As the North Bay construction industry awaits the complete end of winter rains, the season is shaping up to be one of transition.
“The good news is we’re getting stuff done in the rebuild area,” said Andy Christopherson of Synergy by Christopherson. The company has poured 75 foundations in the burn areas and moved in 20 families so far. “The bad news is there is a lot of financial pressure to make other stuff work.”
Housing developers of projects outside the burn areas are facing competition from homes in the burn areas with lower cost bases amid higher construction costs, he said.
The cost of labor has jumped by as much as 50 percent in the past 18 months, Christopherson said. For example, installers of gypsum wallboard made $35 an hour before the fires, and now they’re making $45. And after not much price appreciation in materials, there has been a 10 to 15 percent rise for many items, including plumbing, wiring, heating and ventilation systems, windows, and cabinets.
Meanwhile, there’s a large difference in the cost of land for housing inside and outside the burn areas. Before the fires, average-sized “paper lots” were selling for $125,000–$175,000, depending on the location in the Santa Rosa area, according to Christopherson. Such properties already have necessary development entitlements from regulators and local government.
But that price doesn’t include up to $65,000 in fees and $75,000 in costs related to site improvements such as utilities. So a current resale listing for a burned Santa Rosa lot at $180,000 translates into a paper-lot price of $40,000-$50,000 for the next developer.
Ken Bizzell, a partner in commercial real estate brokerage Keegan & Coppin Co. Inc./Oncor International, specializes in selling subdivision land to housing developers. In recent months, he’s been challenged to get deals to close escrow because of uncertainties in construction cost.
“I’ve had deals cancelled in the past few weeks because the buyer-contractors thought it was too expensive to build,” Bizzell said. “One walked away from $250,000 put into the project because construction costs were killing the deal.”
This is mainly a challenge for smaller projects and those that already haven’t locked in construction pricing with subcontractors, according to Bizzell and Ron Reinking, an agent with Newmark Knight Frank who also brokers a number of subdivision deals. For projects with a few or couple dozen homes, the cost of land is a major component of the cost, but for a 100-unit apartment project or assisted-living center, a movement in construction costs of 20 to 30 percent is challenging to absorb.
While Brookfield Homes noticed a slowdown in sales activity at its Northern California projects in the second half of last year, traffic has returned to model homes at its developments, including the sprawling University District master-planned community in east Rohnert Park, according to regional president Josh Roden. A benefit of having regional builders KB Homes, Signature Homes and Richmond American constructing the communities there is they can draw from existing pools of trades from other areas, he said.
“As the new year is kicking off, traffic at the models is back up, and interested people want to purchase,” Roden said. “There do not seem to be any significant cracks in our economic foundation.”
A total of 750 lots have been sold to the builders, and 375 completed homes have been sold, with escrows still pending on 45, Roden said.
Read more about the recovery from the October 2017 wildfires in the North Bay: nbbj.news/recovery