While the metro-area housing market appears poised to improve in 2013, at least one big problem looms on the horizon. A lack of developable lots may suffocate new home construction, according to Wally Remmers, vice president of Arbor Custom Homes.

“The lot shortage is very real,” he said. “I’ve been in the industry a long time and I’ve never seen anything like this … We’ll be in the situation over the next 12 to 24 months where there won’t be enough lots for the amount of buyers that will be in our market.”

The simple reason is that no one has developed land for home construction because of the recession. Remmers said that when the economy fell apart, much of the land went to banks. Over the past few years, banks have sold that land to developers at significant discounts, and builders have added housing.

Now, little exists for new construction.

“That’s actually a subject of considerable concern for us,” said Jon Chandler, CEO of the Oregon Home Builders Association. “There’s not much in the pipeline in any place in the state … the foreclosed inventory has been burned through, not much has happened since and the banks are not lending money. So we’re kind of stuck.”

Chandler said that even if development were to start today, the process to secure necessary permits and entitlements could last two years. And while banks have begun lending for home construction, they still believe land development is too risky.

John Satterberg, president of Community Financial Corp., a financial institution specializing in construction and land development, said he is aware of the looming lot shortage. Community Financial has made several development loans over the past year and Satterberg said money is available for the right place, the right borrowers and the right product.

“Single-family houses are selling like hotcakes,” he said. “We’re seeing multiple offers … 60 days prior to (construction) completion. It’s a really good market right now.”

With that said, Community Financial prefers to make loans to builder-developers rather than parties looking to develop lots on spec. Developers should come to the loan table with at least 20 percent cash in hand, he said.

The lot shortage shouldn’t be a problem for Arbor Custom Homes. The company is in the process of acquiring entitlements for 700 new units in the North Bethany area – an undeveloped neighborhood with a master plan adopted by Washington County. Arbor hopes to break ground in May or June 2013 on developments that include 125 single-family homes, 131 townhomes and 420 condominiums or apartments.

The company presently is developing 335 units in the Arbor Oaks neighborhood. The company has already built and sold 300 homes there, and Remmers said demand is growing by leaps and bounds.
In 2011, the company sold 30 homes in Arbor Oaks. In 2012, it sold 120.

“The difference is, in 2012 I could have sold way more than that,” Remmers said. “I just didn’t have them. I didn’t have the lots.”

Remmers said that while the company projected 350 starts for single-family homes and apartments in 2012, it has started 372 – the most since 2008. All of those homes have been sold and now the company is fervently pushing dirt to make room for more.

Arbor’s new homes will be priced between $150,000 and $500,000. Remmers said he looked forward to introducing affordable homes to the area, while maintaining its focus on luxury living.
Arbor has streamlined development in Washington County, where it sees the most opportunity for growth – especially with Nike and Intel expanding. As a result, Remmers said, Arbor has reduced its debt and increased relationships with lenders. That promises to keep the company and its vendors busy over the next year.

But for companies that don’t possess land or the ability to put a significant down payment on a loan, 2013 could be a tough year, according to Remmers.

“Banks will loan on buying a new house, or a builder to build a new house, but they don’t want to loan on land development,” he said. “It’s too risky and they’re not there yet.”

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As the person in charge of land acquisition and project planning for Oregon-grown home builder , Wally Remmers, the company’s co-founder and vice president, needs to keep a close eye on the residential real estate market.

Right now, his eye is on the North Bethany area.

“We’re really refocusing on concentrating our growth and our development into the Washington County areas now,” Remmers said. “The combination of great schools, good land holdings that we have and all the job growth that’s in Washington County, it’s just been a good situation for us and one of the reasons we’re focusing on it.”

To help narrow that focus, Arbor announced in December that it was selling much of its surplus properties – in areas like Wilsonville, West Linn, Sunnyside, Tigard and Tualatin – to two of its competitors, and .

Remmers said the company has 2,600 lots in Washington County: Construction is under way on a group of 500 lots, two groups will be released to the market early in 2012 and work is expected to start on four more groups next summer. Arbor also plans to build 193 luxury apartments in North Bethany next year.

The plan is aggressive, considering the general state of the industry.

Prices drop, sales increase

According to the S&P/Case-Shiller Home Price Indices – a leading measure of U.S. home prices – 19 of the 20 metropolitan cities covered saw home prices decrease from September to October 2011. In the Portland-metro area, values dropped 0.5 percent in October and were down 4.7 from a year ago.

Additionally, Portland State University’s Center for Real Estate third-quarter housing report found that the median sales price of homes in the Portland area had declined 6.1 percent from September 2010 to $222,500.

But while prices across the board are down, activity is up.

PSU’s quarterly report also found that the number of transactions in the Portland-metro area had increased 14.8 percent over the year, while the United States Department of Commerce reported that new residential sales across the nation were up 8.9 percent from October 2010. Commerce also reported that housing starts were up 24.3 percent from November 2010, and that the national market was sitting on a six-month supply of inventory.

For Remmers, that’s a clear signal that it’s time to get busy.

“The real significant thing in this market is that we’re sitting on a six-month supply of inventory and we’ve been there for some time,” he said. “That’s down significantly from what it was at one point in time.”

Remmers said a six-month housing supply represents a good market balance for buyers and sellers. Adding to that mix, he said, is the fact that the glut of foreclosed and distressed homes was also starting to thin out – foreclosure filings in Oregon decreased 36.6 percent from September 2010, according to PSU’s housing report.

The land crunch

Compounding all of that is a looming land shortage that Remmers believes will hit the Portland market late in 2012.

“It’s going to be an interesting time coming up here because when you say you want to do a subdivision, you don’t just walk out there and start pushing dirt around,” Remmers said of the lengthy application process that precludes any potential housing community. “It’s going to take a while to bring land to the market, even when people decide to do it, and there’s not a lot of movement, there’s not a lot of applications being submitted for new subdivisions, even yet.”

Remmers said the land shortage is because few developers were able to secure financing this year.

He said Arbor hasn’t had that problem, but it has felt the pinch.

When the recession hit, the company went from selling as many as 850 homes in 2005 to as few as 217 homes in 2010. The company responded by shrinking its operation, which allowed it to cut expenses and pay off debt.

Remmers said Arbor’s ability to stay nimble has given it an advantage over larger, slower-moving, publicly traded companies and has helped it maintain access to financing.

“I think that helped us a lot back in the boom years when things were really starting to expand and I think it’s helped us to shrink as well,” he said.

Another change the company has had to make is in the way it markets and sells its homes.

Whereas 80 percent of its business formerly came from plans and specs that people ordered after walking through model homes, 80 percent now comes from spec homes, in which the company makes the decisions about things like carpet color, countertop material and the type of window blinds. Remmers said he thinks that trend represents consumers’ general nervousness about the housing market.

“People want to see it, they want to buy it and they want to get a loan on it right now,” he said.

At least, that’s the company’s hope, and it’s gearing up for the crunch.

“There just isn’t going to be the supply out there where the buyers can shop and take their time and dicker,” he said. “They’re going to start seeing houses selling out from under them. They’re going to start seeing multiple offers coming in on houses. That’s going to change the dynamics of the business.”

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The 109 people who voted in the unincorporated North Bethany area of Washington County on Tuesday night overwhelmingly approved a permanent property tax rate to help pay for transportation needs in the area pegged for extensive development.

Measure 34-189, which 73 percent of the voters approved, creates a tax rate of $1.25 per $1,000 of assessed value on the 851 acres that make up North Bethany. The tax is expected to generate $13 million to help pay for the $69 million outlined in Washington County’s transportation plan for the area.

Earlier this year, the Washington County Board of Commissioners passed an ordinance that outlines the future plan for North Bethany. The plan allows for 4,650 housing units to be built on 700 acres, or about 11 housing units per buildable acre.

To fill the rest of the gap, county staff has proposed adding a transportation system development charge to be paid by developers when building out the housing units. The transportation SDC would cost roughly $13,000 per single-family dwelling.

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The Washington County Board of Commissioners last week preliminarily approved a land-use ordinance that will guide the future development of North Bethany.

But there was a catch.

In order to meet a deadline, and set the stage for development to potentially start next year, the ordinance – Ordinance 730 – was approved with a number of details still undecided.

The known details in the ordinance call for about 4,650 housing units to be built on 700 acres. That pencils out to 10 to 12 housing units per buildable acre, according to Desari Strader, the county commissioner for district 2, which covers North Bethany.

“While this is definitely influential in the development of North Bethany, I think it also sets a precedent for future growth in Washington County,” she said. “In order to keep prices down we need to be smarter about future growth, and that means more compact growth.

“The days of three-quarter-acre lots are over. I think you will see this new model play out in Bull Mountain as well as any other future unincorporated areas that are developed.”

Undetermined details include the size of setbacks, the specific alignment of roads and building variety and design standards.

One place-holder is the determination of how to weave the urban development into an agricultural fabric. The commission has proposed creating a transitional buffer zone, but wants to discuss it with stakeholders over the next year.

“This ordinance gives the development of North Bethany its primary structure,” said Mike Dahlstrom, program educator of the Washington County long-range planning division. “Now we just have to tie up some of the loose ends as we discuss with the stakeholders and start development.”

The team had to push for approval by the end of the month to meet the Nov. 1 deadline for ordinance approval in Washington County. Ordinances can be approved from March through October, a nine-month period that county staff calls ordinance season. The time frame is arranged to allow county commissioners time to prepare and follow up on approved ordinances.

The ordinance’s approval afforded the five commissioners a chance to vote on it before two of them – Strader and chairman Tom Brian – finish their terms in December.

“We were hoping everything would be nailed down by this time,” Dahlstrom said. “But just getting the approval … saves us of the risk of having to go through the entire process again next year with a completely different board.

“We owed this getting done not only to the board, but the developers and nearby residents as well.”

The final two hearings for the ordinance will take place during board meetings on Oct. 19 and Oct. 26. Then the board will focus on securing the $69 million needed to fund the public services for the project. This will go before the board as a resolution and order.

The county is proposing to pay for the services via a transportation system development charge and a County Service District. The system development charge – which would cost about $13,000 per single-family dwelling – can be approved by the board, but the County Service District would be subject to a county vote in May 2011.

County staff is confident that development could start next year in the parts of North Bethany where services exist.

“Development can start 30 days after the ordinance goes into effect,” Dahlstrom said. “Development can only occur in a few places, but that actually helps us. Once a few lots are developed, and those SDCs are paid, we can start building the roads and sewers into the development. This system allows us to supply public services at the same pace as development occurs.”

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After three years of planning and trimming a budget for roads and public facilities by more than 75 percent, Washington County staffers are anxious for development to start in North Bethany, a 700-acre unincorporated area within Washington County’s urban growth boundary.

Staffers last week asked the Washington County Planning Commission to forgo one of the three planning commission hearings on a land-use ordinance and funding mechanism for the development of North Bethany; the move will cut 45 days out of the process. While the county values public input, staffers say it’s time for the project to move ahead.

Timing is one of the main reasons. The plan calls for construction of 4,650 housing units, which would create much-needed jobs. Senior planner Andrea Vannelli said the county team is ready to wrap up what has at times been an exhausting process.

“From soup to nuts, this project has taken a long time,” Vannelli said.

North Bethany is north of Portland Community College’s Rock Creek Campus, and is bordered to the west by Northwest 185th Avenue and to the east by the Washington County line. Since the area was included in the urban growth boundary in 2002, the planning commission, county commissioners and citizen stakeholders have been working to develop property that is mostly green grass dotted with a few rural houses.

But creating a plan that identifies the land-use designations and transportation needs is just one step. Another one, paying for the project, has not been determined yet.

“This is an area of rocks and cows, and we want it to become a distinct, unique community,” said Mike Dahlstrom, Washington County planning division program educator. “We’ve had 29 meetings over the last year with developers, community members and staff to come up with a way to fund the public services and implement the plan, and we now finally feel confident that we can bring the options to the planning commission and county commissioners.”

Dahlstrom added that normally the county would want as much public input as possible when developing an ordinance and plan this big. But considering the amount of public participation over the past three years, staffers felt comfortable moving ahead, he said.

In 2007 county staffers estimated that they would need close to $289 million for development. After reprioritizing the list last year, the estimate was trimmed to $103 million. Even though the county has only $69 million at this point, it still wants to move forward.

“The funding has been a challenge, but the key challenge from a community standpoint is how long the process has taken,” Dahlstrom said. “And quite honestly, it has taken a really long time to get to this point.”

The planning commission will hear the staffers’ plans to raise the $69 million during two meetings – on Aug. 11 and Aug. 25. Citizens will have one last chance to provide input during a community workshop on July 28.

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Washington County’s board of commissioners today will continue to hear testimony on funding strategies for the North Bethany Subarea Plan.

North Bethany, located north of Springville Road between Northwest 185th Avenue and the Washington County line, was added to the county’s urban growth boundary in 2002. The county for the last few years has been developing a comprehensive plan for North Bethany, as well as codes to guide development within the 800-acre area. Future plans for development include parks, open spaces, schools and other neighborhood services.

“North Bethany is your typical, rural-edge kind of community,” Washington County senior planner Andrea Vannelli said. “There are a lot of farmstead-type houses and a nursery. There’s a range of urban services that need to be provided before the area can move forward. It doesn’t have sewer or water service.”

The county wants to use transportation system development charges, one-time fees that would be charged for new development within the North Bethany area, to close a funding gap for transportation infrastructure. Vannelli says that if adopted, the charges could bridge two-thirds of the gap. The county also has considered making North Bethany a County Service District, which would continually tax residents in the North Bethany area and provide ongoing funding for road maintenance and other projects. However, three Washington County commissioners said at a meeting on Aug. 18 that did not support designating North Bethany a CSD.

“A CSD requires an extra layer of government,” Vannelli said. “It does have the potential to do more than a (system development charge) because it continues to provide funding for ongoing costs. But several board members have asked us to look at other options.”

Today’s meeting will be held in the Charles D. Cameron Public Services Building Auditorium, 155 N. First Ave., in Hillsboro, at 10 a.m.

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