My first real estate purchase wasn’t a home; it a parcel of vacant land. I was 23 at the time and discovered the property while touring country back roads on my Suzuki Trail motorcycle. It was a one-acre parcel with beautiful mountain views. I called the number on real estate sign and with $500 for a downpayment and monthly payments of $50, I became a developer. While my friends were buying starter homes, I was clearing brush and trees. Two years later I built my first home on that parcel. It was a modest house but the rural peaceful setting suited my independent lifestyle.
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Buying land for building a home was much easier 40 years ago than it is today. Back in the 1980s and early ’90s, many families relocated to El Dorado County where they could buy a parcel of land and build their own home. They were called “owner builders.” Others purchased land and hired a contractor to “custom” build a home for them. Small independent builders were always in the market buying vacant land where they would build a “spec” home, a home that wasn’t presold. Tradesmen, subcontractors and building suppliers flourished in a favorable economic and political environment.
Between 2000 and 2005 vacant land parcel annual sales in the county averaged 900 to 1,200. The county’s average selling price varied greatly from $200,000 in El Dorado Hills to $60,000 in South County. While building single-family homes were the intended use of most land sales, investors were also seeking opportunities buying vacant land in the county.
For many, land was the preferred investment vehicle. Unlike rentals, land doesn’t require repairs and maintenance or compliance with landlord/tenant laws. Vacant land values were actually appreciating faster than houses. In 2000, the median selling price for a vacant land parcel across the county was $70,000. Five years later the median price stood at $200,000. The 185 percent appreciation rate outpaced county homes during the same time that appreciated 135 percent.
Most land investors were buy and hold. Their intention was to hold for future appreciation or perhaps build a home on their parcel upon retirement. The demand for good building lots and steadily increasing prices was met by another land investor whose focus was on buying, developing and flipping. The land developer purchased large parcels, usually in excess of 40 acres with the intention of subdividing into smaller improved lots and selling to home builders.
El Dorado County was humming with home building activity. Small independent builders flourished, job opportunities expanded and county property and sales tax revenue experienced record setting growth.
That economic activity centered around land came to a screeching halt in 2006 when the Board of Supervisors adopted a traffic fee schedule for all new construction as required by the Measure Y ballet initiative. While the housing bubble was still expanding in 2006, land sales nearly vanished. The year before the county adopted Traffic Impact Mitigation fees the county recorded 400 residential lot sales; the year after there were only 32 sales.
The recession put buyer’s interest in buying and investing in land on life support but plethora of impact fees and their 250 percent increase over what they were 10 years earlier moved the patient to the morgue. It simply became too expensive to build a home. Local land broker Jim Copeland with California Outdoor Properties has compiled a list of the different 15 required fees totaling $82,000 required to build a 2,000 square foot home, including a 660 sf. garage and serviced by EID water. The Measure Y TIM fees made up $35,000 of this total.
The stated intent of Measure Y was to have the large developers and subsequent homebuyers, pick up the full cost of road improvements. In this respect, the measure has largely been successful. Since incorporated into our General Plan, Measure Y is responsible for bringing nearly a half billion dollars to our county for road improvements primarily along Highway 50. What many supporters of Measure Y did not foresee was its unintended consequences. The large developers and builders were able to absorb the fees into their large-scale developments and add them on to the cost of the home. The owner builders and small independent builders did not have that option. Hundreds of small contractors, subs and suppliers lost their businesses and land values have still not recovered.
Despite the 30 percent increase in the median selling price of county homes over the last 12 months, lot sales and values are at historic lows. Excluding El Dorado Hills, there have only been 19 residential lot sales in the county since the first of the year with a median price of $40,000. Before the implementation of Measure Y fees, the median selling price for a residential lot, excluding El Dorado Hills, was $115,000.
No one wants congested county roads and developers should continue to pay for much of the traffic impact from their new developments. But governing by ballot box initiatives usually have unforeseen consequences and once cemented in place they are nearly impossible to change. In 2008 the majority of California voters thought $10 billion was a reasonable investment when they approved the ballot initiative to fund High Speed Rail. Today at the new projected cost of $68 billion, many past supports are not so sure we can afford the trip.
Ken Calhoon is a local real estate broker. He can be reached at [email protected].