VOL. 121 | NO. 246 | Thursday, December 21, 2006
The Slowdown Lowdown
By Zachary Zoeller
People who used the phrase "safe as houses" to sum up the residential construction market in Shelby County from late 2004 to late 2005 might seek less exemplary terms to describe the slowdown during that period.
The amount of local residential real estate construction soared from December 2004 through November 2005, totaling 5,097 building permits filed in Shelby County, according to real estate information company Chandler Reports, www.chandlerreports.com. Those total more than $1.1 billion, among permits for which a price was available.
From December 2005 through November 2006, 4,141 permits were filed for more than $930 million.
Chandler Reports defines residential real estate permits as permits issued for structures with three or fewer living units, and Chandler tracks permits across all of Shelby County.
That 19 percent drop might be cause for some homebuilders to seek a safe house, but others are more optimistic about 2007.
"Everybody's just a little slower this year, but I think it's going to convert to a pent-up demand in '07," said John McCreery, principal of local real estate firm Chamberlain & McCreery.
The jaundiced eye
A pretty good indicator of a bad year is when a leading company has a major drop in construction permits - such as the 35 percent drop Chamberlain & McCreery experienced from November 2005 to the same period a year later.
The company, whose other namesake, Phil Chamberlain, won Builder of the Year award from the Home Builders Association of Tennessee last month, filed 222 building permits between December 2004 and November 2005 and 143 permits from December 2005 through last month.
Homebuyers lost some faith in the market in 2006 because of disparaging news coverage in the national media bemoaning falling home values, McCreery said.
"Your average person in Memphis who reads Time Magazine or Newsweek, he gets bombarded with this information about national markets," he said. "It's exponentially small as far as the impact in Memphis."
The price of oil has significantly increased the cost to build a house, which in turn has resulted in higher prices, said Gene Gibson of the Memphis and Shelby County Land Use Control Board (LUCB).
"For anything that uses oil - drywall, shingles, anything - the stuff just went through the roof," Gibson said. "The cost is going up faster than people can comprehend it."
Gibson, who owned Jameson-Gibson Construction Co. Inc. with Chris Jameson, is going into semi-retirement next year. He characterized his final year in the business as "pretty lousy."
The 63-year-old construction veteran is the longest-standing member of the LUCB, serving on the board for 22 years and counting.
"I remember building houses for $15 per square foot," he said. "Today you can't build a starter home for less than $100 per square foot."
It might not be immediately apparent when you're filling your car with gas, but the price at the pump affects how many people remain in the market to buy a home, McCreery said.
"We've got a lot of petroleum-based products in the homebuilding industry," he said. "It definitely has had an effect on the cost of homes, maybe 12 to 15 percent."
Chamberlain & McCreery's average permit value increased from $183,666 in 2004/2005 to $197,180 in 2005/2006.
In addition to the rising cost of construction, people have less disposable income, forcing them to choose between fueling their vehicles and buying big items such as houses, he said.
More building permits were filed in the 38002 ZIP code in Arlington and Lakeland between December 2005 and November 2006 than in any other ZIP code in the Memphis area.
The 840 permits in 38002 comprised 20 percent of the total 4,141 permits filed.
Downtown's 38103 ZIP had the second most permits filed with 462.
Infill development, or tearing down older structures and building new homes in their places, is a very popular mode of construction.
An example of an infill development Downtown is a project by Gil Callaway to build four homes on a one-acre lot at 289 N. McLean Blvd. Proposed and approved last summer, the project would include tearing down an older home.
The project stirred up neighbors who opposed the change, including nearby homeowners Don and Angela DuMont, who wrote in a letter to local planners: "Approving this type of development will set a precedent that has never been set in this historical neighborhood, and will open the door for future destruction of the quality of life."
(For more about the controversy, read the June 6, 2006, edition of the Memphis Daily News at www.memphisdailynews.com.)
McCreery said he thinks infill development is beneficial to the city and homeowners.
"There are very established neighborhoods that people want to be a part of. (Infill) gives them additional alternatives to own the newest, best, brightest products," he said. "From a municipality's standpoint ... when you tear down a $300,000 house on an acre and a half and you build two $1 million houses, the tax roll for the property basically just quadrupled."
A Word on Commercial Real Estate
Commercial real estate also saw a decline in issued permits - 2,066 from December 2004 through November 2005, down to 1,937 from December 2005 through November 2006, among Shelby County municipalities that file with the city-county Department of Construction Code Enforcement (DCCE).
DCCE issues permits for Memphis, unincorporated Shelby County, Arlington, Germantown and Lakeland. It does not handle permits for some incorporated areas, including Bartlett, Collierville and Millington.
Categories of commercial permits include business, assembly, educational, hazardous, multifamily, mercantile, industrial, storage and utility. (See box on Page 1 for examples of each.)
The Westbury Apartment Homes are luxury apartments built by local real estate firm Makowsky Ringel Greenberg LLC near Windyke Country Club in Germantown.
That area near Bill Morris Parkway is a good place for businesses and multifamily housing because of its proximity to high-paying employers such as FedEx, said Michael Greenberg.
"At one point they referred to the area as the technology corridor," he said. "We think that's a great corridor in terms of high-quality office. We view it as an area with a lot of employment generators."
The Westbury was finished in October, and it was designed to look and feel like residential houses, not apartments, he said.
"We believe that there is a market for a better quality experience," he said.
Parallel parking is available in front of buildings, and some amenities of the gated community include a fitness center, pool and media room. About 88 percent of the units are leased.