Tuesday, April 08, 2008

Sacramento Home Builders Go Begging For Fee Deferrals

From the Sacramento Bee:

Several Sacramento-area cities stung by the real estate downturn are considering deferring developer fees as a way to stimulate the local economy. Deferrals on fees charged to builders to help pay for major roads and sewers and address other impacts of development aren't likely to reduce the cost of commercial construction. And they likely won't affect home prices. But they are being tailored to encourage more residential and business construction.
The North State Building Industry Association, some of whose members are reeling from the real estate downturn, is leading the charge for fee deferrals. The trade group has made its case in Roseville and Elk Grove in addition to Folsom, said Dennis M. Rogers, senior vice president for the North State BIA..."We're basically going to be going to everyone with the same proposals," Rogers said.
From the Stockton Record:
The housing boom made construction one of San Joaquin County's fastest-growing industries from 2002 to 2005....It's a different story now. The residential building halt and mounting foreclosure crisis, the latter of which has displaced many San Joaquin County families, also have left a shortage of work for...laborers who once built and landscaped those homes.

A number of those workers - mainly the undocumented portion - head every day to Stockton's Gateway Plaza to solicit jobs...As many as 100 men wait for work every day in front of the plaza's Unocal 76 gas station....For every employer that pulls up, five to 10 men rush to the vehicle, but only a few are chosen. By the end of the day, most are left behind.
Marselo Martin used to have a regular construction job and an apartment. That was awhile ago. Now homeless, he does side jobs - anything to send money to his family..."Right now, there's no work here. It's almost as bad as Mexico," he said.
From Rubio’s Restaurants, Inc. Q4 2007 Earnings Call via Seeking Alpha:
Lawrence A. Rusinko [Senior Vice President of Marketing & Product Development]:

Starting in the third and fourth weeks of November and continuing through the year-end, we experienced a general softening in our business, the result of a weakened economy being pressured by higher gasoline prices and the subprime problems in housing.

All of our markets experienced downward pressure on sales during this time. However, three markets in particular, Phoenix, Sacramento, and the Inland Empire region of Los Angeles, all on the front end of the subprime loan problems were primarily responsible for our weakening fourth quarter comps. Worsening economic conditions simply caused consumers to pullback on discretionary spending. In turn, comp sales turned negative in these markets for November and December weighing heavily on our overall results despite continued positive fourth quarter comps in all other markets.


smf said...

We don't need to 'stimulate' construction. The problem was that too much was built.

And local governments used construction as a handy excuse to raise 'fees' (taxes really) to provide them with additional funding.

Everyone will have to get used to going back to normal.

sacramentia said...

All the delayed payment of fees will do is reduce the amount of cash it takes to build a home. Doesn't change the overall cost. Not bad in my opinion.

All you renters should be happy. More supply equals lower prices, but I think a lot people on these blogs just like to be upset about everything.

Jacob said...

We just want to get this ride over with.

But regardless, we are still in a freefall, regardless of any spin.

Patient Renter said...

they are being tailored to encourage more residential and business construction.

I love how it's beyond the realm of possibility that we might in fact have more than enough residential and commercial space - and that throwing money at builders isn't going to change that fundamental fact.

But if they want to make it easier for supply to go up even more, fine with me.

jay said...

I agree with smf. Have these idiots ever taken econ. Supply and demand and price.,

Deflationary Jane said...

Well if dirt is being marked down to pennies on the dollar, building materials are much cheaper to the point of mills closing down due to lack of business, and they defer fees, they might be able to build a house a person could really afford.

And building is just fine by me, let them keep going. Keeps down unemployment and keeps down housing prices, what's to hate?

sacramentia said...
This comment has been removed by the author.
Patient Renter said...

Keeps down unemployment and keeps down housing prices, what's to hate?

Employment and low home prices are good and all, but the one thing that bothers me is the idea that these discounts being given to builders will be offset elsewhere by laying off a few more good people, such as teachers or police officers or whatever.

I'd rather see a few more teachers keep their jobs than see more houses get built, even though I wouldn't mind the extra inventory.

Diggin Deeper said...


This is probably just the beginning of the problems we're about to see. Over supply of new homes created new schools that don't have students to fill the classrooms ie. the recent melding of a couple of schools into the Two Rivers school. As a recession moves in, crime will have a tendancy to rise especially if funding is insufficient to hire new police and fire employees.

Once property reassessments begin, and sales of homes now in inventory produce tax revenues at half the levels of the boom, every municipal service / government related entitlement is bound to be affected.

I worry about layoffs more than anything else as it will continue to pressure the home market to the downside. Sacramento, as I've said before, is particularly vulnerable when government is the mainstay industry. Regardless of what we're hearing, downsizing is going to occur if this downturn is protracted.

Patient Renter said...

Wow, great. So my earlier comment was dead on. The Folsom Vice-Mayor was one of the people calling for the fee deferral.

Lest we not fail to recognize that the Folsom-Cordova school district just recently handed out a whole mess of pink slips to teachers. This is the kind of trade-off I'd prefer not to see.

wimpyVO2max said...

Have to agree with smf and patient renter, Sacramento doesn't need incentives to stimulate homebuilding. What Sacramento desperately needs is industry. There are some encouraging signs that American exports are growing. With the cheap dollar our 'expensive' labor doesn't look as expensive overseas as it used to.

What we should be doing is providing incentives, permit waivers, etc. to encourage clean industry to come to Sacto area to provide jobs.

Diggin Deeper said...

Rant on!

Jobs, jobs, jobs....where are they and why hasn't Fargo made that a priority in the past? Leadership lacks vision in this town. City fathers were lulled to sleep during the RE boom and they're now experiencing a nightmare in the process...one that's only going to get worse over time. Unfortunately it appears as if a "deer in the headlights" scenario is evolving. Deferral of fees will mean fewer jobs. It's a race to see who fails first, the contractors or the city.

The perfect storm in real estate has given way to another perfect storm...oil prices continue to run up unabated due to falling supplies, there's cost creep in every corner...ag commodities (and all others) are rising as the dollar keeps falling...only the rice farmers are getting rich today...Why? World population has grown so fast over the last couple of decades, that there's too little of everything to go around... but that shouldn't stop Sacramento from addressing a basic need to create industry and jobs to sop up the oversupply of RE inventory that's out there...Bring in 10,000 good jobs and the problem starts to go away...for now.

Rant off!

watchingthebubble said...

I'm a simple soul when it comes to economics. I just go by the "Newman's Own Virgin Lemonade Index." Last night, I paid $1.81 for a half gallon of Newman's Own Virgin Lemonade at Winco. Two weeks ago, it was $1.65 at Winco. Not good.

Mind you, it's always $3.00 and change at Raley's, which is why I don't normally shop at Raley's.

Not to mention, eggs at Winco are now $1.85 a dozen. When I started shopping there two years ago, they were $1.18 a dozen. I got upset when they went up to $1.25 a dozen.

When prices start to go up on piddly stuff such as lemonade and eggs, not good. Especially since I haven't had a raise in two years. I'm not hurtin' hard, but I know others must be.

Jacob said...

Another reason why I want a home with a bit of land. In case I want a nice garden or to get some chickens should the need arise.

But as rice and other crops become cash cows more people will invest in farm land and then as greed takes over you get over supply.

I'm not sure how fee deferally help, especially if you have to lay people off to cover the cost, which just takes more $$ out of the economy.

They should lower the fees to make it more attractive to devopers and they should try to drive businesses to the area. But CA is so expensive for businesses that they just move to Texas or some other cheaper state (or country).

Diggin Deeper said...

"But as rice and other crops become cash cows more people will invest in farm land and then as greed takes over you get over supply."

Yes...that's the pat answer. But there's just so much tillable ground available in the world right now. It's not quite as easy as it appears. World demand is outstripping world supply...we're just beginning to see social unrest in other countries because of these supply issues... We're beginning to see countries hoarding their supplies or placing huge expport tariffs on farmers shipping product offshore. We're basically on the supply edge. Plant more rice? Then corn, wheat, soybeans suffer. There's no easy answers here. Even if the world slows down people have to eat...

The same for jobs...if Sacramento started today, giving incentives, tax breaks, "deferred fees", etc. I doubt we could gather in 10,000 jobs in less than 5 years. We've allowed all CA govt to grow out of control over the last decade, it's no wonder we driven businesses away. There's nothing quite like the economy slowing down to chase away the excess. The private sector has had to do more with less, but by the size of govt, they haven't quite bought into the concept.

Jacob said...

definitely there is no quick fix. CA needs to draw business back and it will take many years even if they started right away.

Now that the people working at wal-mart and McDonnalds can't buy $500k homes anymore, we are in for a shock.

But businesses will fail, people will move out of the area for other opportunities, and new businesses will arise and eventually things will stabilize. Either that or someone starts WWIII.

But I think the $$ being spent in incentives and tax breaks would be better spent in job creation and training.

watchingthebubble said...

I think the Sac metro area gov'ts and the state need to understand that private industry wants affordable costs -- taxes, labor, etc. And they want highly skilled or highly educated labor for the wages they're paying. I saw with my own eyes the efforts of Texas, Oregon and North Carolina to lure private industry from California. California better wake up -- it can only rest on the laurels of good weather and Silicon Valley entrepreneurialism for so long.