Add Derby to the list of Wichita-area cities that have or are considering property tax rebates to jump-start the flagging new-home industry.
The Derby City Council on Tuesday night began talks on two possible property tax rebate plans to anyone buying a new house there. One is a five-year plan similar to the plan enacted in February by the Wichita City Council, and the other is a 10-year plan on a sliding percentage scale from 100 percent in the first year to 10 percent in the 10th, said Allison Moeding, the city’s economic development director.
The proposals will return before the Derby council on March 27 for further discussion.
Similar programs are in place in several area cities, including Maize, where Administrator Richard LaMunyon said the city’s aggressive incentive plan – passed in August – has lifted new housing starts to pre-recession levels.
“We’re very happy with it,” LaMunyon said. “Doesn’t mean we won’t tweak it, make it better, but we’re pleased with the results.”
The Maize plan is a property tax rebate to anyone who buys or builds a new home in the city limits: 100 percent back the first three years, 80 percent back the second three years, 60 percent back the next two and 40 percent the last two.
In addition, new builders and buyers are eligible for up to a $6,000 credit on their water bills depending on the price of their new Maize home.
Pre-recession, Maize was averaging 34 housing starts a year. Last year, only 11 were started before August, when city officials decided to act.
“We had nothing on the horizon and to make it worse, we had builders buried under the property taxes and specials on spec homes they couldn’t move,” he said.
After the plan was enacted, 21 new homes were built in Maize to finish 2011. Through two months of 2012, 11 have been started.
“I’d say the plan is working,” LaMunyon said.
Don Olson hopes Wichita’s property tax rebate plan revives the Timberlands, his 21-lot development on 127th Street East between Kellogg and Harry, which was “going great guns in 2008.”
“And then all of a sudden the door slammed shut, especially for the builders,” Olson said. “It would be a part of shaking the market loose for us, to be sure. I just wish they’d put some sort of a moratorium on the specials, but anything will help.”
Olson said he and his wife plan to finance a speculative home this summer to drive interest in the remaining nine lots in the development.
“It means a heck of a lot to us,” he said about the property tax incentives.
The Wichita City Council acted in February to stimulate the new-home market after a year of flagging sales threatened to force some longtime builders out of the local market. New-home sales plummeted to 28 units in February 2011, the smallest number in years, and 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.
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. Kelly Carpenter, the city’s finance director, said the city has $3.3 million in delinquent special assessments pending on 2,600 unbuilt lots.