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Kingsport BMA gives go-ahead on high-end housing incentive

October 22nd, 2013 10:37 pm by Matthew Lane

Kingsport BMA gives go-ahead on high-end housing incentive

KINGSPORT — The Board of Mayor and Aldermen has officially given City Manager John Campbell the go-ahead to develop a program aimed at providing home builders an incentive to build neighborhoods with houses priced at a minimum of $400,000 each.

The idea behind the program stems from the belief held by city staff and the BMA  that Kingsport has a shortage of houses in this price range and that people relocating to the Model City for work are choosing to live outside the city limits rather than inside.

Though the issue has been discussed behind the scenes for months, it came to the forefront recently when the Times-News reported how a large number of Solutia Inc., employees were not buying houses in Kingsport.

Eastman Chemical Company purchased St. Louis-based Solutia  —  a specialty chemical maker  —  in July 2012 and since then a number of employees have relocated to the Model City. Eastman has said about 100 employees have already moved to the region,  and city officials believe more are coming next year. 

At a BMA work session last week, Alderwoman Colette George  —  co-owner of Blue Ridge Properties  —  said there simply aren’t enough $500,000-plus homes on the market in Kingsport to make the city competitive with Johnson City when executive-level newcomers move here.

In the $500,000 or more range, Kingsport has 13 such houses on the market compared to 56 in Johnson City. In the $100,000 or less price range, Kingsport has twice the number of houses as Johnson City.

George said 80 percent of newcomers who’ve purchased homes for more than  $500,000 in the past 10 years went to Johnson City. On Tuesday, George said the people moving to our region, looking for this type of house, want one built within the past 10 years.

During a special called meeting Tuesday morning, the BMA discussed the issue again for about 90 minutes before voting 5 to 1 to authorize Campbell to move forward with crafting an incentive program. Alderman Jantry Shupe voted against the measure. Alderman John Clark did not attend the meeting.

“All we’re trying to do is help a little,” George said. “Yes, it benefits me. But this brings money back in and not only will it help the builders, when a home buyer chooses to live here, (Kingsport) will benefit from it rather than if they choose to live in Johnson City.”

According to Campbell and city staff, the basic framework of the program would be to create a $600,000 fund to be dispersed to home builders and developers who create subdivisions with at least 16 lots, houses with a price point of at least $400,000 with the average price per neighborhood being $450,000.

Assistant City Manager Jeff Fleming said no developer could exceed $200,000 in assistance and the money would be for street and sidewalk construction. Fleming said the city is leaning toward the program being a reimbursement deal, where once the developer pays for the streets and sidewalks, the city would reimburse them the cost up to $200,000.

The $200,000 figure is the cost to build enough streets and sidewalks to support 16 lots, Fleming said. Gated communities would likely not be covered in the program (since the streets are not public), nor would it be for someone building one $400,000 house in an existing neighborhood.

Alderman Tom Parham likened the program to incentive packages used to locate a business in Kingsport. Fleming brought up the HOPE VI program, where Kingsport put in a lot of money for affordable housing.

“We’ve done it for one end of the spectrum. Now is the chance to do it at the other end,” Fleming said.

However, Shupe pointed out the people on the affordable housing end couldn’t have done it without the help of the city.

To fund the incentive program, Campbell has proposed taking $600,000 from the city’s paving fund (originally at $750,000) and reimbursing that fund with money from an upcoming bond issuance. The bond issuance money would have gone to the second phase of the Sullivan Street widening project, something Campbell said would likely not be needed until the 2015 fiscal year.

Eventually, the $600,000 in bond money will have to be replaced in a future bond issuance, Campbell said.

During last week’s meeting, Campbell offered another possible solution to the apparent lack of high-end houses  —  wherein the city would use $150,000 to $200,000 to buy lots not to exceed $50,000 each. Once the home was built and sold, the developer would repay the city the lot cost plus $10,000.

On Tuesday, city officials said this plan could not work due to legal issues. Kingsport and its economic development board is prohibited by law to assist in this manner with single family housing.

“It doesn’t mean we’re giving up in this particular aspect and we’re looking at other alternatives to do this,” Campbell said.

Information provided to the BMA on Tuesday shows the number one group of people moving to Kingsport are older, retired people without kids, with an estimated income of $15,000 to $25,000. The second highest group of people moving to Kingsport are people with kids, ages 36 to 50,  with an annual income less than $15,000.

“The one thing that worries me is we are becoming a magnet for low income housing,” said Mayor Dennis Phillips. “It’s not good to put all our emphasis on just one sector. We have an obligation as a board to promote and diversify the city within reason. Is this within reason?”

Vice-Mayor Mike McIntire said he was struggling with the fairness issue of the program.

“We’re willing to build roads for a developer who’s doing the high-end things, yet the fellow who does not has to build the roads and pay for their line of credit,” McIntire said. “What makes you think the banks will view this any differently? (Developers) still have to go after a significant loan.”

Campbell admitted selling houses in the $450,000 range yields more profit than houses in the $250,000 range, but for developers in Kingsport the “sweet spot” is in the $250,000 range. 

“Where’s the benefit for those who have already built those houses and are sitting empty?” 

Shupe said. Campbell said there would a residual benefit, with more houses in that price range providing more flexibility, people looking in Kingsport rather than somewhere else.

Local developers Andy Brooks, Danny Karst, Sam Kassem, Butch Rose and David Stauffer, along with Allison Stewart (a Realtor with Town and Country) were in attendance during Tuesday’s meeting and were asked by Phillips for their opinion on the proposal.

The response was luke-warm at best.

While Karst said there is definitely a need for houses over $400,000, he added if the opportunity presents itself to build those type of houses, the Edinburgh Group might do so.

Rose said the program would not help him at this time, since his development is already in place, with the paving approved and donated to the city.

“My biggest problem is dealing with the banks, trying to get a bank to work with me and get a loan,” Rose said. “It’s a long time coming to get a (speculative) loan.”

Stauffer, whose specializes in building custom houses, said he does not envision putting up two or three $500,000 houses on a whim.

“I had a house sitting in Preston Forest for two and a half years and the only way I got rid of it was my daughter bought it,” Stauffer said. “I don’t really see that many custom buyers in the marketplace right now and I don’t think I’m going to build a $500,000 spec house for a potential buyer. 

“If the demand is truly there, then the builders will step up and build.”

“If we wait until the demand is there, it could come and go and we not have anything,” Brooks said.

Campbell said the payback would be there if the right location for a subdivision is chosen.

“The minute we put (the program) out there, it will get interest and the banks could become interested,” Campbell said. “It’s very timely since there is some building season left. Additional relocations will happen in 2014 and if we don’t have anything to sell, that’s what concerns me.”

During Tuesday’s called meeting, the BMA amended the wording of the measure to include a June 1 sunset provision, with the thinking being the city would review the program at that time and see if it has been a success.

Campbell said he intends to meet with local banking officials immediately and would like to meet with home builders within the next week before sending out the criteria for the new program.

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