City Council looks to raise Impact Fees 1000%

EPAB Members urged to take action

The City of El Paso’s El Paso Water Utility is a department where water and wastewater (sewage) are responsible for. EPWU is the primary administrator and largest single supplier of fresh water to the area. It has worked with the growth of the city and served as such for many years. The water utility is also run by the Public Service Board, a board of citizens administrating EPWU, with oversight by the Mayor and Council.

In the 1950’s then Mayor Fred Hervy, a prominent businessman and creator of the Circle K brand, proposed to take water out of politics by creating the PSB. He won approval to create the PSB and directed that they purchase outlying land for a secure method of paying for expansion. It was a way to protect an ever-growing population with water.

The NAHB defines impact fees like this:

•An impact fee is a fee that is imposed bya local government on a new or proposed development project to pay for all or a portion of the costs of providing public services to the new development (Wikipedia)

•levied on an "up-front" or "front-end" basis, usually at the time of building permit issuance or subdivision approval, or certificate of occupancy.

•prescribed by ordinance, although the dollar amount may or may not be specified.

Additionally NAHB says that aside from basic issues of fairness and equity, the use of impact fees raises legal, economic, technical, administrative, policy, and financial concerns for interested parties. Without the proper legal authority, municipalities are unable to enact an impact fee. This authority is express—granted by a state legislation—or implied by a municipality’s inherent powers.

Municipalities that operate under Dillon’s Rule are limited to those powers which have been expressly granted by the state. On the other hand, home rule municipalities have a greater degree of independence and have broad discretion in the exercise of their planning and zoning powers.

El Paso’s impact fees are regulated by state statue, and once enacted require review every five years. EPWU hires the consulting group Raftelis, a national utility consulting firm, to determine what fees if any can be imposed. The Charlette based firm came to a conclusion to get more money from each lot in sections of El Paso. Current fees for water and wastewater per lot in the Northeast are at $1,469 and could rise to $5,684, if approved. In West El Paso, per lot fees are at $1,586 and could go up to $3257. The east side of El Paso would see the most significant increase per lot, going from $1,617 to $17,981.

It is our opinion, and we think that of most citizens, that impact fees cause irreparable harm to a community, raise the cost of housing, and subject new home buyers disproportionately on basic services of water and wastewater.

The City Council will vote on May 7 to accept the fees, amend, or reduce them. They could also deny the fees.

Get Involved

EPAB President’s Message

Jaime Gonzalez, President
El Paso Association of Builders

In our society, most people are looking out for their own best interests. There are a few heroes out there that are only looking out for the best interests of others. But the majority of us are looking out for #1.

Now, don't get me wrong, I'm not saying that this is a bad thing. In order to help others, you first have to help yourself. The best example of this are the instructions we receive when we board an airplane. First you place the oxygen mask on yourself, then you can help others.

When we choose a career in life, the decision is usually based on one of two things, What I like to do and/or how much money I want to make. If you are lucky enough for those two to match in the same place, you will never work a day in your life.

When we realize that most people do what they do, with their own best interest in mind and not yours, you start to pay attention to what's going on around you.

Is this low fat protein bar really good for me? Or is that just what I'm told by the person trying to sell it to me?

The products and services we consume can be great! Or, they can just have a great sales and marketing team. It is up to us to get informed and decide what's best for us and those we love.

Sometimes, we make choices by default. Meaning there are products and services that we consume, that we didn't realize we were agreeing to. These are choices we make when we do nothing.

One of the biggest and most important choices we can make is that of choosing our elected officials. Believe it or not, who you choose, either by voting or by default will directly affect your life. If you choose a candidate that wants to raise taxes, well, you’re going to pay more taxes.

Our politicians need to know what you want, remember, they are looking out for #1, they want to get re-elected. In order for that to happen, they want to please as many voters as possible. If they never hear what you want, they will never fight for it. Its easy to blame or complain about politicians, its easy to hope that they will always do what’s best for you. But remember, it’s the squeaky wheel that gets the grease. If you want things to change, of if you want them to stay the same, either way, its time to start squeaking.

Executive Message

Challenges in home building can crush soul

By Ray Adauto
Executive Vice President, EPAB

The job of building homes is daunting, exciting, confusing, or so I’ve been told. I get asked often if I am a builder, and my reply is no, I am not. So why not? I give them my standard answer. I admire risk takers, but I don’t have the fortitude. In particular unforeseen risk. Hard to admit but really, building is a risky career that a lot want to do but few can do it well.

It’s not unusual to get an inquiry at my office from someone wanting to be a home builder. My first question is “why”? Most of the time they believe they can “make lots of money!” This is especially true of anyone without experience. I walk away wishing them well, but mostly thinking they are in for a shock.

Home builders today have challenges that go beyond normal business practices with things like codes, regulators, insurance, government mandates, politics, bureaucracy, lending, sales, people, nimby’s and so much more, as my article on Impact Fees in this issue points out, the challenges keep growing and growing.

I admire all our members for doing what they do. Whether a builder or a banker, the mere fact that you are helping to house people is impactful and respected. This association was built to be the voice of this industry and bring the diverse business community into a directed effort.

The United States of America is being built by you, for so many, in spite of the challenges. I’m proud to represent you in that fight and in doing so my soul is, after all, a builder.

New energy codes impact housing affordability

NAHB

In a move that will curb new construction and harm housing affordability nationwide, the U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Agriculture (USDA) have issued a final determination that will require all HUD- and USDA-financed new single-family construction housing to be built to the 2021 International Energy Conservation Code (IECC) and HUD-financed multifamily housing be built to 2021 IECC or ASHRAE 90.1-2019.

Without adequate review and consideration of how it will affect home buyers or renters, HUD and USDA have rammed through a mandate that will do little to curb overall energy use but will exacerbate the housing affordability crisis and hurt the nation’s most vulnerable house hunters and renters. Studies have shown that building to the 2021 IECC can add up to $31,000 to the price of a new home and take up to 90 years for a home buyer to realize a payback on the added cost of the home. This unreasonable trade-off for a new home buyer will do little to offer meaningful energy savings for residential homes and apartments and in fact, will make older, less efficient homes more attractive.

“The Biden-Harris administration has set a goal of building an additional 2 million homes and this new policy runs completely counter to that objective,” said NAHB Chairman Carl Harris. “HUD and USDA are supposed to help the most vulnerable home buyers and renters — not price them out of the housing market. This senseless nationwide codes mandate will significantly raise housing costs — particularly in the price-sensitive entry-level market for starter homes and affordable rental properties — and limit access to mortgage financing while providing little benefit to new home buyers and renters.”

It is also likely that the Department of Veteran Affairs will join with HUD and USDA to only finance new homes if they are built to the 2021 IECC.

This ill-conceived policy will also act as a deterrent to new construction at a time when the nation desperately needs to boost its housing supply to lower shelter inflation costs. Moreover, it is in direct conflict with the current energy codes in the majority of jurisdictions around the country. This will lead to a host of logistical and implementation challenges in the field and will require bringing a third-party to manage the compliance process.

And targeting new home construction is the wrong approach to reduce energy consumption in the U.S. Homes built to modern energy codes are already energy efficient. According to the National Renewable Energy Laboratory, upgrades to the existing housing stock — 130 million homes that were built before the introduction of modern energy codes — could yield a projected reduction of 5.7% of the total annual U.S. electricity consumption in 2030.

Compliance Dates and Paths for Home Builders
At the strong urging of NAHB and other commenters, HUD did extend the compliance dates for these new requirements.

The effective date of the rule is May 28, 2024, but the compliance dates for the building code mandates are:

• 18 months after the effective date for single-family homes;

• 12 months after the effective date for multifamily projects; and

• 24 months after the effective date for homes in “persistent poverty rural areas.”

In addition, the rule provides other compliance paths. Homes built to above-code existing standards will satisfy the new requirement. Programs specifically mentioned by HUD include ICC-700 National Green Building Standard (NGBS), Energy Star Certified New Homes, and Leadership in Energy and Environmental Design (LEED), among others.

Adoption of the prescriptive or performance paths of the 2024 IECC will also be an allowable compliance pathway.

ECONOMIC OUTLOOK

Elliot Eisenberg
Economic & Policy Blog

Elliot Eisenberg, Ph.D. is an internationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational.

Meager Moving

Based on a quarterly survey of active managerial job seekers, during calendar year 2020 5% of such individuals relocated to find new employment. In 2021, the percentage fell to 4%, in 2022, the percentage declined further to 3.75%, and in 2023, and it slid to just 2.5%. The combination of super-low 30-year mortgages and probably more remote or hybrid-work arrangements make attracting top managers increasingly difficult.

Private Performance

One reason the US economy has performed as well as it has despite rising rates and bank lending reluctance is the rise of private debt and equity. In 2008, banks and fund managers each had $12 trillion in assets. Today, bank assets are $23 trillion but fund manager assets total $43.5 trillion. This is also why fewer firms are going public, they can relatively easily raise private investment funds.

Downer Dwellings

March existing home sales slipped 4.3% M-o-M to a seasonally adjusted rate of 4.19 million, the biggest M-o- M decline since 11/22. The February rise in mortgage rates undoubtedly hurt. Y-o-Y sales eased 3.7% to 4.35 million. March is now the 31st consecutive month with sales down Y-o-Y. It’s also possible that uncertainty regarding Realtor commissions has caused some transactions to be delayed. An inauspicious start to the spring selling season.

Receding Recession

In an early April survey of business and academic economists, the percentage predicting a recession within the next two years declined from 39% three months ago to 29%. This is the lowest percentage since 4/22 when recession chances were pegged at 28%. Better yet, just 10% expect at least one quarter of negative growth over the next 12 months, down from 33% in January. I’m also slightly more optimistic.

Troubling Treasuries

Pre-Covid, quarterly Treasury bond issuance, including new but mostly refinanced maturing debt, was $3 trillion/quarter. Since then, the deficit has jumped, and Treasury has increasingly relied on short-term debt to finance the government. Thus, quarterly Treasury issuance in 24Q1 was $7.2 trillion, breaking the previous 20Q2 record by a nose, and is likely to remain elevated. This and high short-term rates are quickly raising government interest expenses.

Retail Report

March retail sales rose a strong 0.7% M-o-M, February sales were revised up by 0.3% M-o-M, and Y-o-Y sales rose a respectable 4%. However, inflation-adjusted, retail sales have been flat since 3/21, as we shift away from goods to services. Thus, it’s total consumer spending that matters! The big winner, online sales. They rose 0.4% M-o-M and are now less than one percentage point below their 4/20 peak of 20.9%.

Temporary Tax

In 1862, President Abraham Lincoln signed a revenue-raising measure to help pay for the costs associated with the Civil War. The measure created a Commissioner of Internal Revenue and the nation’s first income tax. The tax was 3% for income between $600 and $10,000 and 5% for income above $10,000. Heeding public opposition, Congress cut tax rates in 1867 and repealed the income tax entirely in 1872.

Realtor Rates

The current average U.S. real estate commission is 5.49%. The listing agent receives an average of 2.83% while the buyer’s agent receives 2.66%. For a $400,000 home, that works out to a commission of $21,960. Hawaii has the lowest average commission at 4.78% followed by Utah at 4.90%. The state with the highest average commission is West Virginia at 6.67%, followed by Alaska, Kentucky, and Wyoming all at 6%.

New home sales post gain despite high rates

Despite higher interest rates last month, new home sales rose in March due to limited inventory of existing homes. However, the pace of new home sales will be under pressure in April as mortgage rates moved above 7% this month, which is expected to moderate sales and increase the use of builder sales incentives this spring.

Sales of newly built, single-family homes in March rose 8.8% to a 693,000 seasonally adjusted annual rate from a downwardly revised reading in February, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in March is up 8.3% from a year earlier.

“Although consumer demand has been somewhat dampened due to higher interest rates, builders continue to supply new homes to the market to lift inventory to make up for the low resale supply,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “Rates moving above 7% however, will move some home buyers to the sidelines as the spring progresses.”

“Shelter inflation remains the largest, lingering obstacle to lower inflation,” said NAHB Chief Economist Robert Dietz. “More housing supply will ultimately tame shelter inflation growth and lower interest rates. This will improve the cost of financing for land developers and home builders and enable more attainable housing supply.”

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the March reading of 693,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in March remained elevated at a level of 477,000, up 2.6% from February. This represents an 8.3 months’ supply at the current building pace, which has been supported by the ongoing shortage of resale homes. Data from the National Association of Realtors indicate just a 3.1 months’ supply of existing single-family homes in March, with a balanced market holding 5 to 6 months’ supply. Inventory of newly-built single-family homes is up 10.2% on a year-over-year basis.

The median new home sale price in March was $430,700, up nearly 6% from February, and down 1.9% compared to a year ago.

Regionally, on a year-to-date basis, new home sales are up 15.1% in the Northeast, 17.8% in the Midwest and 28.1% in the West. New home sales are down 6.6% in the South.