What keeps housing and rebounding?

What keeps housing from rebounding?                                                    4/29/2008

http://www.integrityrealty.net/

joel@joellawson.com 

As a real estate broker in a poor market, I've tried to investigate why builders continue to flood the market with new homes.  I have asserted in the past that supply and demand dictate that the supply needs to be reduced to meet the demand.  My question was, why do homebuilders continue to build?  I received a few replies to my blog suggesting the following.  One suggested that the large builders still had contracts with subcontractors that made it necessary for them to continue to build.  Another suggestion was the large builders had purchased large tracts of land and needed to continue to build for that reason.

Recently I heard the answer that I believe is more close to the true reason and here it is.  Due to excessive government regulation (or what I call big brother influenced by the no growth faction) a builder explained to me that it takes two to four years to get through the costly subdivision and permitting process.  Because once these permits have been obtained, there is a certain deadline to begin construction.  If the builder does not continue and at least start the project before this deadline passes, they will have to begin this nightmare process again, loosing many thousands in the process.

Another interesting development in our area, is the power company making power extensions more expensive. The power company in our area has gone in a years time from first doing away with a free 1000 foot extension, and instead offering a $5,000 allowance toward construction cost.  However, the power company controlled the construction through their in-house contractors.  I'm sure most of us can imagine with the power company controlling the cost of construction, it would not be hard to get this $5,000 allowance back with  a higher estimated construction cost.

It is my understanding that the power company convinced the Corporation commission that they could hold rates down.  Or would not need to raise rates as much if they could do away with these free power extensions.  As I told the Corporation commission staffer, they will get that back in six months, when they come in for the next rate increase.  Which they did.  Not only have they gone back for another increase.  They also have done away with the $5,000 allowance toward construction.

I've heard several examples of extensions that would have been free a year ago.  Now being $20-$30000.  And we wonder why the cost of homes have not balanced with the market.

The cost of excessive government regulation, ridiculous permitting requirements and time frames, and the no growth factions working through the government and the semi-governmental utility companies are all passed on to the buyer's.  Worse than that most people must finance their new home.  So in the end, they finance this additional cost over a 30 year period and pay interest on it inside their loan.

Next time you ask yourself why the housing market has not rebounded you might consider the examples above. What the no growth factions are too shortsighted to see, is their children and grandchildren will suffer the inability to afford housing, because of their ill thought out politics.

Joel Lawson