City, builders come up with plan to energize new-home market

02/13/2012 5:00 AM

02/13/2012 6:06 AM

With new-home construction foundering and builders buried under the weight of taxes on unsold lots, the Wichita City Council on Tuesday will look at a plan to jump-start the flagging local homebuilding industry.

City staff is recommending adoption of a five-year property tax moratorium for the first 1,000 qualifying new houses built over two years. The city and the Wichita Area Builders Association started developing the plan in October in an attempt to reinvigorate a market that has stagnated with declining sales and tight credit.

Council member Jeff Longwell said Friday he will be disappointed if the plan doesn’t receive almost unanimous council support.

“We have been working on that literally for three months, and the reality is it’s a great plan to reinvigorate the residential homebuilding industry,” he said. “There are about 2,400 vacant properties that have all of the services to their front door and they’re empty.

“The last thing we want to see is these things go to a fire sale, and these are not small-time developers we’re talking about. These properties will get stagnated because of people sitting on their dollars not wanting to move forward. It’s a small two-year window that we hope will provide some emphasis for people to get off the fence and do something today.”

New home sales plummeted to 28 units in February 2011, the smallest number in years, but had rebounded only to 41 by December, according to figures from the South Central Kansas Multiple Listing Service.

Meanwhile, new homes on the market have dropped from 871 in January 2008 to 321 in December 2011. Builders said almost all of the activity was custom home building, producing the major inventory declines.

“We were down an awful lot last year, and I feel like demand will outrun supply soon so I’d like to see them approve it to stabilize our community,” said Brodrick Jayroe, president of Wichita-based Realty Executives.

The plan has no up-front costs to the city because properties will be built in participating developments with all general and special assessment taxes current through 2010. In addition, all special assessment and general taxes must be current at the date of a property’s sale and closing.

The program carries significant early costs in lost potential new property tax revenue to the city, according to city documents. The lost taxes would run $3,873 per house over five years for every new house valued at $200,000 with 2 percent appreciation, or a little more than $3.8 million if all 1,000 houses are built.

However, once the five-year waiver lapses, the city would gain an estimated $23 million in additional assessed valuation, or about $745,200 in new property taxes annually, according to city documents.

City officials also think the program should accelerate the collection of delinquent taxes, given the qualification standards. Currently, delinquent special assessments on vacant Wichita lots are estimated at $3.3 million.

The city’s timing could be excellent, given what some builders think is rising interest in new homes.

“More people are coming out and that’s encouraging,” said Brad Bachman of Brad Bachman Homes. “They seem to be considering building new homes, so every little bit might help.”

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