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Design standards, fees squeeze local builders: National players go bigger on subdivisions to cut costs

April 24, 2006

Vinyl siding? Forget it. Rows of homes that differ only in their shade of beige? Don't even think about it. Want to turn a farm road into a neighborhood street? It's going to cost you.

Increasingly, that's the refrain being heard by home builders across central Indiana, as cities and towns demand more from developers.

Developers agree basic standards are a good thing for a community, but more requirements push up the price of new subdivisions. The result? The big national players in town have a distinct advantage over small locally owned builders.

Changing trends in planning and zoning are helping to speed consolidation in the home-building business. In the past 10 years, the number of locally based home builders in the city's top 10 has dwindled from seven in 1994 to four in 2004, according to IBJ's Book of Lists.

Much of the consolidation has been driven by a desire for cost savings and a need for companies to spread geographically across hot-but-risky markets and more stable areas such as Indianapolis. But the local survivors may be further pinched by a trend toward stricter architectural standards and increasing developers fees.

In Westfield, for instance, developers pay $1,053 for every single-family home built. The money helps the town improve roads near the development. The town tacks on another $267 per home to help pay for new and existing parks.

Those fees are reviewed every few years to account for changes in costs for raw materials such as asphalt and park land, Town Manager Jerry Rosenberger said.

Like several other communities, Westfield is in the process of updating its comprehensive town plan. Several planners, including those in Avon and Greenwood, said they expect the results will be more rules stipulating what houses look like and how big their lots should be.

"People are trying to do a similar thing in most suburban communities-create more variety and interest in some of the subdivisions," said Clinton Ferguson, director of planning, zoning, research and economic development for the city of Greenwood, which expects to finalize a new comprehensive plan in the next year or so.

One builder said he agrees with most fees and architectural standards, but thinks many city and town planners don't realize how much their requirements add to the eventual selling price of a home and, therefore, the marketability of the project.

"In a couple of communities they're trying to literally force certain price points [for homes]," said Rusty Crandall, Indiana division president for Los Angeles-based KB Homes.

In some communities, he said, fees can add up to more than $10,000 per lot. Architectural standards, such as requiring more brick facades, set-back garages and larger overhangs, add more costs. Fairly quickly, he and other builders said, a $150,000 home can become a $170,000 home. That translates to a $150-per-month increase in house payment-enough to push away some homebuyers.

One solution to rising developer costs is to build ever-larger subdivisions, where costs can be spread over 500 or more lots, three or four types of housing and maybe even some retail development, builders said. And that's where national home builders can have an advantage.

"A lot of these landowners want to sell big tracts of land instead of breaking it into smaller tracts to sell to different builders," said Jane Hendrickson, who heads land development at locally based Davis Homes LLC. "National companies allowed them to do that when they came into the marketplace. ... We as a private firm have a disadvantage there versus the nationals.

Many of the national home builders, including KB and Pulte Homes, are publicly traded, which generally gives them more access to cash than smaller or privately held builders. That means they can buy 900 acres at once, rather than trying to persuade a farmer to sell off 100 acres at a time over the next 10 years.

More access to capital also means larger builders can pony up for necessities such as subdivision roads long before the first home is ever sold in a new development.

"If you can focus all your energy and efforts in a 250-acre development and end up with 700 or 800 homes, it's a lot easier than doing 10 developments with 80 homes each," said Paul Shoopman, who sold locally based Dura Homes to KB in 2004. He now owns Indiana Land Development Corp. "But it requires more capital, that is the downside. ... If you have plenty of money, it doesn't matter."
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