and if you don’t have a family and don’t need a place to raise one… why buy a home?

So obviously we see a greater need for apartment complexes, townhomes, and other housing that can be rented. People just don’t want that 30 year commitment of a mortage anymore… and who can blame them after some of the issues we have seen in recent years.

There are other factors obviously. For starters incomes aren’t rising as fast as home values which pushes some out of the market. Also, in Sioux Falls demand for starter homes seems to be greater than supply, so prices on that level of home is on the rise which puts the payment out of reach of many.

Of course the middle class seems to be disappearing as well – and who else is going to buy those homes? I also feel that the younger generations are learning from their parents and realizing that the gamble of a mortgage isn’t one that always pays off.

Also, I know Realtors love to claim buying a home is the fastest way to build wealth, but honestly I’m not sure that is true anymore. Many people are better off renting, because although the home itself is an investment and (in theory) will gain value, the property taxes, insurance, and maintenance costs are a lot like rent… and when you add them all up sometimes renting is a better option for many.

Finally, I think this is just part of the normal cycle. We were short on rental units for so many years that they are finally catching up. In another five years the cycle will probably change and we will once again see people buying entry level homes… who knows.

I can say this much though – as far as density goes, and as far as minimizing infrastructure costs – people who are concerned with urban sprawl should LOVE apartments and multi-family housing.

#7 Tom H. on 10.28.13 at 9:48 am

Much of this growth is subsidized through (1) TIFs and (2) public spending on infrastructure for fringe growth. If you restricted TIFs to their true purpose, and instituted some sort of urban growth boundary, you might see less overall growth (as measured in dollars), but it would likely be more compact, more efficient, and more resilient to the whims of future generations.

Craig – I pretty strongly agree with everything you said there. However, too often we bulid townhomes-without-a-town (i.e., dense housing with nothing nearby to activate the neighborhood). Everybody ends up driving everywhere anyway.

pathloss – Don’t be so sure that suburban sprawl will come roaring back like nothing’s changed. Now that we’re into the 3rd life cycle of the Suburban Experiment (and it is an experiment, 70 years and counting), the true costs of the Ponzi scheme are starting to become apparent.

#8 SD Sue on 10.28.13 at 10:17 am

I too used to have a negative opinion of TIF to fund new development, however, I educated myself and have very few issues with the TIFF process used in SF (with one exception).

I do find the comment that Sioux Falls residents can’t afford homes is a huge myth. The best thing coming out of the Freddie Fannie mess is that you now have to save and have some skin in the game. Something that some people of all ages aren’t prepared to do in order to have the privilage of owning a home. Again a privilage not a right.

#9 Sy on 10.28.13 at 10:18 am

Also on the plus side is the associated employment that comes with SF’s building boom. If you have any skill at all and can drive yourself to work every day you can 30-40K your first year and it will go up after that if your boss wants to keep you.

Down side it the word is out, and a lot of those contractors who got run out of other metros are coming here and doing the same thing that screwed them over in the last place: bidding stupid low and paying the last guys job off with the next guys down payment.

#10 Poly43 on 10.28.13 at 3:49 pm

If you have any skill at all and can drive yourself to work every day you can 30-40K your first year

I assume you are speaking of the construction trades? If you are, those numbers should read 20-25K. As per SD Dept. of Labor stats. Pretty damned embarrassing I’d say. I made that much in the mid ’70’s when I was working in the trades. You can thank reaganomics for the spiral down into these lowly numbers.

#11 Detroit Lewis on 10.28.13 at 4:01 pm

There is also a lot of mis-information going on when it comes to job creation from development. When you start to break down where materials are coming from, sub-contractors and sub, sub contrators, you wonder how much local job creation is really being done. My guess is around 40% of the workforce is from here. Jamison asked for a break down of these costs for the EC, not sure he has received those numbers yet.

Also, I heard the other day that a recently opened retail store transferred 40% of their workforce from other parts of the country.

#12 Detroit Lewis on 10.28.13 at 4:08 pm

SD Sue, just out of curiousity, are you in a position to recommend to the city the use of TIF’s?

And you are correct, owning a home is a privilege, that is why when I bought mine, I didn’t purchase a home that I knew I could not afford (I bought a home that was $60K under what I was approved for). And I struggled making mortgage payments the first 4 years or so. The problem is that their is bankers and realtors out there trying to get new buyers to purchase something they cannot afford because they work on commission. Take the commission out of the game and you get treated more fairly. When I refinanced for a 15 year (shaving about 9 years off my mortgage) I did online and over the phone with my bank, there was no commission paid (that I know of) and I filled out all my own paperwork. At first it seemed like it would be difficult, but cutting out the middle-man really paid off.

#13 Detroit Lewis on 10.28.13 at 4:09 pm

There was also NO in-home appraisal done and no closing costs.

#14 neighbor on 10.29.13 at 6:05 am

Detroit Lewis

SD Sue, just out of curiousity, are you in a position to recommend to the city the use of TIF’s?

SD Sue = City Councilor Sue Aguilar

#15 l3wis on 10.29.13 at 10:51 am

Neighbor, it’s not her.

#16 rufusx on 10.29.13 at 3:31 pm

It was the selling of the home “as an investment” rather than as the place you will spend the next 40 years that brought about the “housing crisis” recession recently. In addition to the societal changes cited earlier there is another – almost nobody has the sort of job/career security that used to accompany the 40-years-in-a-home society. That is long gone. Now-a-days, you will change your job/career path every 4-5 years. Houses aren’t supposed to be “INVESTMENTS” for the short term – to be turned around/flipped fpor profit every 4-5 years. They are meant to be lived in – for decades. Apartments on the other hand………

#17 rufusx on 10.29.13 at 3:49 pm

http://www.ibtimes.com/living-alone-more-us-residents-forming-single-person-households-charts-1401580#.Um_J3qgLe58.twitter

#18 Tom H. on 10.30.13 at 9:34 am

Good point, rufusx – it’s counterproductive to keep moralizing against apartment-dwellers for ‘not investing’ or whatever. Through various policies (aggressive highway expansion, mortgage interest deduction, etc.) we distort the housing market into having a higher homeowner percentage than it would otherwise have, which makes our economy vulnerable to housing bubbles and mortgage crises. It’s not that hard to predict.

Homeownership is the right move for some – apartment renting is right for others. Funny that the free-market types seem to be those most opposed to removing the distortions that would allow the market to decide what the optimal ratio is.