The TRUE Cost of Building

I’m frequently asked why we don’t have more houses available in Ukiah for sale or rent. Although the Realty World Selzer Realty property management division manages about 800 properties, we typically have almost no vacancies—and that’s been true for at least a couple years. The reason, of course, follows the laws of supply and demand. Although the demand for more housing is high, the cost of building it is higher.

Part of the reason for the high building costs is that City of Ukiah is still paying off a $72 million sewer upgrade debt from five years ago. Although I like the changes in attitude I see in our current councilmembers as they support policies to encourage affordable housing, we are all saddled with debt incurred by poor decision-making in years past.

When people try to build on a vacant lot rather than buy an existing residence, they are often surprised by how many fees and expenses they incur. Recently, the sale of an empty lot fell through because the costs of developing the property ran tens of thousands of dollars more than expected. I’m not talking about the cost of the lot itself. I’m talking about the regulatory costs associated with preparing the lot.

Here are some of the costs the buyers would have incurred for the simplest of building projects: putting a mobile home on a vacant lot.

  1. Sewer, water and electrical fees: $19,000.
  2. Sewer lateral and water line from mains to the property line: $10,000
  3. Installation of four street trees installed within five feet of the sidewalk with garden stacking blocks for watering: $3,600
  4. Storm water drainage mitigation (an infiltration ditch with gravel and berm at low end of lot to stop runoff – two feet wide by three feet deep with one-inch berm): $4,600
  5. Demolition of existing sidewalk and ADA-compliant replacement sidewalk around driveway: $6,000
  6. Excavation for utilities from house to sidewalk for underground utilities: $2,200
  7. Building permits: $4,500

This amounts to about $50,000, much of it includes things the owner would not have elected to do given a choice. While every new home needs sewer, water and electrical services, the hook-up fees and the cost of connecting to those services to the structure adds up to more $30,000. That is a lot of money.

Another proposal fell through when a developer wanted to build an apartment complex on the lot behind Rite-Aid in Ukiah. The sewer hook-up fees alone exceeded the contract purchase price for the land.

The bottom line is this: before we see new construction of single-family homes, prices for those properties will have to increase. We are still waiting for the current market value of a typical home in Ukiah to reach the value it held in 2007, before the housing bubble burst.

Once that happens, we still won’t see a huge construction craze because since 2007, inflation and regulations governing construction have consistently driven up building costs.

To support the cost of building a new 800-square-foot, two-bedroom, one-bath apartment, rents will probably need to rise to about $1,200 per month. While this is not a welcome idea for people looking to rent an apartment, it is just the simple facts of life when it comes to the cost of building a multi-family complex in the Ukiah Valley. There are a few apartment projects in the planning stages, but they are unlikely to go through until the developers are confident they will have the income to support their project. Based on the shortage of housing, particularly rentals, and the fact that there will be new construction in desirable locations, I think they’ll be able to achieve these numbers.

If you have questions about real estate investment, sales 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 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.

Just When You Least Expect It, Mendocino County Goes Business-Friendly

 

Once we make up our minds, many of us are slow to change them. I am certainly included in this, but I have to tell you, it’s time to correct some outdated ideas about our county.

During the last 25 years, many developers in Mendocino County have left town with a sour taste in their mouth. But starting with the populous of our community, working its way through elected officials, management staff, and the front line customer service people, Mendocino County has joined the small percentage of government entities who can honestly say they are business-friendly and interested in encouraging job growth.

This is NOT to say they’ve tossed out the rule book. They are not granting special favors or making bad decisions. What it does mean is this: if you have a development or business project that meets local standards for zoning and fits within established environmental constraints, this county is willing to work diligently to create an atmosphere of success for your project.

Going back three or four years, when local business man Ross Liberty bought the old Masonite property to relocate his manufacturing facility, the county staff and elected officials were not just helpful, but according to Liberty, their encouragement for him to complete the project bordered on harassment.

In fairness, Liberty was in the process of buying what many would have referred to as a sow’s ear—and the county was eager for Liberty to transform it. Now, that property is more like a silk purse. After that initial purchase, Liberty decided to buy most of the rest of the old Masonite property, and the county has continued to be wonderfully supportive. Since Liberty has been through this before, he has relationships with the people who oversee development projects in the county, so you might think that’s why things are going so smoothly.

Sure, it helps to know people, but I just spoke with the project manager at In-N-Out Burger. He didn’t know a soul in Mendocino County before this project, and he described his interactions with people at all levels of the county with words like “professional, helpful, realistic, and accommodating.” To me, this means our community has turned a corner. We now understand that for our children to have an opportunity to live and thrive in their hometown, we need jobs. To get jobs, we need industry. And for industry, we need some level of development.

None of us is willing to sacrifice our way of life for the sake of development, but I believe we have reached a sustainable long-term balance. Our next challenge is to facilitate the development of affordable housing for our children to be able to remain in the area. Be aware, when I use the term “affordable housing,” I mean it in the economic sense, not the political sense. We need market-priced housing that people can afford on salaries generated by businesses in Ukiah.

If we can bring those two things together, and I believe we can, Ukiah will once again be one of the best communities in which to live and work in our nation. Now if we can just get the City of Ukiah and the Sanitation district to come to resolve their disagreement, we can all move forward ….

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. 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.