Why Isn’t There More New Construction?

I’ve been asked why we don’t see more new homes constructed in our valley, and the answer is simple: it’s too expensive. Right now it is significantly more expensive to build than to buy because building costs don’t stop with time and materials.

Let’s say you are driving along and you see a beautiful meadow with amazing views just a short drive from town with a big FOR SALE sign posted. Your heart leaps and you think, “I can see my dream home situated right there.” Let me describe the process you’d have to endure to make that dream a reality.

The available lot must first be zoned correctly, and to be zoned correctly it must be in an area where the general plan allows residential zoning. If it is not, anticipate about a six-month period to work with county officials to amend the general plan and rezone the property. This is costly in two ways: the expense of completing the appropriate forms and going through the process, as well as the opportunity cost of tying up funds when they could be invested and making you money.

Now let’s imagine that you’re a real estate developer and the property you saw could be subdivided to build several homes. Once the property is zoned residential, you’ll need to spend thousands of dollars to create a subdivision plan, including details such as lot size and configuration, as well as the roads and green space that will consume 30 percent of your property.

Next you’ll need to hire someone to navigate the approval process at the state level. In addition to the cost of this arduous process, you should anticipate about two years before approval (if all goes well). If things don’t go well, the state may come back with changes for you to incorporate into your plan.

Before the state’s public report is finished, you must put in roads, and if you’re going to put in roads, you may as well put in utilities. All of this typically requires permits (and money). If your location requires curbs, gutters and sidewalks, the price increases. Depending on county regulations and road conditions, plan on $175 – $200 per foot of road. I highly recommend building roads to county specifications and dedicating the roads to the county so the county and not you are responsible for future upkeep.

Now you’re three years in and, having received the state’s blessing, you can start grading the lots and preparing to build. Before you can grade the lots, however, you must have a permit. Once you grade the lots, you’ll need architectural plans for the spec homes (another cost), and you’ll have to pay to have utility hookups for each house. For a three-bedroom, two-bath, 2000 square foot house, permits are estimated to be between about $3,700 in the county and $4,200 within the Ukiah city limits. Sewer hookups cost $14,000 for Ukiah Valley Sanitation District Sewer and $12,000 for city sewer. Not including time and materials, water hookups range from $1,630 in the city to about $9,000 through Millview County Water District. Electric hookups depend on the number of poles and transformers needed to get electricity to each home. All of this before you put a shovel in the ground.

Finally, you’re ready to build. You must now hire a contractor and pay for labor and materials, plus follow government rules about which appliances you can choose, what type of insulation and windows you can install, and per recently passed legislation, fire sprinklers that will run you about $15,000, not including a monitoring contract.

When the dust settles, it would cost about $600,000-$700,000 to build a new 2,000 square foot home. For that price, you can buy yourself a nice home without the hassle and delay.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.