Local Government & The Housing “Bubble”

Since the housing industry did NOT reset during the brief recession of 2001, housing continued to appreciate in value and thus the bubble of 2006 – at least in most markets. Starting in the mid ‘90’s, local government started to change their approach to real estate development – both residential and non-residential. In part, government’s response was a reaction to development pressures. The public also was established as a key vocal stakeholder in the regulatory process.

The trend at Planning or Zoning Boards started innocently by asking builder/developer’s the price range of the homes or if any of the retail or office space had already been leased. Or they asked about the square footage of the homes. Or they asked about the HOA documents and the controls which the builder/developer imposed on the aesthetic appearance of the project. These questions were inappropriate.

Since housing was not reset in early 2000, local government regulations mirrored the upswing of housing and strived to make sure their community influenced the outcome of the project.

Architectural or aesthetic zoning was born and Planning and Zoning Boards started to use opinions to influence projects by requesting builders to change product, materials, price points, etc. The ultimate goal was to improve the appearance of the homes and increase the value. In return, homes with a higher value paid higher real estate taxes.

Builders could not afford a delay in the regulatory process during the early part of this decade since the market was “hot”! Thus, builder/developers agreed to architectural and aesthetic requests by P & Z Board members and politicians.

Also, consumers became an important stakeholder in the process and demanded changes to projects based on emotion rather than ordinance based regulations.

Builders could not afford a delay in the regulatory process, thus they agreed to stakeholder demands and regulatory architectural and/or aesthetic requests.

Builders also thought the market was deeper and wider because of the sales pace – little did they know that banks and lenders were artificially creating a strong move-up market.

Builders changed their product specifications i.e. granite counter tops as standard, the materials i.e. brick as standard, and product designs i.e. larger houses on smaller lots. Government asked or requested and builders agreed. They had to because the market was “hot” and they could not afford a delay.

Government also started to change infrastructure standards i.e. increasing roadway widths, wider sidewalks, more restrictive utility design standards, expanding water quality and quantity control measures, etc. Improvements shoulder by the building industry and local government lack the funds for maintenance.

Government is in part responsible for the housing bubble. And now, local government will not revisit their ordinances to reflect current economic times. Remember, cost is not a valid reason to use in debating an issue before local government.

In the early 2000’s, government and the public asked for more and builder/developers complied. They raised their prices to accommodate new requirements, simply because the market remained strong. Builders built homes and the buyers bought.

THERE IS NO RELATIONSHIP BETWEEN THE COST

AND THE SALES PRICE OF A HOME.

Because land prices do not directly follow housing price declines, builders will have to build smaller houses on smaller lots in the future. The features will go back to basics rather than upgrades as standard. Government will not change but the home buying public will have to change.

Builder/developers, those left standing, will remember the market sets the sales price of a home and not the cost. In the immediate future, successful builder/developers will buy foreclosed improved lots/projects at ten cents on the dollar.

In the long term, builder/developers will purchase land that is well located with existing adequate infrastructure AND is priced properly for the market. If not, they will not purchase high priced land and change the sales price of the homes to accommodate increased costs – as was the norm leading up to the real estate bubble.