1996-07-03 Rezoning
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NORTHWEST ASSOCIATED CONSULTANTS
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COMMl,JNITY PLANNING - DESIGN - MARKET RESEARCH
MEMORANDUM
TO:
Gary Hale
FROM:
Daniel Licht I Alan Brixius I David Licht
DATE:
3 July 1996
RE:
Albertville - Kenco Rezoning - Jenson Letter
FILE NO.:
163.06 -96.10
The following memorandum is a response to several questions posed by Donald Jenson,
of Kenco, in a 18 June 1996 letter (attached as Exhibit A) written to the City regarding the
rezoning of Kenco lands and new zoning districts west of LaBeaux Avenue. The rezoning
of Kenco owned property from R-1, Residential Single Family to R-1A, Residential Low
Density Single Family District occurred as a result of the City Council adopting the
Comprehensive Plan Update and incorporated updated City Zoning Map. Our office's
response to each of Mr. Jenson's questions follow:
1. "What isthe source of data regarding lot pricing data and end-home sales prices
specific to communities with Albertville's staff and services makeup, versus a
community with services and staff like Lakeville?"
The City's conclusion that higher lot prices result in higher overall home values is
a real estate factor and nota question of local government service levels.
Regardless of the City involved, a higher cost lot constructed with the same valued
house will result in a higher overall cost than a house developed on a lower cost lot.
This rather logical conclusion is illustrated by the calculations below.
$50,000 Lot + $80,000 House Construction Cost = $130,000 Total Cost
$25,000 Lot + $80,000 House Construction Cost = $105,000 Total Cost
The only variable in the equation above is that of lot cost. As expected the final
construction value of the hypothetical properties differ proportionally by the cost of
the lot. Based upon this simple mathematical relationship, the foundation for
Kenco's question of the City's position is unclear.
5775 WAYZATA BOULEVARD, SUITE 555 ST. LOUIS PARK, MINNESOTA 554 I 6
PH 0 N E 6 I 2 - 5 9 5 - 9 63 6 FAX 6 I 2 - 5 9 5 - 9 8 3 7
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Larger 101s can be expected to have higher prices because land with in a
subdivision is a finite resource. To illustrate this point, assume a developer owns
a parcel of land which they intend to develop with residential uses. The developer
has established a profit level that they wish to achieve based upon the complete
development of the parcel. If said parcel were developed under R-1 District lot size
standards, the developer could sell more homes at lower prices to achieve the
established profit versus developing the property at R-1A district standards.
Because of the resulting fewer number of lots in the example. subdivision under R-
1A District standards, the developer would have to sell fewer lots at higher prices
to achieve the same profit. Should the developer choose to sell lower density
properties at the same price as higher. density properties, the final profit will be
lower. Whether a developer chooses to realize the increased land cost in their
sale prices or absorb the increased land cost against their profit margins is a
decision entirely of their own volition and is of no concern to the City.
It has been our experience in other Wright County communities, including Delano,
Monticello and Buffalo, that subdivisions with larger lot sizes, asa whole, typically
result in developed lots with higher tax estimated market values when compared
with subdivisions with smaller average lots. An example of this situation in Delano
is provided for reference:
DELANO
Subdivision
Rebecca Park
Estates
Maple Knoll
Surveyed
Lots
Blk 2, Lot 6,14,19,24
Blk 3, Lot 1,2
Blk 1, Lot 13,23,27
Blk 2, Lot 7, 9,12
Blk 3, Lot 3
Minimum Lot Size
Est. market Median
value (Not
sales price) . Mean
12,500 Sq. Ft.
$140,500
$139,533
10,000 Sq. Ft.
$96,850
$99,285
Source: Wright County Property Tax Information
Northwest. Associated Consultants
It has also been observed that while the average land value of the developed lots
are similar between the large lot and small lot subdivisions, the relationship of the
land value versus the value of improvements is significantly different. In Delano,
the value of improvements was found to be approximately four times the land value
in Rebecca Park Estates. The value of improvements in Maple Knoll were found
to be approximately two to two and one-half times the land value. Therefore, while
the value of the land maybe similar between the two developed subdivisions, a
greater amount of value is given to the larger lots in terms of improvements.
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2. "Where is the data that suggests that a homes initial sales price is the sole
determining factor in whether a homes future value will only escalate by the rate of
inflation? Why is there no credit in the debate over the future value of a structure
inherent in its unfinished room areas? For example, if Kenco were to finish all of the
rooms and basements within every house sold, the minimum house cost would
increase by an average of $15,000. When a home owner invests money into the
exterior by landscaping, an additional $2,000 to $5,000 of value is created. There
are no studies we have been made aware of which argue against a concept of using
a homes future value as fully finished in making comparisons of value to and within
the community."
Mr. Jenson's assertion that a house's initial sale price and inflation are not the only
determining factors of future value is correct. .A homeowner may elect to complete
improvements, such as finishing basement areas or property landscaping, which
will likely add value to the property. However, the size and scope of such
improvements, if they are undertaken by the property owner, may vary considerably
from property to property. As a consistent value for such improvements cannot be
determined for every property, they do not represent a reliable forecast of future
property values.
If it were possible to establish a predictable forecast value for potential
improvements which could be applied uniformly across all residential properties, the
same added value above initial sales price and inflation could be applied to higher
value homes to determine estimated future values as well. Owners of homes in
higher value ranges are just as likely as those in lower home value ranges to initiate
improvements which increase their future property values. In fact, larger lot sizes
provide greater lot area for landscaping and other improvements which may occur
following initial construction, resulting in higher valuation. Therefore, Mr. Jenson's
assertion that the City unfairly represented the potential future value of homes
similar to those developed by Kenco is unfounded. Estimating future home values
based upon potential improvements which are dependant upon the initiative and
resources of individual property owners is speculative at best. It is worth noting that
the City is currently being asked to consider requiring developers to complete
additional site improvements, including landscaping, in order to improve the quality
of new developments and increase their overall value.
3. "How does the side yard setback criteria of the R-1 A zone create any more
buildable pad area that the current R-1 area?"
It is correct that the minimum lot performance standards of the R-1A Zoning District
do not increase the maximum building pad size when compated with those of the
R-1 Zoning District. The objective of the R-1A Zoning District is to promote the
development of higher value homes. Typically, the size and scale of single family
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homes increases with value. As such, homes with the greatest values tend to be
larger than their less expensive counterparts. The lot width and side yard setback
requirements of the R-1A District are not intended to increase the buildable area
of lots within the district relative to those in the R-1 District. Rather, the lot
performance standards of the R-1A District were conceived to maintain the scale
of a larger house relative to the lot size and adjacent structures, preventing a
cluttered appearance within the neighborhood. The graphic below illustrates that
a 70' wide house built upon a minimum width R-1A lot will have an additional 50
percent of open space between structures than a 70' wide house built upon a
minimum width R-1 District lot.
R-1A DISTRICT
scale 1 "=50'
}s.
R-1 DISTRICT
scale 1 "=50'
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4. "How does the R-110t size proposal reflect the additional loss of revenue for WAC,
SAC, building permit, park and trail fees and school district per capita ratios?"
Application of R-1 District lot sizes to the Kenco property would likely, when fully
developed, result in more revenue for the City through the collection of impact fees
when compared with a fully developed subdivision constructed under R-1A District
lot sizes due to the increased density of the R-1 District development. The narrow
scope of Mr. Jenson's own argument, from the perspective of selling greater
volumes of homes, again reveals Kenco's lack of understanding of the City's long
term objectives.
Impact fees such as WAC, SAC, building permit fees, park and trail fees, etc. are
all required to be directly related to the anticipated impact of a development to the
service being provided. Subdivisions developed at R-1 District densities can be
expected to result in more lots, more households and more people than
subdivisions developed at R-1A District densities. These increased lots,
households and people of an R-1 development result in more water and sewer
hookups, more building inspections, higher usage and demand for parks and trails
and the need for more school facilities. Thus, the reason more impact fees are
likely collected from a R-1 District subdivision than a R-1A District subdivision is the
directly related to the increased demand for services.
The impact fees in themselves do no generate sufficient revenues to fully cover all
expenses related to government services. The City of Albertville, as documented
in the Comprehensive Plan, is reliant upon revenues generated from property taxes
to fund its operations and services. It has been documented by studies, including
the Albertville Comprehensive Plan, Lakeville Growth Management Study and
Wright County Revenue/Cost relationship study, that low density residential
development results in a net loss of tax revenue from property taxes collected
versus the costs of services provided. This deficit may be attributed to lower
construction costs, lower property tax ratios and homestead credits for single family
units, which results in a lower tax revenue generation as opposed to high density
multiple family residential developments or commercial and industrial uses which
generate net surplus tax revenues. Allowing development which does not "pay its
own way" to occur unimpeded will leave the City and other effected jurisdictions
unable to satisfy the demand for public services without incurring substantial debt
or significant property tax and service fee increases.
As a result of past growth in Albertville and the demand for capital improvements,
the City has one of the highest local tax rates in northeast Wright County. Beyond
Albertville's current tax rate, the City is considering increases to its current impact
fees and the establishment of an impact fee for the development of a City trail
system due to the increased demand and timing for these services as development
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has continued. Incurring long term debt and increasing property taxes and service
fees will most likely have a negative impact on the City's future growth over both the
long and short term.
The R-1A Zoning District, to a limited extent, is a tool for controlling demand for
urban services to. promote. orderly, fiscally responsible extension of services,
including (but not limited to) sewer and water service, development of parks and
trails, and construction of school facilities, as on-going development occurs. While
development of residential subdivisions at R-1A District standards will likely not
result in net surplus of property tax revenue, the demand for most services can be
expected to be lower due to the lower densities within the District. In addition,
growth is expected to occur more slowly over time, as opposed to development of
an R-1 District subdivision, because of the increased lot costs and anticipated
higher home values which have a somewhat more limited market potential.
5. "Is there a full understanding that when the roads are resurfaced and repaired in the
future, that there will be proportionally fewer homes owners to pay for the same
lineal footage as the current R-1 zoning?"
The City does not normally assess road resurfacing and repair projects to individual
property owners. Assessments for road improvement projects typically occur only
when the roadways are initially installed at the time of development. Therefore, Mr.
Jenson's point appears moot. Mr. Jenson is correct, because of the increased lot
width requirement of the R.,.1A District, fewer individual lots would exist to pay for
the initial assessment. However, this increased cost for road construction of an R-
1A District lot versus a R-1 District lot would likely add to the initial sales price of
the lot. This would in turn be expected to have an impact on the overall property
value as discussed previously in this memorandum. If the City were to assess for
regular ongoing maintenance of the street system, the frequency of such
assessments would likely be somewhat less for R-1A District neighborhoods than
an R-1 District neighborhood due to the lower density of the development. The
lower density of development would translate to fewer trips being generated within
the neighborhood resulting in lower traffic volumes and less wear and tear on the
local street. As such, repairs would be likely be required less frequently.
In summary, we recognize the merit of Mr. Jenson's statements from a developers
perspective. In terms achieving profit, Kenco will likely sell a greater volume of houses in
a shorter period under an R-1 District designation due to the increased densities and lower
initial sale prices resulting from the smaller lot sizes. What is clearly apparent from Mr.
Jenson's letter, however, is that Kenco has failed to look beyond the narrow scope of a
developer's perspective of short term profit to comprehend the growth and development
objectives of the City Comprehensive Plan and their potential long term benefits to the
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welfare of the entire community. The objective of the City is not the rapid residential
development which has occurred in the past or to maximize the profits of the developer.
Were this the case, there would have been no need to develop an R-1A Zoning District.
The City's purpose in applying the R-1A Zoning District is two-fold. First, application of the
R-1A District will promote the development of a wider range and balance of housing
options, both in terms of size, density and value. Second, application of R-1A District
standards to existing undeveloped lands within Albertville serves, to a limited extent, to
slow growth to a pace which can more. appropriately be accommodated, in a fiscally
responsible manner, within the City, County and School District's existing and future
service capacities.
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13736 Johnson Street N.E. · Ham Lake. MN 55304 · 757.4052
June 18, 1996
Mr. Gary Hale
City Administrator
5975 Main Avenue NE.
Albertville, MN 55301
RE: Rezoninf of Ken co Lands and new zoning districts west of LaBeaux A vemte
Dear Mr. Hale:
This letter serves to confIrm Kencos's request to receive any and all data made available t9:;,1.,
the Planning commission and City Council regarding the above City initiated processes. ..
To date, \ve have only received notice of hearings. As one of the largest land owners
affected, we would appreciate the opportunity to be able to react in a professional manner,
. with a reasonable amount of time to question data prepared by consultants for the City.
After all, we are a land owner in the City paying taxes on our model homes and vacan~
land, similar to most other citizens.
Some specific questions we desire to be answered by consultants prior to the July hearings
are:
1) What is the source of data regarding lot pricing data and end home sales prices,
stJecific to communities with Albertville's staff and services makeup, versus a community
with services and staff like Lakeville? ..
2) Where is the data that suggests th.at a homes initial sales price is the sol~
determining factor in whether a homes future value wm only escalate by the rate of
irttlation? Why is there no credit in the debate over the future value of a structure inherent
in its unfinished room areas? For example, if Kenco were to finish all of the rooms and
basements within every house sold, the ininimum house cost would increase by an average
of $ 15,000. When a home owner invests Inoney into the exterior by landscaping, an
additional $2000 to $5000 of value is created. There are no studies we have been made
aware orwhich argue against a concept of using a homes future value as fully finished in
making comparisons of "value to and within the community"
EXHIBIT A
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3) How doe& the side yard setback criteria of the R-IA zone create any more
buildable pad area than the current R-l area?
4) How does the R-llot size proposal reflect the additional loss of revenue for
WAC, SAC, building permit, park and trail fees and school district per capita ratios? .
5) Is there a full understanding that when the roads are resurfaced and repaired in the
future, that there will be proportionally fewer home owners to pay for the same lineal
footage as the current R-l zoning?
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Please contact us with any questions you may have about our inquiry.
Sincerely,
Donald Jensen
Land Development Director
Cc: Kent Roessler, President
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