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"A developer wants some certainly that a planned Licking County subdivision won't switch school districts, a move that could mean marked lower prices." The Columbus Dispatch, "Developer asks for schools' promise," Saturday, March 18, 2006, page C1. ...a very concise statement of why developers care about which school district will serve the children of a planned subdivision. In this case, the developer, Rockford Homes, is planning to build 142 homes starting at $275,000, and they're counting on having those homes served by Granville schools rather than Newark. This revenue potential revenue to Rockwood in excess of $39 million. Rockwood is a privately-held corporation, so I have no financial data. In 2004, Dominion Homes generated $20 million of net income on revenue of $542 million, or about 3.7% to the bottom line. If Rockford Homes has similar financial performance, this one development would generate approximately $1.5 million in profit for the Yoakam family, who owns Rockford. Jim McKivergin, a RE/MAX broker is quoted in the above story as saying that if this development were moved to Newark Schools, instead of Granville, the price Rockford could expect to receive for the homes would decrease by 20%. Using Dominion's financials as a model, this project might drop to just a breakeven deal if prices decrease only 7%. With a 20% decrease, it would likely become a money loser for Rockford. If that is the case, Rockford would not even start this development. Whether or not a developer makes money on development depends on many things, including the price they originally paid for the raw land, the health of the housing market, labor and materials costs, and their cost of capital. While I cannot say for sure that a 20% decrease in prices (or even a 7% decrease), makes this project a non-starter, we can rest assured that these are very real issues to developers -- key to their ability to make a profit and survive as a business. This concern about the schools only lasts until the last lot is sold. Until then, the developers want every construction and operating levy passed to make sure the school system, as a key component of the home purchasing decision, is as attractive as possible to potential buyers. After that, they don't care. Think about what the entrance looks like into a brand new development, compared to how it looks 10 years later. Once the developer has no more lots to sell, and has closed down the model home, they don't give a hoot what the entrance looks like. They treat the school systems the same way... |
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