A local perspective on the development situation.
From the outside, it can seem like fads come and go and trends change quickly. In reality, even clothing styles, color trends, and fad diets take months to make their way in and out of popularity.
When it comes to land development, the pace of change can seem even slower. But local developers say that gradual adjustment occurs for several reasons—and that’s not always a bad thing.
The Length of the Process
“There’s so much prework that goes into developing land,” says Bill Kimberley, of Kimberley Development in Ankeny. “Just getting an analysis done by the Army Corps of Engineers can take six months.”
Kimberley says it typically takes more than a year to complete all those advance processes—approvals, site analysis, stormwater detention plans, sewer and water lines, and so much more. That means it can take developers a little longer to respond to changes in the marketplace.
According to Newblood Development’s Eric Grubb, peripheral factors, like highway access and infrastructure, which can enhance growth in outlying communities, are planned out so far in advance that development often takes place several years before infrastructure catches up.
“The Department of Transportation is not reactionary,” Grubb says. “They think in decades, not months or years, so any potential infrastructure needs as a result of development are usually a ways down the road.”
According to Accurate Development’s Kevin Johnson, “We’ve been watching the changes in the market, but things are really staying on the expected course. It just takes time to get plats available once the process starts.”
Kimberley agrees. “We have a lot of plats going in right now, but we’ve been working on those developments for a couple of years. It’s taken this long to get everything ready.”
The Regulatory Requirements
Every developer and builder knows that probably the greatest factor in the rising cost of new construction is regulatory costs, from code requirements to city demands on developers. These also affect the length of time it takes a development to be ready for building.
“Developments will go where cities make them welcome,” says Johnson. “They can make it easy or really tough to develop.”
Kalen Ludwig of Peoples Company agrees. “Some cities are not allowing developments with smaller lots. They want properties with larger footprints, three-car garages. It’s true that for a while, that’s where the demand was. But that’s changing, and cities haven’t kept up with that.”
Communities have long used tax abatements and similar incentives to draw development, and that has been a successful tool. In fact, Adel had such success with a 7-year tax abatement program that it is being phased out in order to manage the city’s growth.
“Things will definitely slow down in Adel over the next several years,” Johnson says. “The commercial development hasn’t quite kept pace with the residential development, so this scale-back is a good move to give the community time to develop, too.”
“Overall, we have a pretty healthy market around the metro,” Grubb says. “Developing is always a struggle with city requirements. It makes it more expensive for sure.”
Kimberley says the length of the development process and the city requirements fuel each other. “It takes so long to do the studies and the planning. Then cities bring on more requirements and ask for more engineering studies. And they change the definitions of terms, and that requires more studies. A lot of times, that puts the burden on the developer instead of the city in order to keep a project moving.”
The Demands of the Market
The slow pace of the development process can make it seem like developers aren’t responding to changes in the marketplace. But that’s not the case.
“There’s a trend toward smaller lots and not-so-big homes,” Grubb says. “Developers want to meet the price point the market is demanding, and with the cost of land and development, this is one way to address that.”
Kimberley says, “Developments that were started several years ago have plenty of larger lots available, and they’re selling. But they’re not selling fast. The market is saying smaller lots, lower prices, and developers are having to adjust to that.”
Johnson says lots in the $55,000 to $60,000 range are absorbed much quicker than larger, more expensive lots for multiple reasons. “There’s definitely a demand at that level,” he says. “Anything in the $55,000 range, there’s not enough. Lots in the $125,000 range, there’s too many. And the more expensive the lot, the more particular the buyer will be about the amenities they expect to get along with that. And that adds to the development cost.”
Those expected amenities are a two-edged sword for developers. Designing neighborhoods with desirable amenities can draw buyers to your development. But adding amenities drives development costs up and eliminates many potential buyers from your market.
Planned communities, like those at Ponderosa, Prairie Trail, and the new Heritage at Grimes development, require extensive pieces of development land, which are not available often. And the cost—and time frame—to develop such a neighborhood can be prohibitive.
“Cities see those planned areas working for other communities, so they want to develop them in their own communities,” Ludwig explains. “Those changes take time, and it really takes everyone working together—cities, developers, builders.”
“One good thing about the slow process is that you have time to reevaluate and adapt,” Kimberley says. “We’ve got a number of subdivisions going in, and we’re looking at those again to see how best to do those based on what’s going on in the market right now.”
“There’s a lot of uncertainty right now as developers and builders adjust to the changes in the market,” says Ludwig. “But the Des Moines metro is still a growing community. We’ve been protected from a lot of the ups and downs we’ve seen taking place nationally.”
Yes, the pace of change is slow when it comes to developing land. But around the metro, that may not be such a bad thing. It hasn’t slowed growth yet.
Nearly every municipality around the metro is growing steadily, but a few have been especially strong over the last couple of years. These highlights were noted at Peoples Company’s recent Builder and Developer Luncheon.
- Adel: multiple developments continue to sell as tax abatement program phases out
- Altoona: variety of lot prices offers options for builders and homeowners
- Ankeny: continues to lead the metro in new construction projects
- Carlisle: saw a big jump in new construction over the past year
- Indianola: lot prices remain on the lower end, drawing buyers and builders
- Norwalk: plans for a new town center with parks and a design for foot traffic
- Waukee: remains near the top of the list for new homes