Wednesday, July 30, 2014

Where are the builders?

From page HS3 | August 16, 2013 |

El Dorado County has an acute shortage of homes. That’s an undeniable fact. You can run the numbers in the MLS, study our General Plan, review every county demographic study that has been written and the bottom line is we currently have too few homes to accommodate the current and projected demand.

Real estate agents and homebuyers are frustrated at the lack of selection, especially affordable housing priced less than $400,000. County planners acknowledge that there is a large gap between the number of homes that we should be building and the actual number that have been built or are approved to be built. Our General Plan calls for building an average of 800 new homes a year over the next 20 years while we have been building an average of 50.

Our county has the capacity to build more homes. We have large tracks of land where new housing could be built and hundreds of vacant lots all over the county suitable for new homes. In addition to land, we have an ample supply of water, power and plenty of construction workers waiting to go to work. Normally, when there is a shortage of homes at increasing prices, builders put on their nail belts and go to work. New construction historically keeps resale prices in check and adds quality and availability to the mix of housing stock. With high demand, available infrastructure and little supply, where are the home builders?

There are four national home builders building upper-end track homes in El Dorado Hills. But what happened to all the small independent local builders who would build a few houses each year? They purchased lumber and supplies locally, hired locally and lived here.

Going back to the 1980s, our county has had a proud history of attracting small home builders. They purchase a few lots, built a few homes, made a buck and went on to purchase more lots and build more houses. The small local builder provided an alternative to high density production home developments. Many built custom homes in the rural areas of our county. Their diversity in design was a refreshing change from the tract cookie-cutter homes that were being built by large national builders elsewhere.

Sure the recession impacted homebuilding. With no demand for new homes, many independent builders stopped building new homes and focused on remodeling existing ones. But the recession has been officially over since June 2009. Real estate values have been climbing in our county since 2011. Shouldn’t builders be buying land and building new homes again?

Land parcels and building lots in our county have never been more plentiful or affordable. Fully developed lots in Placerville and Cameron Park are for sale at half the price as they were five years ago. Rural 5- and 10-acre parcels sit idle waiting on an offer. There are 150 vacant homes in the county and 10,000 vacant land parcels.

Conventional financing for new homes has been nearly impossible but builders have been in tight money environments before and have built lots of homes. If institutional funds weren’t available, private investors were there. Builders put together teams with agents, land owners, subcontractors and private investors, all taking their profit after the sale. And there were other alternatives. Financing is like the weather; it is what it is and you work through it. Cost of production and demand are more critical factors.

The appraisal has been another stumbling block for builders. Cost to produce a product often has nothing to do with its market value. It doesn’t make any sense to start construction on a $400,000 home if it will only appraise for $300,000. However, home values are quickly changing. The 30 percent increase in the median selling price over the last 12 months should have been a wake-up call to builders. Besides, buyers are getting accustomed to paying more than the appraised price for a home.

All businesses have up and down cycles. It’s understandable that small builders have been hunkering down during the housing recession. Now that housing has recovered, why is it that only national production builders are building in our county?

The unfortunate reality is that the small independent builder may be building somewhere else but not in our county. The small builders who built less than 10 homes a year, like the small manufactures, have closed up shop and moved someplace else.

The last standing alternative for a new home is the production tract home builder. These public national corporations have advantages over local builders as does Wal-Mart over the small mom and pop retailer. Access to capital, national purchasing power and a greater ability to control cost by the development of the land are cost advantages that offset burdensome county fees. But it wasn’t the competition that killed off the local builder. They have been successfully competing with national builders in our county for many years, offering alternatives to living in a planned development.

The housing recession was just another nail in the small builder’s coffin. Increased regulations, mandated employee taxes and benefits and costly county mitigation and permit fees killed off a once viable source of new homes, jobs and tax revenue. Builders aren’t waiting for further improvement in the market or an increase in pricing to start building. They have closed their doors like Blockbuster or Borders Books and they are not coming back. It is an unfortunate loss to our county and another unintended consequence of Measure Y.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached at





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