Mary Owens: The way forward for Nevada County: The complex housing challenges ahead
For nine months I have been writing about the housing market in Nevada County and how it has been impacted by four significant issues:
Stage Two Senior Migration, which are downsizing seniors selling larger homes and buying smaller homes.
These folks are frequently buying the smaller homes with “all cash.” Their “no qualifications” housing offers are more attractive to sellers than the younger buyers that have to qualify for financing. Families are finding it more and more difficult to find moderate priced housing options.
Too many people are trying to occupy too few moderately priced homes. If new families cannot find affordable housing, they leave the area. Their departure harms our local economy and negatively impacts our local schools.
Two very large younger generations creating steadily increasing housing demand.
They are either in the household formation years now or are about to enter it: The Millennials, born in 1977 through 1995 totaling 83 million; and the Digital Natives, born in 1996 to present, totaling 82 million and growing. These are two huge back to back generations who will dominate the economy for decades to come.
Their massive numbers are causing rental rates to rise and they want to buy a home as soon as they can in order to avoid the issues that I described in my article last month. Unfortunately, qualification standards to buy a home now are overly difficult since the passage of Dodd Frank.
The Gann Limit regulations that followed the passage of Prop 13 took control of local property taxes away from local government entities (schools, fire departments, cities, counties and other local public service entities) and placed it in the hands of the state.
The long-standing method of financially supporting our local governments primarily from local property tax revenues was changed in the late seventies. The state’s solution to replacing the reduction of property tax revenue was to force local government entities to rely heavily on housing “mitigation fees” in order to fund their local service delivery and expansion.
These increasing mitigation fees over time have added significant additional costs to home construction and substantial risk to developers. The amount of financial capital needed to build larger developments (similar to Morgan Ranch, which allow for more moderate priced houses to be built) has eliminated most developers from being able to justify the risk of such a large endeavor if the development is not located in a heavily populated area.
Last, but not least, the passage of Dodd Frank in 2010.
This bill was an overreaction to the financial crisis of 2008. Loose lending practices and excessive leverage, which caused the crisis, were not revised back to the reasonable standards that had been successful in regulating markets and lending practice in decades past. Instead, new standards were created that were overly harsh and have slowed the economy, particularly housing.
The most damaging impact to a single industry has been the non-publically traded housing developers. These are the folks that build homes in small towns. These are the folks that want to start building homes in your area immediately. They see the demand. They see the opportunity. But if they cannot qualify for the loans under these new harsh standards, they cannot get roofs up in our community.
Large national and regional housing developers are still able to get credit through other means, such as public credit offerings, however, the overwhelming vast majority of those larger companies are building in large heavily populated metropolitan areas. This leaves the local developers, that were building homes in our community, now finding themselves unable to start a new housing development for a variety of reasons. Obtaining financing is their greatest challenge.
This outline of issues is a summary of the articles I have been describing in historical detail since last fall. There is a purpose to my stories.
We, as a community, need to understand the issues and the depth of its complexity. We, as a community, need to support a group of community leaders that are coming together to find solutions to these problems.
This group of leaders includes educators, bankers, builders, developers, real estate agents, elected officials from the cities, counties and fire districts, tax analysts, local business owners, and bond advisors. Further input from the broad community will be needed and requested. I want everyone to realize the solutions to solving such complex problems will be complex themselves. It will require that all parties involved find a way to give and take to find a viable solution.
Not every solution will be perfect in everyone’s eyes, but we have to start somewhere in order to make progress. Much effort has already been put forth in order to understand the depth of the issues involved. Now the effort is being directed to creating solutions.
I am currently heading the new housing committee under the Nevada County Economic Resource Council’s three-year strategic plan. Later this month potential solutions will be laid out in detail within this committee. We will all learn from this process and gain further insights on additional potential solutions.
With the interest of he community in mind, there will be a lot of numbers that will be crunched and re-crunched for the best solutions to be found.
I am asking as a community leader that your input, your public comments, your voiced opinions will be respectful to all those who are giving of their time to find solutions. This collective group of industry leaders is volunteering to find solutions to problems that have been negatively impacting our community for years.
The plan needs to be financially viable or it will not work. Each leader representing their industry will require solutions that allow them to operate with financial security. Otherwise, no one will be able to build.
The fire departments will be expected to defend their need for funding to keep our homes safe. The educators will be expected to demand their schools be funded in order to keep the standards high. Developers and bankers will demand their risks be addressed so they do not face loan defaults and are able to stay in compliance with the existing banking regulations.
Business owners will be expected to stay focused on the need for moderate priced housing in order to attract new employees, keep them, and grow their business, which makes the economic community stronger. And builders cannot be expected nor asked to build homes without a reasonable profit for the risks they incur. Respect for all needs of the community must be addressed for a successful solution.
In May, at the Economic Resource Council Nevada County Economic Summit, I indicated that I wanted to be able to walk down the streets of our community twenty years from now and see lots of babies. I dream for such a sight because I know that the only way to have abundant numbers of children in our community is if we create an economic environment where young people can grow up and stay here.
They can raise a family in Nevada County because they can get a good paying job to support a growing family. This means two things would have had to happen to make that possible. One, expanding our local economic base in a manner that is more diversified than primarily relying on Stage One Senior migration from the San Francisco Bay area and L.A. for future growth. And two, creating a solution for moderate housing. More new roofs must go up. The first cannot happen without the second.
I look forward to seeing lots of babies in the future in Nevada County. I want the young families to be able to stay in the community that they love. A community that we all love.
Mary Owens, CPA, MS, principal, president of investments, branch manager RJFS with Owens Estate and Wealth Strategies Group, located at 426 Sutton Way Suite 110 Grass Valley | 530-272-7500. The information herein has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mary Owens and not necessarily those of RJFS or Raymond James.
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