August 24, 2019

Proposed TIF will lower cost for local homebuyers - Daily Leader Extra : Top Stories

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Proposed TIF will lower cost for local homebuyers

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Posted: Thursday, August 15, 2019 3:38 pm

Plaques are casually propped on a counter in the conference room at Nielson Construction in Harrisburg. Each is an award from the Home Builders Association of the Sioux Empire -- spring 2018, fall 2018, spring 2019.

When these are mentioned to owner Kelly Nielson, he shrugs and comments that he probably has 15 of them. When pressed, he explains that people like his homes because they're functional.

"I don't waste much space," Nielson noted. "I try to make sure everything has a purpose."

Those functional homes are the result of sitting down with customers and listening to what they want, helping them to make decisions that meet their needs functionally as well as financially.

"I've had the opportunity to listen to a hundred people tell me what they want," Nielson said.

A binder on the counter which holds the plaques supports this remark. In it, dividers hold the plans for 14 developments in the Sioux Falls area.

Now, Nielson has turned his gaze on the Madison community. He purchased land east of Division Avenue and north of N.E. 9th Street and plans to create the Cyber Estates.

Price point housing

Last week, Toby Morris of Dougherty & Company, LLC asked Lake County commissioners to support the new housing development by creating a tax increment financing (TIF) district. On Monday night, the Madison City Commission approved a resolution allowing Lake County to do so.

Casey Crabtree, director of economic development at Heartland Consumers Power District, has been one of the project's advocates.

"Having quality housing available at a variety of price points allows job creation to happen more smoothly and is crucial to economic development," he said in a prepared statement.

"This housing development will help support the growth at DSU and that of other current and future employers. It's exciting that an experienced developer sees the potential Madison has to offer and is willing to make an investment in the future of our community," Crabtree continued.

Nielson said he began to look at the Madison community after he was approached by city officials and representatives of Dakota State University. He said the challenges faced in the Madison area are similar to other South Dakota communities.

"A lot of those communities are looking for price point housing," he said.

"Price point housing" is the language now being used for what was previously called "affordable housing." In many cases, it's housing for first-time homebuyers.

New housing challenges

One of the challenges in recent years is the way costs have increased for developers. Dean Gulbranson, who developed 16 lots in Madison south of the blue water tower in 2017, said infrastructure costs have tripled since he put in his first development in Brookings less than 20 years ago. At that time, the cost was around $10,000 per lot.

"Now, we are probably closer to $30,000 per lot and then you have the land costs," Gulbranson said.

To date, no building has occurred in that Madison development, although he has sold two lots and has a purchase agreement in place for a third. He did anticipate it would take 10 years to sell all of the lots. However, he is surprised at the slow start.

"I think activity breeds activity," Gulbranson said. "I'm surprised there hasn't been more activity."

Increased labor costs have also increased costs for new housing, according to Nielson. He said that five years ago, he could hire a plumber for $20 per hour; now he's paying $30 per hour.

As a result, developers have to look at creative solutions. For the Cyber Estates, Nielson is looking at four-plexes on 12 lots north of N.E. 11th Street. These will be three-bedroom homes attached to three other homes, and they could be priced as low as $190,000.

"It's almost impossible to get under $200,000 with a single-family dwelling," he said.

Importance of TIF

The other key to the pricing is the TIF. With a TIF, the increase in tax revenue which results from the improvements actually pays for the infrastructure improvements. This reduces the developer's investment.

"The goal for everybody involved is to create housing at a price they can afford," Nielson said.

Eric Fosheim, executive director of the Lake Area Improvement Corporation, who was tasked with addressing the housing shortage in Madison when he was hired, is excited about the Cyber Estates.

"Housing in the community is a top priority and a crucial part of the continued growth we are going to see in coming years," he said in a prepared statement. "This new development is a great step in the right direction and will be a big win for the area."

In addition to the four-plexes, the Cyber Estates will have lots for twin homes and single-family dwellings. The TIF will only encompass one portion of the development. Nielson Development, LLC -- a separate legal entity from Nielson Construction -- will be covering the cost of the other infrastructure improvements.

Nielson said this isn't the first time he's begun a development at the request of local officials. He said he was approached about five years ago by a nonprofit in Yankton.

In that case, a TIF was also used to keep the housing costs down. To date, they've sold 16 units in four-plexes, 18 units in twin homes and 32 single-family dwellings, according to Nielson.

"For the Yankton community, sixty-some families have gotten to buy houses in the past five years," he said.

Housing in Madison

In considering Madison, Nielson looked at the stated need and at the community. He noted very little new construction within Madison city limits.

Nielson said that when he got into the housing industry, people were more willing to purchase older homes and make improvements than they are now. Today, he said, people want homes that don't require work.

He also considered the college's need.

"Seventy-five percent of the reason I'm there is because of the college and the upcoming jobs they have there," Nielson said.

He understands the university will be filling about 15 positions annually for the next eight years. DSU has confirmed that school administrators spoke with Nielson about their need.

"They shared information with the developer on DSU's vision for growth in academics as well as in research and development," the university said in a prepared statement.

"This workforce housing project would benefit DSU's recruitment efforts to hire the additional faculty and staff necessary to meet student need, and to hire the potential researchers who will be working at the Madison Cyber Labs," the university said regarding the development.

Although Nielson hopes to have lots available for sale by early next year, he does not have a timeline for beginning construction. That will depend entirely on the local workforce.

"I'd much rather work with local subcontractors than drag people in from Sioux Falls," he said.

Once the infrastructure is in place, Nielsen will put together bid packets and invite local subcontractors to a meeting where he will hand out plans. His goal is to build partnerships.

"Hopefully, by the end of 2020, we'll have homes available," Nielson said.

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