Housing slowdown hits rural cities and towns
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Sam Harmoning moved to the central Minnesota town of Annandale 40 years ago. Back then, 1,000 people called it home.
"It was quaint and charming, and it still is, but it's just gotten much bigger," says Harmoning.
Today the city's population has tripled to 3,000 people and Harmoning is mayor of Annandale.
Many people moved here in the past decade. City leaders marketed their small town as a convenient home base for commuters. It's only 45 minutes from the Twin Cities and they worked to convince new retirees that the town offered less expensive options to the cabin up north.
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That growth is shown in the number of home building permits the city issued. In 2004, there were 78. Last year only 17 building permits were authorized. So far this year the city has signed off on only 10.
Mayor Harmoning says it's obvious that developers and homebuilders are taking a conservative approach to new housing developments these days.
"Had the current housing downsizing not happened, I think we would have seen a huge attack on city hall from developers asking, 'How soon can I get in?'" says Harmoning.
New houses are more than just a marker of a city's growth, they also bring in big money. The cost of a permit varies from city to city but on average can run thousands of dollars. That means a drop in new home construction can cost a city hundreds of thousands even millions of dollars in revenue.
That's what's happened in Albertville, a city on I-94 north of Minneapolis. Albertville is well known for its huge outlet mall but the town has also seen explosive residential growth, doubling its population in less than 10 years to nearly 6,000 people.
The rapid growth in new home building that came with the expansion has slowed considerably. Larry Kruse watches the numbers as Albertville's city administrator.
"In 2005 we had a high of 133 building permits. Last year we had 90. And we're on track to about 70 new home permits this year," Kruse says.
A few years ago the city could count on $500,000 dollars in revenue from building permits. This year, according to Kruse, that's only $250,000 and that can affect the budgets in every single city department.
"A lot of cities build their revenue machines on that new growth revenue and then when that revenue isn't there it is difficult. You just have to be cautious in how you manage it and plan for it," he says.
When it comes to the current slow down, Kruse is optimistic that by 2009, home building will start to take off again in his city.
For the time being though, fast-growing Minnesota cities that rely heavily on home building permits for revenue may need to take a hard look at their budgets.
That's according to Dave MacGillivray who heads up Springsted Incorporated, a St. Paul-based consulting firm that works with cities on financial planning. Macgillvray says if a city takes a big financial hit because of the slowing housing market, it either has to make cuts in services, or work to find more money.
"You would have to either keep the tax rate the same and receive less revenues to operate your government or you would have to raise the tax rate at least by an amount to generate the same amount of revenues," he says.
MacGillvray points out that a dip like this in the housing market is exactly why most cities have a rainy day fund. And he says while cities experience slower growth over the next few years, it might be a perfect time for city leaders to plan for the next wave of home building, whenever that begins.
