Land development continues its slow change.
About a year ago, we took a look at the “Slow Pace of Change” in the land development market around central Iowa. As we noted then, adapting to market demands is a gradual process when it comes to residential development. So we wanted to check in with some local professionals to get their take on the situation. As most of them noted, the metro area has seen some forward momentum, but it’s facing some obstacles, too.
Kevin Johnson, Accurate Development
“There’s still a big demand for entry-level lots,” says Kevin Johnson of Accurate Development. “That’s a demand that hasn’t been filled at this point.”
Johnson says the lack of available lots for entry-level homes has as much to do with municipal regulations as it does with developers, maybe more so. “Developers go where communities want them. When cities make it difficult to develop land or place so many restrictions on how the land can be developed that it becomes cost-prohibitive, developers will go somewhere else.”
“Sometimes,” he adds, cities can struggle to draw development because they’re perceived as not being builder-friendly, which isn’t necessarily true. But communities that pursue growth intentionally are usually successful. “It’s obviously beneficial to a city to grow. If a community doesn’t keep growing, pretty soon it starts losing services, and then growth stops completely,” he says.
As an example, Johnson noted that since eliminating its tax abatement for new homes, the community of Adel has seen a dramatic drop in construction permits, from 132 through the end of July 2018 to just 11 through the end of July 2019.
On the other hand, Indianola, which has begun to pursue growth as a community, nearly doubled its housing permits during that same period.
“The great thing about the Des Moines area is that we don’t have the massive swings in the market that larger markets do. Most builders and developers lost out a bit with the early winter we had last year and will probably end the year about 10% behind on single-family homes. But overall, the Des Moines market remains about the same, which can’t be said of most markets around the country right now,” he concludes.
Bill Kimberley, Kimberley Development
“There’s an ample supply of lots, but the entry-level supply is still coming on. We need more of those,” says Bill Kimberley of Kimberley Development.
He says the market is dictating the demand for lot prices at the lower end, and many communities are adjusting to that need. “Cities that recognize that need are revising restrictions for lot width and setback so developers can develop to meet the market.”
He says the apparent move in the opposite direction by the city of Des Moines is a troubling sign. “Once one community makes restrictions like that, others will watch and may try to follow the same path and that will turn developers away from those markets.”
The constantly changing regulations and development requirements established by city leaders make it harder and harder to develop land, he adds. “Every new round of plats we develop has new restrictions that we didn’t have before. That means more delays and extra expense, and it gets more difficult to offer lots at the price point the market demands,” he says.
Communities that have been growing steadily seem to feel confident they can continue to grow with those regulations. But Kimberley says it’s the surrounding communities, farther from the metro, that are ripe for growth as a result. “Smaller towns are embracing and cooperating with development. It’s their opportunity now.”
Towns like Mitchellville and Newton are seeing very strong growth because affordable lots are possible in those communities, and homeowners can build a nice home in a small town with all the amenities still close by.
“The bulk of the market right now is entry-level homes,” says Kimberley. “Our custom- home business is still strong, but our entry-level is constantly expanding because that’s where the market is. I don’t see that changing.”
Kalen Ludwig, Peoples Company
“It does seem that developers and builders have been working with cities and getting more creative to get smaller lot plats approved and onto the market,” says Kalen Ludwig of Peoples Company.
She says there are a number of elements involved in this change. “Researching the demand before developing is very important. I’ve seen developers paying close attention to new concepts and amenities. Smaller lots with more community space has been a popular model nationally as people desire to be more connected as a community. Planning land development around the walkability, the connectivity, the nature, and the community amenities that create neighbors interacting is definitely trending right now.”
In addition to the communities that have been strong for a while, like Ankeny and Waukee, Ludwig says a number of other cities have been working to draw development as well. “Altoona, Norwalk, Indianola, and Carlisle are all offering tax abatements to help draw developers, builders, and homeowners to their communities,” she says. “Even outlying areas such as Newton are offering great incentives and becoming more active. Newton offers a city package and $10,000 cash to homeowners who purchase new-construction homes.”
Despite these examples, the metro area as a whole is a slower market than it was a year ago, says Ludwig. “We are behind on the overall single-family building permits and the single-family new-construction sales. As of July 1, the metro had 943 single-family building permits, compared to 1,214 a year earlier.”
New-construction sales for the first six months of 2019 was 3,251, compared to 3,537 for the first six months of 2018, in the 19 communities that Ludwig tracks around the metro.
Eric Grubb, Solid Ground
“We’re seeing more smaller lots on the market compared to a year ago,” says Eric Grubb of Solid Ground. “Communities and developers have continued to follow that track because that’s what buyers are looking for.”
Although approval for smaller lots can be difficult in certain communities, Grubb says acceptance is growing as cities see the success of such developments in other areas. Communities like Grimes and Urbandale, for example, are beginning to adapt to allow smaller lots in some developments.
Grubb says there will probably always be a variety of lot sizes and development types. “Some land just isn’t possible to develop narrow lots,” he says. “Even with an ease in regulations, some land is just geographically and topographically limited where it has to be larger lots because of those underlying factors.”
When developers do develop plats with larger lots, he says those plats are being built out more slowly. “People are just trying to be a little more cautious,” he explains. “They’re letting the market tell them what to build and how fast rather than doing a lot on spec.”
Grubb says the development market has maintained a status quo for the past couple of years and will probably remain the same as 2019 comes to an end. “With rates as low as they are now, people would like to see it pick up. But a lot of factors have played into that softer market. Weather is always a factor, and it delayed a lot of plats until spring or even summer this year because winter hit so early.”
He says watching the demand and the interest rates will continue to play a part in the type of lots being developed over the next year as well.