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Does City Council have obligation to prop up prices of Manteca homes?

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POSTED January 15, 2010 2:45 a.m.

There were more than a few people grumbling a couple of months ago about the city approving two more neighborhoods in southwest Manteca.

The projects are the 40-home Winters Colonial Estates and the 24-home Diego Country Estates that are almost next door to each other fronting the south side of Woodward Avenue just east of Pillsbury Road.

They were perturbed that the city was “flooding” the market with homes at a time their own home values were being hammered by the foreclosure mess. Their argument went like this: The city had an obligation to protect their home’s value and there are already more than enough houses in Manteca to meet the demand of buyers.

The city has many obligations under California law including providing affordable housing. However, making sure that one’s home value doesn’t slide isn’t one of them.

Even so, the approval of the 64 homes won’t impact the price of homes today – or at least in the next three to four years if not longer.

It takes five years on average for a project to go from conception to the first home being built in Manteca. They must indentify land, secure financing and purchase the property, and then process development plans. Next they have to invest a large chunk of money into on-site and off-site improvements before they can even start building. Then after they’ve built a home they can start having revenue flowing into their pockets.

It is highly unlikely you’re going to see anyone break ground on a new phase of an existing subdivision or start physical work on a new neighborhood any time soon. Banks today are not lending money for most residential backbone construction that includes the entire infrastructure needed to take a piece of land to finished lots ready to build. The reason is simple. The profit margin is way too thin and the market too soft to absorb new homes fast enough to make such a huge investment pencil out.

There are three reasons why Manteca built almost 60 percent of all housing starts in San Joaquin County during the 2008-09 fiscal year or 237 out of the 414 new homes. First, Manteca’s growth cap forced developers to manage their projects in such a manner that they never really got too far ahead of the market. Second, Manteca has 897 finished lots in seven subdivisions that are ready to build. That means developers have money tied up in improving those lots that they can’t get back until they build and sell a house. Third – and perhaps most important in such a tough market – Manteca has an appeal that the county’s other cities don’t in the form of Del Webb at Woodbridge. The age-restricted community for those 55 and older being built by Pulte Homes has led new home starts in Manteca for three years. It isn’t by chance that Atherton Homes is right behind them as they are located directly across the street from Del Webb. A good share of buyers of the Summit Collection by Atherton Homes were lured to Manteca by Del Webb and decided they liked Manteca but Del Webb wasn’t their cup of tea. And some of those buyers in the Summit Collection are the adult children of those who have bought in Del Webb.

As for the second point made by those who believe there are more than enough homes to meet the demand in Manteca through the foreclosure market, the activity doesn’t support such an assertion.

First, there were 1,211 existing homes that sold in Manteca in 2009. So far this year, 28 homes have closed escrow as of Monday with another 168 sales pending. There are 195 other active listings. In a normal balanced market, demand and supply are at equilibrium when there is a six month’s inventory. At the current buying pace, it is less than two months.

Also, it is clear those people who bought the 237 new homes that were built last fiscal year in Manteca weren’t in the market for a foreclosed or existing home. New homes are still selling for more than an existing home.

All of that aside when someone contends the city has an obligation to essentially prop up the value of their home by pulling the plug on new home construction you’ve got to ask the obvious question. Does the city then have an obligation to flood the market with as many homes as possible during a period of price pressure so home values do not go up so more people can afford to buy?

Tinkering with the market simply to control prices isn’t a one-sided affair.

To contact Dennis Wyatt, e-mail dwyatt@mantecabulletin.com





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