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Wednesday, 14 March 2007 00:00

Two studies, two takes on moratorium’s effects

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When County Commissioner Will Shelton gave up time on his farm and with his four young children to run for political office in Jackson County last year, he made a pledge to voters to address the uncontrolled growth sweeping the county.

 

But when the powerful real estate and development lobby unleashed a well-orchestrated campaign blanketing the county in flyers, ads and word-of-mouth horror stories — branding the proposed subdivision moratorium as a death blow to the construction industry — Shelton may have gotten more than he bargained for. At last week’s meeting, Shelton expressed disappointment at the propaganda he said mischaracterized the moratorium.

“I was shocked by the fear that came out over job losses,” Shelton said. “One thing I have been astounded by is the amount of misinformation that is out there. Unfortunately I think some of this misinformation going around is very purposeful.”

The moratorium only applies to brand new subdivisions — there are 469 subdivisions already on the books in Jackson County where work can continue as normal and thousands of lots eligible for building permits.

“All the information I had gathered told me that there would be no job loss due to the volume of work that was already out there,” Shelton said.

Opponents of the moratorium argued that work would indeed be halted — perhaps not during the moratorium itself, but somewhere down the road due to the “pipeline theory.” While there might be plenty of work in the development pipeline right now, if new subdivisions aren’t being started, there will eventually be a lull in the pipeline.

“What happens when what’s in the pipeline now runs out?” asked Jay Payve, a real estate attorney. “Nothing will have been filling the pipeline.”

 

Hiring a study

In an effort to prove their case, a coalition of real estate and development interests hired a professor at Western Carolina University to do an economic impact study on the moratorium. The study’s conclusion: 1,600 jobs would be lost along with $32 million in payroll.

The study was circulated at the county commissioners meeting last week prior to the moratorium vote.

“It is pretty obvious to most of us who work in the county there will be a direct economic impact to us,” said Sam Lupas, the owner and broker of Landmark Realty Group in Cashiers, as he held up the study before the commissioners.

The study was conducted by James Carland, a professor of entrepreneurship with a background in accounting and finance. To arrive at his numbers, Carland assumed 133 houses wouldn’t be built during a six-month moratorium. There were several underlying assumptions in the study that are questionable, however.

For starters, how did Carland decided 133 houses wouldn’t be built because of the moratorium? Carland said his first step was determining how many houses are started in a typical month in new subdivisions.

“That is very hard to get a handle on,” Carland said. The county keeps a running tally of building permits, but doesn’t track how many of those are in subdivisions, let alone new subdivisions.

So Carland relied on anecdotal data provided by those in the development and real estate industry. Namely, he asked leaders of the moratorium opposition, such as Marty Jones, how many houses they thought had been started in new subdivisions in January.

Carland’s sources estimated 18 houses were initiated in new subdivisions during the month of January. Then he extrapolated that for six months, for a total of 133 houses that wouldn’t get built.

Carland then estimated the work that would go into building those 133 houses — the engineering, grading, landscaping, paving, carpentry, etc. — to arrive at the number of lost jobs and payroll.

Carland relied on the moratorium opponents — the same people who hired him to do the study — to provide anecdotal information that became the foundation of the study. Carland admitted his sources had motives, but said there was no other way to get the number of houses started in new subdivisions during an average month.

“You have to decide what you are going to believe and where you are going to get your information. Who knows more about houses being built than the people who are building them?” Carland said. “The best information I could get my hands on was anecdotal information.”

To genuinely determine which building permits were issued in new subdivisions — or within subdivisions at all — you would have to review each building permit individually and determine whether it was in a new subdivision, Carland said.

 

What’s the tally?

Another questionable assumption is the definition of new subdivisions that Carland used.

“It’s a subdivision that is not finished, one where the developers are still actively building houses in,” Carland said.

But that’s not at all the definition of a new subdivision under the moratorium. The moratorium only applies to brand new subdivisions where there aren’t even any lots to build on yet or any roads to get to the lots.

If a subdivision is past the planning stages, if lots have been sold and houses are being built, the subdivision is considered an existing subdivision and the moratorium doesn’t apply.

A review of actual building permits issued in Jackson County during the month of January showed 33 permits were issued. Of those, 26 were for individual lot owners. Individual lot owners looking to build a house on a lot they already own would not be affected by the moratorium. The majority of these lot owners were in established subdivisions to boot, most of whom had owned their lots for a year or more and were finally getting around to building.

The remaining seven building permits issued in January were to contractors or developers. Three were within established subdivisions, so the moratorium wouldn’t have applied. The other four were all sought by the same builder and appeared to be spec houses in a brand new subdivision on brand new lots

It seems those four houses are the only ones that potentially could have been impacted by the moratorium — not the 18 Carland assumed.

Carland cited the pipeline theory, however. Perhaps those 18 houses could have still been built, but there will be a gap of new lots going into the pipeline that will eventually manifest itself.

“If you stop new development from being created, the trickle down will last a period of years,” Carland said. “They will build out what is left, perhaps, but they won’t continue on with new ones.”

Carland said developers will steer clear of Jackson County for several months now.

In the meantime, those on the front end of developments — Realtors handling the transactions for example — will be more impacted than those who swing a hammer.

Manuel DeJuan, a Realtor, said he lost a contract two weeks ago that he had been working on for a year. The developer is going to another county instead.

“Another realtor is making the commission I lost. Another builder from another county is making the money Jackson County was making,” Dequan said.

 

Take II

Another economic assessment of the moratorium came to a drastically different conclusion than that of Carland. James Smith, also a professor at Western Carolina University with a background in finance and as a professional economist, predicts there would not be a detectable economic impact from the moratorium.

Smith was asked to offer his assessment by the county, but did not accept payment so as not to appear a “hired gun.” His assessment was presented by the county at the public hearing.

When presented with stories of real estate deals and bank loans falling through because of the moratorium, Smith said he would ask for the names of people so stories could be verified.

“Real estate deals fall apart every day for an enormous variety of reasons,” Smith said. “Give me the name of someone who was going to invest who went somewhere else for no other reason than the moratorium.”

Smith called the pipeline theory “far-fetched.”

“Those arguments do not square with the literally thousands of unsold lots,” Smith said. “My hunch is the pipeline so to speak is a couple of years long. The nature of construction work is that it is irregular anyway. The notion that there is some very smooth process that every carpenter, mason, jointer, pointer, grader, electrician, plumber, contractor, landscaper is fully employed 52 weeks a year is definitely atypical.

“That’s not to say things haven’t been really, really good in Western North Carolina in general and Jackson County in particular,” Smith added.

So good, in fact, workers commute up to 90 minutes from surrounding states to work in the Jackson County construction industry. The large volume of work is reflected in abnormally low unemployment rate of 3.4 percent, Smith said.

Smith said he was only able to base his economic impact assessment on economic theory and his own knowledge of how the economy works.

“There are no hard, or even hypothetical, data on which to base such an exercise,” Smith wrote in his report.

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