Tennessee homebuilders are encountering a myriad of economic and regulatory issues that affect the industries.
Now that the federal shutdown is over, the big issues in the state are annexation and vesting.
Home Builders Association of Tennessee Executive Vice President Susan Ritter talked about some of the issues Thursday evening during a legislative open house at the Ocoee Region Builders Association.
The annexation issue surfaced locally when ORBA criticized the city of Cleveland in March for what it considered “fast tracking” annexation to avoid proposed legislation in the Tennessee General Assembly. Senate Bill 270 would require annexation only by referendum of affected property owners. While local builders supported the bill, they were concerned cities in Tennessee were fast tracking annexation in case the bill became law.
“Our concern with that bill has everything to do with annexation of a development that’s not done or in the early stages,” she said.
In cases where a developer is working on a project according to rules established by the county, everything could change once it is annexed into a city that has different standards for roads and setback requirements, for example.
“Those things add up to delays and increased costs,” she said. “We’ve been watching that conversation and waiting for the report.”
The bill is being studied by the Tennessee Advisory Commission on Intergovernmental Relations while the General Assembly is not in session.
“We are watching the conversation very closely to determine their recommendation will be,” Ritter said. “That particular legislation put a moratorium only on residential. It’s not on farming and it’s not on commercial.”
While the state builders association had nothing to do with S.B. 270, they are supporting a bill concerning vesting.
“By vesting I mean that once a developer gets preliminary approval, they are vested in that project and they have five years to get started. Once they do that, they have 10 years to complete a single-phase development and 15 years to complete a multiphase development,” she said. “We believe the vesting bill will fix annexation. When we introduced that bill, it was unrelated to annexation, but it will fix it.”
Builders have expressed concern that annexation affects a whole range of issues including financial arrangements, lot sales and tax structure. In addition, builders have no assurances the plats and plans approved by Bradley County would be accepted by the city.
Builders have the ability to sell county developments through the rural development loan program available through the U.S. Department of Agriculture. That program is unavailable in the city.
City staff has said it would honor county standards if developers have preliminary plat approval at the time of annexation.
Ritter cited one example of a builder having to make 24 changes after a county granted preliminary plat approval. The changes delayed the developer’s progress, which cost money.
“Here’s the situation. If the cost of making a change is less than it would cost to go to court, the developer throws his hands up and just keeps the development going,” she said. “When it’s a big deal, we’re dependent upon the courts as our only relief. Right now, we have no protection for developers when it comes to vested developments, except the courts. That’s why we’re requesting this vesting period.”
Ritter said the building industry is picking up in pocket areas around the state. She described the industry’s condition as two steps forward and one step back.
ORBA’s past president, Charlotte Peak-Jones, said the local industry was not affected by the recession like the rest of the state.
“We’ve held steady,” she said. “The ones that were in it for the long-haul have survived,” Jones said. “The ones who were working at it on the side to do a house here and there, they are no longer building.”
Ritter said development loans are still tight, especially among the larger nationwide banks.
“I think community banks seem to be less restricted,” she said. “That’s the big thing is banking. I think they (big banks) are going to realize soon that they are going to have to shift their portfolios.”
Jones said, “You can do better by going to a local bank.”
Ritter pointed out that FHA, VA and other government-backed loans were slowed during the government shutdown.
She said the industry is getting better. It is not good, but it is better.
Getting skilled workers to return to the job and the availability of lots are two issues the industry will soon face.
“Skilled workers have either gone to another industry or they’ve left the state,” she said. “The other is going to be lot availability.”
Developers quit building when the money got tight.
Jones said, “Annexation is scaring developers and banks are not loaning money at 80 percent anymore. I think it’s less than that.”
The trickle down is that when someone gets ready to build a new house, there is not going to be an available lot.
Probably in 2015 or 2016, you’re going to see lot shortages,” Ritter said.
Jones said there are only two major developments under construction in Cleveland.
“We’re going to see a shortage pretty soon,” she said. “With the influx of everyone coming here to work, we’re going to see a shortage shortly.”