New home permits in area down almost 30%

New home construction during the first 10 months of 2012 has dipped almost 30% over the last three years, according to building permit reports from Fort Smith, Greenwood and Van Buren.

Election uncertainty, tighter lending restrictions, dwindling profit margins, a “stimulus hangover” and an “anti-development” local environment, were among the various causes cited by area real estate professionals in recent talks with The City Wire.

The majority of the plunge occurred during the 2011-2012 period with total valuations for the three cities faltering to $39.045 million from $50.234 million in 2011—also down from $54.189 million in 2010.

The most significant drops came from Fort Smith and Greenwood, which have struggled since 2010 highs. Fort Smith took a hit to $27.112 million during the first 10 months of 2012 from $35.912 million during the same period of 2010 (-24.5%), while Greenwood plunged to $7.406 million in 2012 from a $12.322 million high in 2010 (-39.9%).

New home construction in Van Buren also sputtered, logging a decline to $4.525 million from $5.954 million during the first 10 months of 2012 and 2010, respectively (-24%).

‘RESIDENTIAL DECLINE’
“In residential there’s no denying that our numbers have declined in the last five years starting in 2008,” said Dave Hughes, executive director of the Greater Fort Smith Association of Home Builders (GFSAHB). “We hit our peak in numbers in 2006 and 2007. Part of it has been that several developments were put on hold. The ones that are open, like Chaffee Crossing and the developments that are out there, have been doing quite well. Probably 70% of the activity has been out there. That tells me there’s anticipation of a turnaround because at some point you meet the demand of saturation. In other words, you have taken all of the new housing out that the market will allow you to take.”

Hughes also believed “there was anticipation” over the Nov. 6 General Election.

“I think a lot of people held back. Some people were waiting for lower interest rates, because the rates had been on the decline for most of the year, and they were waiting to pull the trigger to get the very best deal they could on the mortgage rate, which we’re there now.”

Hughes also said “banks are under stricter guidelines for loaning money for new construction unless it’s pre-sold.”

“That has affected the number of spec housing units that are available on the market. Builders like to keep a certain inventory on hand for the buyers that come in to town who are needing a home right now and don’t want to do a custom home. There are fewer of those spec units available because of the tighter financing. We’re still meeting the needs, but some people are having to wait to get the house built, whereas before we had the house ready for them,” Hughes said.

‘STIMULUS HANGOVER’
Developer Rocky Walker believed the slowdown was due in part to “stimulus hangover.”

“2010 was a pretty good year for construction because of the First-Time Homebuyers Tax Credit, and we had a good 2010, but what happened is in 2011 you had a hangover, and a lot of demand got ea10 up.”

Walker called tax credits “a drug in the economy.”

“It’s like when you’re on a caffeine high. You come down off it, and you’ve got a headache, and your energy goes to nothing. That’s kind of what a tax credit does for the economy. As a developer I’d much rather have a consistent policy in place and let the market work itself out.”

‘THIN MARGINS, ANTI-DEVELOPMENT’
In his own business, Walker noticed new home construction was off in 2011 and “the first third of 2012 was dead,” but that “it’s picked up during this part of the year.”

“The really disturbing thing to me is that profit margins continue to decline. Even when you sell a house, profits are thin. The bank wants you to make a lot of money, but it’s almost not worth the risk to do what we do. Throw in the climate in the city of Fort Smith—they’re very manic in the way they look at things, very anti-development. Not the departments themselves, but the politicians, the board of directors. We’ve got a couple of guys coming on in January (to the board) that are very pro-business in Mike Lorenz (Ward 3-elect) and Keith Lau (Ward 1-elect), and I’m very excited about that, but it’s definitely not a pro-developer environment,” Walker said.

One specific incident Walker cited is the board’s denial of his and partner Aaron Wirth’s Free Ferry Commons, a 56-unit multi-family development, which would have been located at 900 S. Waldron Road in Fort Smith had the board not nixed the plan due to “incompatibility of the development” with the surrounding area as well as “parking and density concerns,” Walker said.

At the Sept. 4 board of directors meeting, Walker countered with a letter from City Attorney Jerry Canfield, which stated that “argued incompatibility of the development plan with other, nearby properties, are not appropriate factors in performing development plan review under the section.”

Walker also countered the traffic argument by stating that two studies conducted by Traffic Engineering Consultants, Inc., in 2010 and 2012, found “virtually no effect on the intersection of Waldron Road and Free Ferry” (2010) and that traffic had decreased in the two years since.

“It’s very frustrating,” Walker said. “You spend a lot of money, yet they turn it down because someone doesn’t like it, and that’s the overall attitude.”

Walker is in litigation with the city over its refusal to allow the development in spite of the presented plan “conforming to the law and within the city’s unified development ordinance.”

“We’re ruled by law, and if you conform to the law, you should be able to do your project. I’ve sunk close to $40,000 into this project with attorney fees and a development plan and engineering, and it’s a shame because I really can’t afford to lose it,” Walker said.

The plan was opposed at the September meeting by attorney Tom Robertson, who represented more than 30 area residents in attendance, adding that the citizens were against the development on concerns of “drainage, traffic, safety and devaluation of their properties.”

Fort Smith City Administrator Ray Gosack said the city is obligated to balance the interests of all parties involved in such issues.

“The City of Fort Smith values private investment made in the community,” Gosack noted. “New development is necessary for any community to thrive. We strive to administer the development regulations in a way that balances all legitimate interests. Controversial development projects result in competing, and sometimes conflicting, views between developers and nearby property owners. The board of directors has the responsibility to consider these diverse positions and make decisions in the overall best interest of the community.”