While building companies and Realtors are hopeful that 2011 will see the economy recover and property values increase, they are expecting the Great Recession’s hangover to linger a little longer. Even though building permits for single-family detached homes in Lodi are starting be issued for the first time in more than a year, experts aren’t expecting the area’s construction industry to boom. However, any growth is cause for optimism for Realtors and developers.
“On the construction side, we’re seeing daylight for the first time in two years,” said John Anderson, a financial executive for Stockton-based Diede Construction. “It’s starting to happen because the city and county governments are asking what they can do to attract development.”
One of several scenarios must unfold in order for the housing and construction industries to fully recover, said John Beckman, chief executive officer of the Building Industry Association of the Delta.
To Beckman, the demand for new houses will be spurred if the county’s unemployment rate significantly drops or the cost of development fees are lowered. Between payments to the city, county and other agencies, it can cost up to $50,000 in fees to build a new home, he said.
The city of Lodi has no plans to adjust its impact fees, said city spokesperson Jeff Hood.
“By reducing impact fees, you are essentially asking the community to subsidize the impacts,” Hood said.
The impact fees developers pay relate to the construction of new roads, parks and fire houses, and to upgrades to the city’s wastewater service system. Reducing impact fees would lead to the community having to find other ways to raise money to pay for a fire department near a new housing development, Hood said.
“You don’t want to grow to the point that you can’t serve the public,” he said.
The other factor slowing the demand for new construction are homes foreclosed by banks that are not on the market yet. Known as the “shadow market,” it refers to homes still held by lenders that are not yet available to buyers.
“All of that shadow inventory would have to go away in order for demand to come back,” Beckman said.
By the numbers: Since July, the city of Lodi has issued only five building permits for the construction of single-family detached homes. In the fiscal year 2009-2010, neither Lodi nor Galt issued any building permits for single-family detached homes.
Part of the reason more new homes aren’t being built is because the development fees in Lodi are cost-prohibitive, said Beckman.
“Between fees for the city, school districts, the county and the air district, the fees can add up to $50,000 on top of the construction costs,” he said.
New legislation is also hamstringing builders’ efforts to construct more houses, he said.
There is a requirement that sprinkler systems be installed in new houses, and that adds about $5,000 worth of costs, Beckman said.
Looking forward: Fortunately for Lodi, many of its available homes are very affordable, said Kerry Suess, president of the Lodi Association of Realtors. The majority of homebuyers in Lodi, according to Suess, are first-time buyers and investors.
“Lodi has good opportunities for people who want to move up,” he said.
Investors are attracted to Lodi because they can purchase and rent out homes for more money than their monthly mortgage payment.
“You can buy a $200,000 property, put 20 percent down and pay $1,000 a month as an investor while renting it out for $1,300 a month,” he said.
Although interest rates are no longer at historic lows, they are still at rates considerably lower than in the early 2000s, Suess said.
However, unless you are looking to move up to a larger home, this is not a seller’s market due to the large amount of inventory available, Suess said.
Short-sale homes should continue to linger on the market for several years and home values won’t increase dramatically during that time, he said.
Southern Lodi is an area that could potentially be appealing to homebuyers in coming years, Suess said.
“Home prices there were in the $400,000 and now they are around $180,000,” he said.
Job outlook: Although the construction industry isn’t likely to reach the stratospheric levels of production it achieved in the early 2000s, one local company has several projects rolling out in 2011.
Diede Construction is finishing up four homes being partially funded by Community Development Block Grant funds. Located on Oak Street near Cherokee Lane, the homes are in their final stages of construction and should be completed in the next few weeks.
Public works projects will be the bulk of Diede’s efforts in 2011. Although public works projects are nothing new to Diede Construction, the company’s financial executive, John Anderson, said that many contractors who experienced slowdowns in the residential market are moving over to the commercial side.
However, the contractors may not have the resources necessary to adequately compete with larger companies, he said.
The construction companies that will succeed in the coming years, he said, are ones that are vertically integrated and have their own finance and marketing departments and metal fabrication abilities.
“A lot of contractors can’t afford to work in the public sector arena,” he said. “Not many people know that public works never slows down.”
Although he was tight-lipped about specific projects, Anderson said Diede is expected to be a part of roughly six multimillion-dollar projects in and out of this year.