On the Economics of Subdividing and Development

by jhwygirl

Bob Jaffee’s listserv made mention the other day of the city council’s desire to possibly have a presentation put together that would help them better understand the economics of subdivision and development in Missoula.

How much money are these guys really making? When they tell us a particular variance is needed to make the project pencil we really don’t know when they are BSing us. It would be nice to organize a meeting with some builders and developers and planners to help give us some perspective.

Now, aside from wondering why or how much the profit of a developer should factor into any particular decision made by the city council or the planning board or the Board of Adjustment, etc., I got stuck on the “meeting with some builders and developers and planners” part.

Aren’t these the guys whining? (I’m assuming that the “planners” he speaks of are from the private sector.)

If council wants to get a full picture of the economics of development here in Missoula, perhaps looking at all those involved and contributing to the development process from the beginning might get them a better more complete picture. First there’s the realtor who sold the land to the buyer. Then there’s those planners, developers, surveyors and buildings. Then there’s the realtor that sells the finished product, and then there’s the mortgage lender.

In fact, the mortgage lender I spoke with a few weeks ago had quite an insight into the development and subdivision activity in Missoula – after all, they not only finance the purchase of the land, they finance the purchase of the houses that were built on the land that they financed.

OR, another option might be to sit down with HomeWORD or someone from the Housing Authority. They buy land at market rates, they hire planners, surveyors, builders, and then they sell the finished product. Obviously, they utilize some subsidized funding for the sale – but talking to those agencies that buy the land, pay the bill, and then sell might get City Council a bigger, better picture of development and subdivision in Missoula.

I’m a cynic, I know, but wouldn’t talking to all of those people also get a more honest picture then just getting the picture from developers, planners and builders who are, rightfully, trying to make as much money as possible?

  1. goof houlihan

    It might be clearer who is losing money in development once the shake out, shakes out.

    There’s a lot of risk in that business.

  2. Just try to get local builder to give you a ballpark in price/sq ft. “Well it depends on…” Of course it depends, but when they talk among themselves they know if it’s at 70/sf or 80/sf or whatever.

    And now price of lumber has dropped like a rock and I’ll bet drywall has too. Builders in other parts of the country are settling for smaller margins just to survive. Yes let it shake out – no one sign anything yet!

  3. “aside from wondering why or how much the profit of a developer should factor into any particular decision made by the city council or the planning board or the Board of Adjustment, etc”

    I’m wondering the same thing. I’ve been under the impression that the role of the council is not to squeeze as much out of projects as possible without killing them, but rather to determine whether a particular project is in the public interest. Let the good ones pass, and don’t budge on the bad ones.

    If a developer claims they need some figure to be profitable, shouldn’t the council just ignore that statement entirely? Not even factor it into the decision. The market should sort the question of profitability out itself.

  4. carol – you’re reinforcing my point! asking the builders and developers to go on record as to their costs (as opposed to their billing of their clients) would be like trying to get blood from a rock. “Good luck with that,” is what I say.

    daniel, goof – I’m trying not to go on forever with my posts….it’s not that it isn’t something that the council should try to understand – what does it cost to subdivide, to develop, to move that road, to remove that lot, etc. These guys and gals work with each other for a greater portion of what each of their jobs are and it only makes sense that they should understand how it all works.

    that being said, they shouldn’t be approving variances on “hardships” that aren’t self-imposed. Stacy Rye had a nice little speech during last night’s council on variances and hardships. Sure wish I had taped it – as she was speaking it I thought that, as she articulated it so well.

    She did it so well, in fact, the variance being requested was denied. Had to do with sidewalks and boulevards.

    ANOTHER kudos to that hard-working council goddess!

    I digress…..”If a developer claims they need some figure to be profitable, shouldn’t they council just ignore the statement entirely?” I’d agree with that Daniel. Council’s decisions should be based foremost and primarily on the rules and regulations in place. If you look at the types of things that they want to vary from, most of them are getting them bigger lots or more of them.

    Even last night’s variance on boulevard width would have visually added to the size of the lot – thereby increasing its value to the buyer.

    On the other hand, they shouldn’t be randomly redesigning the roads, for example, because they don’t like the design their looking at. That kind of stuff is costly, no doubt. I haven’t seen that type of stuff, though, to be honest.

  5. goof houlihan

    don’t get me wrong, jhwygirl. I think the council should be quite familiar with risk and return analysis as well as other economic factors. I DON”T think they should be determining levels of profit…they aren’t determining levels of risk, after all.

    Still, for any affordable housing ordinance to be rational, there will have to be an understanding of the basic risk and economics of developing and building.

    Also, granting variances is all about unique hardships not shared by others, among the four variances, and “not being able to make enough money” ain’t one of them.

    “developers make too much money” or “we can’t make enough money” aren’t items of consideration written into Montana’s subdivision and zoning laws. However, variances are, and meeting the findings needed for granting a variance aren’t that subjective. The law’s the law, and it should cut both ways.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

  • Pages

  • Recent Comments

    Miles on A New Shelter for Vets or an E…
    success rate for In… on Thirty years ago ARCO killed A…
    Warrior for the Lord on The Dark Side of Colorado
    Linda Kelley-Miller on The Dark Side of Colorado
    Dan on A New Shelter for Vets or an E…
    Former Prosecutor Se… on Former Chief Deputy County Att…
    JediPeaceFrog on Montana AG Tim Fox and US Rep.…
  • Recent Posts

  • Blog Stats

    • 1,675,945 hits
  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 2,737 other followers

  • January 2008
    S M T W T F S
  • Categories

%d bloggers like this: