Real Estate Development Industry 2014 & Beyond

Once the real estate industry sustains a positive momentum, are we back to business as usual? Or are we in unchartered waters with new opportunities?

As Housing Goes………So Goes the Economy? Will housing jump start the economy or will interest rates and inflation slow down housing before it gains sustainable traction?

Will we be partnering with various stakeholders to reduce risk?

Has the government regulatory pendulum swung so far away from the entrupenuirial spirit that it can’t be returned?

From this point forward in time, we must redefine our real estate industry or it will continue to be redefined by others. What is in store for us 2014 and beyond?

We can all agree that there needs to be a balance between government regulation and the freedom to use our property as we see fit? This blog post will hopefully generate reaction, debate & action or maybe even inaction from being paralyzed.

2014 and beyond will be a new horizon for the real estate development industry. Those that can answer these questions will know that it is not business as usual. These questions are not new but the answers may very well be different especially after this great recession.

What to build

How to build

When to build

Where to build

Start thinking about doing what you do and always have done …..differently!

Starting in mid-January 2013, I devoted my blog to the review of the following key real estate development industry components. In 23 blog posts, I have illustrated the changes in the industry since the 1970‘s.

Land

Land Overview
Land Acquisition & Due Diligence
Land Design
Land Development Stakeholders
Land Development Government Regulations
Smart Growth
Sustainable Land Development
Agenda 21
International Council for Local Environmental Initiatives (ICLEI)
Land Development Permits & Approvals

My intent of this post is to focus on 2014 and beyond.

As an introduction to this topic, I am offering my answers to the questions asked after every recession since the early 70’s. Do not hesitate to offer your opinions.

If you build it, will they come? Today, builders can’t build fast enough to meet the current demand. Prices will escalate and interest rates will move upward. This will result in a slower housing recovery.

Will national builders expand their market share? Yes.

National builders will again buy land for their own use. Are there developers left to develop residential properties and feed builders finished lots? Not many!

Will commercial builders enter the residential industry? Logical business expansion

Are there any regional developers left standing? Not many and not in every state

Will home building be profitable in the future? Yes but the profit will be on the land. It has always been about the land!

Will government expand its role as a builder/developer? Yes if they want growth. Commercial, retail, business, and industrial growth is already being promoted through economic development quasi-government agencies.

If we are not careful, government will become the only developer in town for residential projects – especially in small markets.

Where did all of the construction trades disappear to and will they return? They will return but very slowly back to the industry. We will experience a labor shortage for years.

Will there be material shortages and higher prices? We can expect material shortages because plants scaled back or closed over the past 5 years. In the past, sheetrock, cement, lumber and even windows have been in limited supply after a recession ended. Higher prices – yes.

Will interest rates remain low? The Fed doesn’t even know! How high and how quickly will interest rates rise are the questions to ask. The Fed has been manipulating the economy in unchartered waters. They probably don’t know the ramifications of what they are doing. Pray for the best and plan for the worst. Is there another shoe to drop?

Will inflation return? The Fed has always manipulated the rate to control inflation. Inflation has returned and will continue to be a serious problem for all of us.

Will liability and law suits break the back of the industry? It continues to be a problem no matter what industry you are in. It will only become worse.

Will gas prices return below $2.00/gal or should we expect a new norm of $5.00/gal? This new norm threshold may not take as long as we would expect.

Our energy resources are expansive and we are starting to see some benefits. However, will this translate at the pump? My guess is NO. We have accepted $3.50/gallon gas as the new norm and this will go higher.

So how can our real estate development industry return back to a normal business model? I don’t think it can. We must do what we do and always have done differently.

Random thoughts and opinions:

Have you read your local land development or zoning ordinances lately? 

One ordinance now includes color options for wind turbine blades in a RESIDENTIAL district.

Federal funds may be earmarked for local governments implementing sustainable community development practices.

Federal funds may drive economic development to certain locations by ONLY approving “green” housing projects.

Federal funds may be allocated to local communities which restrict sewer extensions to “green fields”.

Federal funds may be used to manage community growth patterns by encouraging re-development projects and gentrification by selecting winners and losers.

Local government may try to manipulate the housing supply and demand curve

Municipalities may restrict the number of homes built each year by managing the price points through zoning restrictions.

If a housing price point was not being constructed, will local government use eminent domain to take property for a specific housing need? This has certainly been done for non-residential projects and low income housing but what about for the “move-up” market?

Government at all levels will continue controlling growth patterns by micromanaging infrastructure to ensure a social-economic balance at the expense of the industry and free enterprise.  

Projects may be put on a ballot for citizens to vote for or against. If successful at the ballot box, developers would then enter into a contract with local government.

Rezoning of property would not be permitted.

Residential projects may be approved only if it complements a commercial use – not the other way around.

Mixed use projects for small planning areas will be the norm balancing residential and non-residential use with higher densities and more intense uses.

Aesthetics and energy conservation will be more important to the general public than practical cost effective approaches.

The Federal government will further define lender requirements and make it more difficult for buyers to qualify for a mortgage

The Federal government will continue its mission to “take away” land for development purposes by expanding regulations. The result will be higher land prices.

Final thoughts on Land Development 2014 and Beyond:

Land –

                        Land is not being made any more
                        All the ‘good” land is gone
                        Land prices for “buildable area” will continue to escalate
                        Less buildable area will be available due to government restrictions

Regulations –

                        Outdated ordinances need to be updated
                        Density is the answer but the question is wrong
                        The pendulum has past the point of no return

 Design –

                         New home features have included too many bells and whistles and buyers      are unwilling to make concessions. A/C used to be an option in cars and in homes!
Aesthetics will be elevated as a key component of local government approval.
           
Stakeholders –
Special interest groups have become embolden by being permitted at the table. The industry has always reacted to the negative voice since those that need affordable homes or businesses that need affordable rents are not at the table

Majority right – minority rules ---- Political correctness gone a stray

 

Costs
                     Who cares about costs!!! Government? Stakeholders?
The cost to build a new home is over 50% of the sales price of the home – a new norm in response to buyer demands. Out of control spending! Will we ever return to “nice but not necessary”?

Construction

                        Labor and material shortages will be the headline in 2013, 2014 and beyond. National builders will demand attention when they start paying weekly!
                
Markets –
                        Small markets will again be the attraction
                        Commercial Developers will dominate the urban markets
Government will use regulations to limit expansion out from urban cores
“Where will our children Live” will once again be the motto of the future!
Sales will become virtual as builders shy away from the traditional model center approach.

Sustainability has only started to be in the mindset of the new home buyer.

Do you really think the college graduating classes from 2008 – 2013 are optimistic about buying a home?

Do you think they have the same dreams as their parents?

How will technology change land development?

How will we capitalize on social media platforms?

Are we visualizing 2014 and beyond as the status quo or are we going to “do what we do and always have done ---- differently”?

I admit many questions and few answers. The real estate development industry has always been and will always be a fragmented industry. Our industry is coming out of this recession but it will be different.

Local communities must rely on economic growth to stay solvent. There is a balance between what the existing citizens can shoulder with taxes or user fees and what must be paid by real estate developers. To be proactive developers and design professionals must become involved in local politics. They must be elected to the town council! We have reacted all too long. We as industry professionals must be proactive to initiate change toward economic prosperity for our local communities.

The answer to all of the above questions and random thoughts is LAND!

 

 

 

Land Development Industry 2014 & Beyond

 

Obviously, there are many communities which will promote sound development practices but many communities will swing the pendulum to restrict growth. This has always been the case following a recession. But in my opinion, this period of time is much different than in years past. Since January, I have been posting on my blog real estate industry changes over the past four decades.  

Not only is our industry fragmented by location, market segmentation but also by our own perspectives and experiences. What I do know is that the improvement of land for its intended use and governed by industry practices is formulated by individuals with ingenuity, creativity, and entrepreneurship.

I am working on my last blog post in this series which will be;

 

“Land Development Industry 2014 & Beyond”

I will post my opinions, thoughts and predictions. Remember, my posts are personal opinions based on years of experience. I look forward to the opinions of the forward thinking!

Consider:

Reinventing yourself by doing what you do and always have done DIFFERENTLY!

 

 

Land Development Permits & Approvals

You must have a high level of expertise, perseverance, financial stamina and political perception to obtain all of the Land Development Permits & Approvals required to build any real estate project.

The regulatory processes no matter what country you live have expanded in complexity, increased in time, elevated the risk and empowered adversarial stakeholders. Before the mid-90’s, anyone could be a real estate developer as long as you were willing to take a risk and you had an entrepenurial spirit. I don’t think that opportunity exists today.

True or Untrue?

The last true entrupenuirial arena of using land the way you want has slowly changed over the past four decades. Now, you just think you own the land!  

There will be over 30,000,000 more people in the United States over the next decade! As generations move on, do we ever ask the following questions?

WHERE WILL THEY LIVE?

WHERE & HOW WILL THEY WORK?

WHERE WILL THEY SHOP?

WHERE WILL THEY PLAY?

HOW WILL THEY THINK?

How will we answer the above questions?

But before we can develop our answers to the above questions, I think we are in for round two of the real estate bubble.  

Think about it. Over the past 6-years, new home construction has been severely depressed and way below the acceptable number of new homes even to keep pace with the population increase – new family formations, new workers, etc. Thus, the lack of new home inventory and pent-up demand has caused home prices to escalate. Please read my October 6, 2010 blog post.

The Fed has always manipulated the rate to control inflation. Interest rates are on the rise. As soon as the Fed stops their credit card buying, interest rates and inflation will increase rapidly. However, the Fed will strive to find a way to ease in the pain but never the less we will all feel the pain. However, we have yet to see the other shoe fall!

The real estate industry has been poised (those left standing) to move forward but only to be faced with a changed regulatory climate. My guess is that most “finished” lots have been purchased and builder/developers must now buy raw land for development purposes.

How would you answer the following questions?

Do you really think regulatory oversight has changed to benefit real estate developers?

Do you really think that lenders will make it easy to borrow to build?

Do you really think interest rates will remain historically low?

Do you really think that home prices won’t skyrocket and shut out homebuyers?

Do you really think that inflation will stay properly managed?

Do you really think that material and labor prices will stay low?

Do you really think that we won’t have material shortages as production increases?

Do you really think that it will be easy to find subcontractors?

Do you now have to enter into a contract with a local municipality so you can build on your property?

In the United States, we have:

Federal Government                                                                1

States                                                                                     50

Counties                                                                                3,034

Municipalities (city, town, village...)                                      19,429

Townships (in some states called Town)                             16,504

School Districts                                                                    13,506

Special Purpose Agencies (utility, fire, police, library, etc.) 35,052

These government entities have their own ordinances, regulations, standards, criteria, political agendas, and departments..   

We used to obtain permits and approvals but now it is called “entitlements” -  meaning

“ to give somebody the right to have or to do something”. Government is giving you the right to do something on your own property! Please add to the following list of agencies which have control over the real estate industry:

County Planning Board

County Zoning Board

Local Planning Board

Local Zoning Board

City Council

Environmental Commission

Shade Tree Commission

Town Engineering/Planning Department Staff

Town Traffic Department

Town Building Department

Town Zoning Department

Municipal Utility Authority

Fire Department

Police Department

Water Company

Sewer Agency

Water Allocation Agencies

School District

Park District

Improvement District

Drainage District

Lighting District

Air Quality District

Flood Plain District

Historical Society

Homeowners Association

Architectural Committee

Landscape Committee

Soil Conservation District

Watershed District

Coastal Agency

Transportation District

Department of Transportation

Department of Environmental Protection

Department of Community Affairs – HOA’s

Corps of Engineers

Environmental Protection Agency

Housing and Urban Development

What agency have I missed?

As you develop your business plan for developing and building real estate projects, it is more important than ever to know the political climate of your community.

            Is your community a no growth community? OR

 Is your community open to growth and new growth trends?

          
With each local approval/permit requirement, the more influence politicians will have over your ability to use your property for your intended use.

Become familiar with:

                        The local politicians that would support your project

                        The staff that processes projects and their influences

                        Learn the regulatory permitting process 

                        The surrounding neighborhood and if they will oppose to the project

                        The community “hot buttons” for inclusion in the project design

                        An experienced land use/zoning attorney

                        Master plan and growth management plans

                        Subdivision approval process and the time required “to be in the ground”

In your community, what has been the progression of government’s control over development patterns? For the moment, think about how the following issues have been addressed or not addressed in your marketplace:

            1. Rezoning of property

            2. Affordable housing – workforce housing

            3. Higher density is the answer but public perception?

            4. Changing development criteria to reduce yield & increase costs

            5. Prolonging the permitting process by multiple reviews and public meetings

 6. Allowing the general public veto power

Coming out of this recession, whenever that may be, it WILL NOT be business as usual. We have to assess the benefits of each project in each location to determine if it is worth the risk, time, effort, and expense to proceed? Yes this business will not be for the beginner but for those that can change the playing field.

The market segmentation in our industry fragments our ability to universally counteract government trends. In fact, there is no one trade association having the voice of the land development industry as its primary focus. I established the Real Estate Development eAssociation group on LinkedIn as an organization representing the land development industry – please join us.

http://www.linkedin.com/groups/Real-Estate-Development-eAssociation-2645993?trk=myg_ugrp_ovr