October 7, 2004
Creative builders take on changing land rules
By RANDY BLAIR and STEVE CALHOON
This year, as Washington's cities and counties update their comprehensive plans, it is a good time to take a look at the changes in the land development process. Though many factors come into play, in Western Washington we continue to be challenged by increasingly complex regulatory changes and diminishing quantities of buildable land.
Intended to maintain rural areas and focus growth in urban ones, the Growth Management Act of 1990 has had significant influence on land development. The combined effects of recession and recent voter initiatives have reduced the tax revenue base that funds county and city infrastructure. Communities are struggling to fund needed improvements for aging infrastructure as well as meeting the demands of increased growth.
The good old days
During the 1950s and 1960s, development was simpler and less expensive. Fewer disciplines were needed to bring land to market. Besides the developer, a civil engineer, a land surveyor and a real estate attorney did the job.
With the 1970s' Environmental Policy Act came the need for community involvement, environmental specialists and land use attorneys. By the mid-70s road capacity became an issue, adding transportation consultants to the team.
Each discipline needed to take a land project through development adds complexity, cost and offers additional places for delays.
Vacant or underutilized land is in short supply in the Puget Sound region. Multiple developers often pursue the same properties. Because there are few large land parcels to be had within urban growth areas, some privately owned golf courses have been converted to residential land.
The demand has increased some residential land values to equal or higher values than industrial land. In some cities, developers and public agencies are changing industrial land over to residential uses and adding needed revenues to the tax base at the same time.
As a courtesy for a homebuilder seeking land, W&H Pacific recently completed a land supply review of county buildable land reports. The study evaluated available property within the growth management areas of King, Pierce and Snohomish counties.
The study was complex to evaluate because there were natural differences between the jurisdictions' interpretations of the guidelines. The payoff is that sometimes 10- to 20-acre parcels can be assembled from adjacent underutilized land. Each client has a minimum number of lots or home sites that make a project economically feasible.
Economies of scale impact homebuilders. The front-end costs are nearly the same to develop 20 acres as 50 acres. The process demands a lot of expertise: geotechnical analysis, civil engineering, land surveys, environmental wetlands and Endangered Species Act studies, land planners, land use attorneys, real estate attorneys, traffic analysis, community involvement and public relations specialists. Typically, land that yields 65 to 75 lots is the minimum size to be economically feasible for mid-sized builders.
Complexities of permits
For a land developer evaluating raw land for purchase, the permit process has become less predictable while the risk involved has become correspondingly higher. The process is more complicated and unpredictable because of the number of permits required. In addition, federal, state and local regulations may conflict, or contradictory regulations may exist within the same jurisdiction.
The situation has improved from 10 years ago, but it still affects the ability to predict the amount of developable land available in a parcel, or the time needed to obtain permitting for development. For example, a local agency may require a 75-foot stream setback, but the state Department of Natural Resources may require a 130-foot buffer. It is important to determine the correct setback to expedite permitting and to manage predictability and risk.
The difference in setback can change the lot yield and design of the project. A knowledgeable consultant can guide the process and help acquire preliminary approvals and construction permits from the local jurisdiction, and apply to DNR.
Strategies for today's market
Today the cost of land has gone up due to lack of inventory and increased development risk. Builders have become more strategic in their search for land to develop. Most hire consultants early to help them understand constraints and opportunities on individual properties.
It is a challenge to stay current with land use regulations. They are always changing and they vary from county to county and city to city. For example, W&H Pacific is working to get a 30-lot subdivision vested before the regulations change at year's end. Under the new code, 15 percent of the lots may be lost.
To help builders manage their risk, consultants should work closely with them to understand their objectives, housing types and targeted market areas. When a potential site has been identified, the consultant should act quickly to identify the factors most relevant to the builder's needs and offer an initial opinion on the opportunities and risks. If a site is being pursued, the consultant should continue to develop the best options for lot layouts and yields. This provides greater clarity for the go/no-go decision.
Although they are fewer, there are still opportunities for large master planned communities. Large land parcels exist in the Puget Sound area. The GMA allows for planned communities to be developed outside urban growth areas, called fully contained communities.
Another current strategy is educating sellers about the development potential of their land. Most sellers don't understand the development codes, environmental constraints and buffers that reduce the amount of land to be developed on a property.
Many builders are finding that they need to develop a relationship with the seller of the land and take them through the process to help them understand what their land is worth and what it will take to develop it. There is an opportunity for builders to develop relationships with sellers and for sellers to understand how to maximize their return on their undeveloped land.
We all want to live in communities that work. Thriving neighborhoods have a sense of place and engender pride in the people who live and work in them. As a community, our ongoing discussion needs to find points of agreement and to facilitate the discussion about how to get there.
Today, large land development projects are the exception not the rule. To assist developers, consultants need to quickly evaluate the opportunities for a piece of land, as well as creatively plan how to maximize the number of building lots.
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