Finding the right blend of government incentives and capitalism to solve the housing and real estate crisis

Mr. Obama once again made use of the power of social medial by holding the first ever “Presidential Twitter Town Hall” on July 6, 2011. 

While 27% of the questions that were “tweeted” to him placed focus on the very poor jobs market and the sluggish economy, 6% of the quires zeroed on the nation’s housing crisis. 

One questioner asked what mistakes Mr. Obama had made in handling the economy.  He answered stating that “the continuing decline in the housing market is something that hasn’t bottomed out as quickly as we expected.” 

Another concern was raised by a tweeter wondering how homeowners can get help from being “underwater” with debt that is greater than the value of their homes. 

The President made a point of saying that his administration’s efforts to help homeowners in distress were “not enough … so, we’re going back to the drawing board.”

Still another asked if the real estate market could heal itself.  Mr. Obama replied stating that “given the size of the housing market, no federal program is going to be able to solve the housing problem.” 

Startling statement?

Seems a follow up tweet could have been: Does this mean that going back to the drawing board is to turn the problem over to private sector capitalism?

The Troubled Asset Relief Program (TARP) was pushed through in the early months of his administration.  It placed a strong focus protecting “home values, college funds, retirement accounts, and life savings; [preserving] homeownership, and [promoting] jobs and economic growth …”   

Just this past March the Congressional Oversight Panel (COP) released a report weighing in with their opinion of the success of the program. 

Part of TARP was the President’s Home Affordable Modification Program (HAMP) in early 2009.  It was “asserted that it will prevent three to four million foreclosures.”  The report found that “the program now appears on track to help only 700,000 to 800,000 homeowners.”

Another program established in July 2008 known as HOPE for homeowners was to permit Federal Housing Assistance (FHA) to provide mortgage insurance for distressed mortgages.  The Congressional report found the following results:

HOPE for Homeowners was initially expected to help 400,000 homeowners, but managed to refinance only a handful of loans.  This was likely due to the program’s poor initial design, lack of flexibility, and its reliance on voluntary principal write-downs, which lenders were very reluctant to make.

Along with the lack of “shovel ready projects,” it appears that the traditionally poor execution practices of government combined with the high expectations of TARP missed the mark of being the needed economic recovery boost. 

Of course the burst of housing bubble a few years ago was only the beginning of a real estate house of cards that has negatively impacted land, commercial and industrial real estate values. 

Scouring through the multitude of media outlets, one can find any number of so-called and self-professed experts who claim to know the source for why the global economy hit the skids.  Clearly there’s a lot of blame to go around, but how to fix the problem is the clear challenge.

 The center of attention seems to be improving the employment picture.

Last Friday billionaire investor Warren Buffett, Chairman and CEO of Berkshire Hathaway, Inc., was interviewed on Bloomberg Television.  He was asked his assessment of the Labor Department’s weaker than expected June 2011 Jobs report. 

Buffett stated that he remains optimistic that there will not be a double dip recession as many predict and anticipated that jobs will “come back big-time … when residential construction comes back.”

So when will that be? 

Buffett lays it squarely on the burn off of the excess housing inventory that exploded in the early 2000’s.  He thinks that could be in a few years … by that time the unemployment rate could fall from the current 9.2% level to as low as 6%.

But can the government do any more than it has already to improve the bust in the housing market?

To this Buffett responded that he thinks that the White House has set it’s “expectations too high … government can do things to make [the economy] worse, as it did during the great depression.”   But while it can also “help some,” history shows that the “system cures itself … By far and away the biggest factor is … [through] the natural regeneration powers of capitalism.”

So after hundreds of billions of borrowed dollars to fund TARP and other government stimuli that were intended to be the promised cure all … could it be that capitalism has been answer all along?

Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes for TheTentacle.com and Want2Dish.com.

From a photoshopped image of a Welcome Banner over the door at Winchester Hall posted on the MacRo Report Real Estate Blog on November 15, 2010 to the Real Thing on December 1, 2010

Well, the dust has settled and both new Frederick County Boards of County Commissioners and Education have taken their oaths of office.  It should prove to a be a most interesting time with radio personality and taxi cab magnate Blaine Young assuming the BOCC presidential position on December 1st, and his brother Brad Young, certified financial planner and a certified trust adviser, being voted into the same position yesterday at the BOE.

A lot has been written in this blog, as well as in the print media (Frederick News Post and the Gazette) about the sweeping changes that the Young brothers intend to bring to their respective boards; so I will not dwell any further on their plans, other than to offer you a few clips and links noted below.

However, I will take this opportunity to briefly explain why this blog does devote the amount of space it does to local government and political  happenings.

As many in the land and commercial real estate business know, when one steps outside of the residential resale housing arena, land use and zoning regulations, plans and policies have a tremendous impact the  development potential of real estate in any jurisdiction.  And I’m sure that all would agree that proper planning for land use is essential to maintaining a high standard of quality of life in any community.

In Frederick County, Maryland, many of us feel very fortunate to live in such a beautiful part of this country  with such diverse landscapes and vibrant cities and towns.  But sometimes local government can get too carried away in desire to hold on to what we have … to the point that the livelihoods of those who live here can be negatively impacted.  In that same vein, when the Frederick County Public School system consumes nearly 60% of county taxes, the citizens have a right to call for accountability.

In the 37 years that I have lived here providing real estate services to Frederick and its surrounding counties, I have witnessed the regulation pendulum swing to and fro, but over the course of the last twelve years, the trend has gone so far to the point that a rift in the trust between county government (including the public school system) and the private sector reached a need for change.  We wish both new boards the very best of luck as they proceed forward into some very challenging times.

So, as controversial as it may be for a real estate consultant to opine on these matters, we feel it is important to draw the links between all the issues that impact the values and use of real estate.

OK, so enough of all that … here are those links as promised:

1. Blaine Young’s BOCC Inaugural Speech - December 1, 2010 (Video 3:38)
2. Part 1 BOCC Gardner Parting Humorous Gifts 12-1-10 (Audio 5:12)
3. Part 2 BOCC Thompson – Young Parting Humorous Gifts 12-1-10 (Audio 4:17)
4. Frederick County Government: Complete County Commissioner Swearing In Ceremony – December 1, 2010 (Video 1:28:17)
5. Op-ed by Steve Berryman “Accountable Slate” Frederick News Post – December 3, 2010
6. Brad Young’s BOE Inaugural Speech - December 8, 2010 (Video 3:14)

It’s hotter here at home, than in the baking heat of Real Estate’s Grand Abyss

Returning to Frederick County after being away for three incredible weeks seemed like an eternity.   While we thoroughly enjoyed our Colorado River whitewater experience through Grand Canyon National Park, it was really fun to return home to catch up on local politics.   

While the weather here has clearly told us that Fall has arrived, the heat is serious.  Unlike that of the hot dry days we spent on the river, the temperature in our community has risen to major levels on the political scene.  In the depths of the Canyon it was easy to find a way to get relief for the day’s heat … just find a waterfall or jump in that very cold muddy river!

The nastiest fight for Frederick County voters seems to be in the State Senate race between Republican Alex Mooney and Democrat Ron Young, but what surprised me the most was (with the exception of one) the alignment of the ten Board of County Commissioner candidates into two very distinct slates. 

On the side of the “establishment” four of the five Democrats — incumbent Kai Hagen, Janice Wiles, Ellis Burruss and Linda Norris — have sided with incumbent Republican David Gray.  This group seems to be basing their campaign on three key points: 

1. Anti-Waste to Energy
2. Spreading fear that development will run amuck if they aren’t elected
3. Assurance that local government has been fiscally responsible the last four years

The Republican contingent has assembled the slate of Blaine Young, Kirby Delauter, Paul Smith and Billy Shreve.    They have teamed together promising to:

1. End local government waste
2. Create Jobs
3. Make Frederick County more business friendly
4. Build a collaborative environment with all municipalities and the Board of Education.

The lone candidate who is running a traditional campaign is Democrat Michael Kurtianyk.  His message is that he is a fiscal conservative, who believes strongly in economic development and wants to build better relations with the Board of Education to keep costs under control.

This is truly the first time that I can ever recall that there are two strong slates of very different ideologies  that have teamed up in a commissioners’ race. 

Last week the Fall 2010 MacRo Report was released and we endorsed the Republican Slate as well as Michael Kurtianyk.  We do believe that the four principals that they are campaigning on are critical to the future health and well being of Frederick County. 

We do need to find new and better ways to run our county government in a fiscally responsible manner.  This ties directly to developing a better working relationship with the Board of Education, which sucks up about 60% of our property taxes each year … and the local municipalities, which are also feeling the pressures of budgetary burdens.  Imagine the cost saving that could be found for Frederick City taxpayers if the County and City could actually work together of find common cost saving solutions to delivering services to our community!

Last week we also ran a poll to get a sense of how our readers, facebook and twitter subscribers viewed the slates of commissioner candidates.   While the results showed a lot of enthusiasm for both groups, after over 1,100 votes being cast it ended in a dead heat! 

The only conclusion I draw from that is that you can forget about what is being said about the anticipated lethargy of Democratic voters on November 2nd.  I think that this could be a record turnout election on both the local and national levels.

So if you want to cool off, I say either take a cold shower, jump in the Monocacy River or just wait until November 2nd to cast your vote.

The MacRo Report Blog this week welcomes our newest guest writer local attorney and civic leader Tom Lynch

This is an important election for Frederick County.  The primary results make clear that this will be one of the most polarized elections in recent memory, which is reflective of the tensions that exist in Frederick County and throughout the country. 

Some will say that a brutal, polarized election is precisely what we need in Frederick County.  Despite years of effort to promote civil discourse in this County, it is hard for me to contest this thought. 

Ten years ago efforts were made to build consensus on many issues, including the need for the change in our structure of government.  Regrettably, although many believe that change is necessary and inevitable, our political leaders showed no will after the 2006 election to lead the effort, to the substantial dismay of those of us who built consensus on the issue.

Our government structure remains a significant impediment to true progress.  However, for our own survival, this election must be about an honest evaluation of the cost of all government (especially legacy costs such as retirement and other benefits) and having our County government more “user friendly” so as to allow businesses to succeed in the interest of preserving jobs in Frederick County. 

Without a business community, we erode our tax base.  Many more of us could lose our jobs and we could very well have a financially destitute County government and municipalities. 

Dealing effectively and honestly with these issues requires courageous and visionary leadership; leaders who recognize the value of business to support our economy, the lives of our employees, our non-profit community and equally, our governmental bodies.  Unfortunately, too few people are voting which is reflective of a very disillusioned electorate. 

Your vote counts – our community’s business life depends on it.  Please vote and also please educate yourself on each candidate’s positions on business issues by consulting the ratings provided by the Frederick County Chamber of Commerce.

Thomas E. Lynch, III  is a principal of Miles & Stockbridge , a law firm for which he has worked for 30 years.  He has a very diversified litigation background but also has served as a neutral mediator for more than 15 years.  Tom is known for his very broad knowledge on ethics issues; having participated as a member of the Maryland State Bar Ethics Committee since 1989.  He was appointed by the Maryland Court of Appeals to serve and continues to serve on its Professionalism Commission.   Mr. Lynch serves on the Boards of Directors of the Frederick County Chamber of Commerce and is a former board member of the Maryland State Chamber of Commerce.   He is married to Karlys Kline and they live in downtown Frederick.  He has two daughters and one grandson. 

MacRo, Ltd. Vice President David Wilkinson chimes in with his first post on the MacRo Report Blog!

Over the past 10 years or so the complexity of obtaining building and development permits for building lots in Frederick County — and most other Maryland counties — has  increased substantially.

Akin to trying to interpret the Rosetta Stone, when asked to estimate the costs to build or develop land are, surveyors, engineers and real estate consultants will often respond with a very wide range of estimates followed by, “It depends on how the governmental reviewers respond to the plans we submit.”

This uncertainty is based on several factors related to land development in Frederick County including the fact that government reviewers are following regulations and policies, some unwritten,  which allow for a wide range of subjectivity. Also, agencies with approval power occasionally contradict each other causing costs to escalate considerably.

Industries of all types struggle when the regulatory environment is not stable.  Ask any business owner about this and they will tell you, “Just keep the rules consistent and we will adjust.” 

The problem arises because politicians and government officials are constantly tweaking the process with the goal of “improving” things.  While each individual change in code or policy may not make a big difference, the cumulative effect is much worse.

I’ll give you one personal example on a small scale: I’m currently serving as a real estate consultant for a client we will refer to as “Tom.”  Tom purchased a fully-wooded building lot in 2005 as a site for his family’s new home.  While I advised him of the current governmental fees, policies changed after the fact.  In this case, after his purchase, the State of Maryland modified the regulations in its “Forest Conservation Act.” 

Under the old rules, a property owner could clear up to 40,000 square feet of forest (just under an acre) without having to obtain special permits and replace trees.  Under the new rules, however, any tree clearing beyond 20,000 square feet triggers the forest conservation review process. 

Unfortunately for Tom, it’s not possible to build a home on his wooded parcel while at the same time limiting tree clearing to less than 20,000 square feet. 

Local Frederick County government regulations require the entire 10,000 square foot septic area to be considered “cleared” even though only a few trees in the septic area will actually be removed.  That’s half of the allowed 20,000 square foot amount and Tom still has to clear trees for the house, the driveway and well. 

With the pending financial burden placed on him, Tom decided to reduce the area of his “yard” to a bare minimum. 

According to Tom’s surveyor, his new plan showed 29,000 square feet of clearing on his seven acre lot (that’s less than 10 percent cleared).  Yet because he exceeds the new 20,000 square foot maximum, he will now have to submit a Forest Conservation plan and will then have to address paying a fee to cover about 9,000 square feet of the forest area he will be clearing. 

So, how much of a financial burden will Tom face to fulfill his dream of living in the woods?

The bottom line:

• $2,000 to the surveyor to prepare the Forest Conservation plan.
• $500 county review fee.
• $4,700 to purchase “Forest Conservation credits” or place a perpetual forest easement on his lot, which Tom doesn’t want to do because he hopes to build a garage and pool in the future.   

Total increase in Tom’s costs due to changes in policies:  $7,200.  

But of course that’s on top of the $15,185 impact fee to cover the “financial burden” that our county government thinks he will put on our roads, schools and other county services – an initiation fee of sorts for the privilege of living in Frederick County.  Interestingly, the impact fee increased 6% this year, in the midst of a devastated home building market.

Then there is a $2,500 fee for a building permit.  

So before he even can put a shovel in the ground, Tom will have to come up with over $24,000. 

As you can see when planning to build on a lot in the woods or in an open field, one must wonder if at some point it’s not worth it.  In Tom’s case, he’s now thinking whether to proceed with his dream home in the woods or abandon his plan.

Dave Wilkinson has been a licensed Realtor and Vice President of MacRo, Ltd. since 1992.   He specializes in commercial property and rural land sales.  He also real estate consulting services for subdivision and development land.

Board of County Commissioner’s public hearing to review a proposed text amendment to the Subdivision Regulations:  October 19, 2010 at 7pm

This is a reprint of Mr. Mackintosh’s article posted on TheTenacle.com of October 4, 2010.

For those who are fans of country living, including the farming community, it may be worthwhile to keep a close eye on what our governor is up to with his vision to put his stamp on Smart Growth.  The O’Malley version is called PlanMaryland. 

What is it exactly?  Well, as described on its beautifully formatted website, it is a program “to create a better and more sustainable future for Maryland. The state legislature created the authority for such a plan in the 1970s, but a broader recognition of the many costs of unsustainable land use has grown in recent years. This new planning process commenced with listening sessions that the Maryland Department of Planning held in 2008 and will culminate with a State Growth Plan proposal in 2011.”

The program has established 12 Planning Visions.  They are:

1. Quality of Life and Sustainability: A high quality of life is achieved through universal stewardship of the land, water, and air resulting in sustainable communities and protection of the environment.
   
2. Public Participation: Citizens are active partners in the planning and implementation of community initiatives and are sensitive to their responsibilities in achieving community goals.
   
3. Growth Areas: Growth is concentrated in existing population and business centers, growth areas adjacent to these centers, or strategically selected new centers.
   
4. Community Design: Compact, mixed–use, walkable design consistent with existing community character and located near available or planned transit options is encouraged to ensure efficient use of land and transportation resources and preservation and enhancement of natural systems, open spaces, recreational areas, and historical, cultural, and archeological resources.
   
5. Infrastructure: Growth areas have the water resources and infrastructure to accommodate population and business expansion in an orderly, efficient, and environmentally sustainable manner.
   
6. Transportation: A well–maintained, multi-modal transportation system facilitates the safe, convenient, affordable, and efficient movement of people, goods, and services within and between population and business centers.
   
7. Housing: A range of housing densities, types, and sizes provides residential options for citizens of all ages and incomes.
   
8. Economic Development: Economic development and natural resource–based businesses that promote employment opportunities for all income levels within the capacity of the State’s natural resources, public services, and public facilities are encouraged.
   
9. Environmental Protection: Land and water resources, including the Chesapeake and coastal bays, are carefully managed to restore and maintain healthy air and water, natural systems, and living resources.
   
10. Resource Conservation: Waterways, forests, agricultural areas, open space, natural systems, and scenic areas are conserved.
    
11. Stewardship: Government, business entities, and residents are responsible for the creation of sustainable communities by collaborating to balance efficient growth with resource protection.
    
12. Implementation: Strategies, policies, programs, and funding for growth and development, resource conservation, infrastructure, and transportation are integrated across the local, regional, state, and interstate levels to achieve these Visions.

I’ve had the opportunity to speak to a few of our local politicians who have attended a number of the planning meetings on this program.  They have been reading between the lines of such things like: “Growth is concentrated in existing population and business centers … sustainable communities and protection of the environment … to balance efficient growth with resource protection.” 

Combined with the fact that the Maryland Department of the Environment has made it reasonably clear that they have not been big fans of private septic and sewage systems, there is a fear that over a deliberate period of time the idea of having a dream home in the country or a building lot for the child of a farmer could move those ideas to the Land that Time Forgot.  

Bottom line is that such an action could hurt the values of rural land lots and real estate property, rendering some parcels very hard or impossible to develop. 

All we have to do is look at how our state agencies that focus on land use planning, land preservation, natural resources, and environmental protection have slowly but surely tightened the screws on the use of agricultural land and other open land. 

Now many of these polices have been a good thing, but just speak to members of the agricultural community anywhere in the state and anyone who has experienced the incredible hurdles associated with just clearing a stand of trees for the construction of a house or outbuildings.  On top of that, the related costs and time delays have become incredibly expensive.

While it has not been stated outright by those who have masterfully orchestrated the progress of PlanMaryland, I say keep your eyes open and beware if you are one of those who desire to make use of your property as good land stewards, but at the same time enjoy the rights that ownership should provide. 

A great resource for staying on top of state happenings is the website Center Maryland.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland.  He also writes for the TheTenacle.com.

Guest writer Donavon Corum returns with the second part of his topic on Planning Assets.

In my last article entitled 6 Planning Assets that Build a Local Economy, I described the planning assets:  Natural Capital, Physical Capital, Human Capital, Institutional Capital, Financial Capital and Social Capital.  Natural and Physical capital are arguably the two key elements when establishing a sound economic foundation.

The State of Maryland, its counties and local jurisdictions have established some of the best Natural Capital protections and policies in the nation.  Such examples are the Forestry Conservation Act, Storm Water Act of 2007, Rural Legacy and MD Agriculture Preservation Foundation, Green Print Program, steep slope regulations, wetland and stream protection and buffers, and minimum required open space requirements.  These and many other regulations and programs have established strong principles for application to our community economic planning and have increased the value of our Natural Capital.

Physical Capital plays an important role in the creation and survival of the community and is the key to establishing Human Capital, Institutional Capital, Financial Capital and Social Capital.  Using the American railroad community as an example, we can examine Physical Capital at work.  The cities of Brunswick and Frederick are two communities with strong railroad ties in Frederick County. 

During the 19th century a large majority of settlements along railroad rights-of-way were built across North America and established a physical DNA that is still prevalent in today’s planning efforts.  Nothing can erase their impact on the community form.  We still see it today in our gridded street system and buildings that face existing or non-existing rails (such as East and All Saints streets in Frederick).  The railroad tracks and equipment themselves were the technological capacity of the 19th century.

Initially these railroad communities were created for economic purposes.  The building blocks of the community started with investors, entrepreneurs and businesses.  Then came employees with associated housing needs, which added more business and employment opportunities as nearby real estate was developed for commercial and industrial uses.  After this foundation was set, the creation of institutional uses (schools, churches, government entities and public buildings), cultural venues, additional transportation elements and public outdoor spaces followed.  Steadily over time, the community laid and established each new layer.  Thus one can see how the Physical Capital acts as a cornerstone that directs and imposes itself on the remaining planning assets: Human Capital, Institutional Capital, Financial Capital and the Social Capital.

Although railroads no longer occupy the most important position in the economic hierarchy, consider today’s technological capacity, the role of the highway in contemporary American life and the corresponding economy that has grown from this. 

The city of Frederick has adapted to the four major highways (Interstates 70 and 270, and US Rte 15 and 340) and today’s technology associated with Fort Detrick.  As with the railroads in the 19th century, the city of Frederick is further establishing itself as an economic engine for Frederick County.  With the railway infrastructure still existing in Brunswick, revitalization has been taking place.  Current and future residences are taking advantage of the MARC passenger railway service.  This re-establishes its principle in the Physical Capital asset.

 Therefore, fundamental to keeping our capital increasing in value is understanding that proper planning for growth and real estate development is a vital part of the Physical Capital and is a major engine of a strong economy.

Donavon Corum, RLA, AICP, and LEED AP  is the Managing Member of Design Core Studio, LLC, a Maryland Planning and Landscape Architecture Firm.  Donavon will be a speaker at the National Association of Home Builders 2011 International Builders Show in Orlando.  He is currently participating with the American Planning Association’s (APA) National Infrastructure Investment Task Force as part of the Green Sub-Task Force.

Tuesday, September 21st @ 8:30 AM – BOCC will hold another worksession on the Planned Development Districts Text Amendment.

Thursday, September 23rd @ 9:30 AM – BOCC will discuss during Administrative Business the Comprehensive Plan’s Water Resource Element and the update to the Subdivision Regulations.

This information courtesy of Rogers Consulting

Ed Waters, a long time writer for the Frederick News Post, has written a front page piece in today’s paper that has  captured a very clear picture of the difficulty placed on the building community in Frederick County.  We discussed this back in May in many posts regarding what we see as a flaw in the county’s Comprehensive Planning process.

We do not dispute the number homes needed to meet the adopted plan — it actually could be too high, but in any event we don’t know where the lots are going to come from.

Some of our current and hopeful County Commissioners continue to put their head in the sand over this matter, blaming the industry’s complaints on the economy.  What is really going on is that they continue to use the building and development community as a whipping boy to move a flawed political agenda.  The fact is that serious problems in the lack of approved lots and very expensive regulations have — even in this economy — put a burden on the industry that makes it very difficult to just build an affordable house.

While land prices have suffered miserably in the current economic climate, it is very likely that they will eventually soar due to a extreme lack of supply once a recovery regains its footings.  While good for land owners, it is not good for housing affordability in Frederick County, as it will push more an more people out of the county … which will congest our roads, etcetera, etcetera!

Please take the time to read Ed’s article.