In the early 1990s it became evident that the Southern third of Genesee County was the primary venue for new housing activity. However, by 1994, as housing starts soared on the heels of property tax relief and subdivision development became THE growth industry of the Metro-Flint area, the greatest volume of activity shifted to the East, as the Davison area, along with the portions of Burton on its south and east borders, became primary “growth areas.”
From ‘90 to ‘94, new housing activity in the suburban communities of Davison and Burton was only 43 units above those of rural Argentine and Gaines Townships. However, in the final half of the decade, those suburban communities were home to 640 more starts than the Western county rural communities.
In those early years, the two suburban communities built 14% more homes than the rural ones. In the final half, the differential was 83%. The dramatic change was a strong indicator of what had become the driving force in Genesee County development; merging of metropolitan areas.
Though conventional wisdom suggests “Detroit” is south of “Flint,” reality shows that it’s nearly as far to the east. So, in reality, Davison Township and Burton, though north of Gaines and Argentine are, not only closer to the economic growth in the east-central region of Oakland County, along I-75, but have easier access from M-15 on the east, and Saginaw/Dort on the west.
In the mid-’90s, when the commuter made up Genesee County’s growing employment base, those eastern areas in the central part of the county began experiencing explosive development, and we altered our focus from the “south” to the areas of the county with convenient access to “metro-Detroit.” The new focus area (outlined on the map to the right) took up less than 30% of the total county, but became responsible for as much as 65% (‘99) of the area’s housing activity.
Last year, despite significant reductions in permits for single family and condominium units in both Fenton and Atlas Townships, the new “focus” area was home to 1,244 of 1,935, or 64.3%. In ‘00 the same area held 58.4% of the county’s owner occupied new homes, meaning it’s been averaging approximately 63% of that segment of all Genesee County activity for the past 3 years (61% since ‘95). To put that in perspective, that part of the county was responsible for 45% of the permits in ‘92.
: · While Fenton Township and City were off by roughly 75 units in ‘01, Linden nearly doubled its starts, keeping the “Fenton” area in the top two communities.
· Grand Blanc’s rise from ‘00 to ‘01 was similar to Holly’s decline, and related primarily to Pulte moving its lower priced area subdivision from Woodfield to Baldwin Rd
· “Burton’s” apparent decline wasn’t Burton at all, but the end of University Park’s first phase.If Flint ever burned its charter, U. P. would fall in the “Burton Township” section of Genesee County.
· Mundy Township’s sharp increase is likely a new trend as it now has better infrastructure within its borders, and Fenton Township’s apparently slowing.
· Atlas’ hostility to development continues to retard its activity into its 8th year.

Business News & Issues

“Alien Aid” and much more in farm bailout

Apparently starving aliens, that lost their food stamp privileges in the welfare reform legislation of 1996, have hurt farm income during the past six years, because their reinstatement to the program is part of a $73.5 billion farm preservation package passed by the U.S. Senate last week. The legislation, which passed on a 58 to 40 vote, had been expected for some time as Republicans and Democrats try to outpander each other for votes from the American “heartland.”
The Democrat Senate now must resolve differences with the Republican House on details ... but one detail already set is cost.
2001 was a banner year for farm income, which set a new record with $59.5 billion. Of course, $20 billion of that was in Federal subsidies. So, it’s now up to both parties to find a viable replacement for the “Freedom to Farm” act, which was designed to cut subsidies by had the reverse effect.
Aside from alien food stamps the package includes higher price supports for corn, wheat etc. and double the spending for conservation programs.
However, it’s biggest difference from the house bill is likely to dominate the debate: a limit of $275,000 per farm is in the Senate bill, which has big cotton producers, among others, geared to fight.

Luxury Auto Sales Tell the Real Story

The Wall Street Journal article was supposed to highlight declining quality problems for Mercedes. But the accompanying chart may well be more newsworthy, at least from the perspective of an area relying on American auto company activity. Sales of luxury nameplates, in the U.S. from 1997 through ‘01, show the following: Audi (+ 144%); BMW (+ 74%); Mercedes (+69%); Lexus (+ 130%); Jaguar (+ 128%); Lincoln (- 4.5%); Cadillac (- 5.7%). And worse, Cadillac, though outselling Lincoln, was outsold by Lexus, BMW and Mercedes in ‘01.

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Transfer Tax “Loophole” and Spirit of Prop A

Regarding the media focus on Pulte Homes “loophole” in avoiding the real estate transfer tax: The Free Press (with the AP picking up on the story) said Pulte was selling lots through one company, then selling the home on the lot through another company, thereby avoiding the transfer tax on the building portion of the transaction, and shorting the state’s schools.
Well, the truth is that Pulte is following the intent (and spirit) of proposal A, and builders who pay the transfer on the whole package are unduly penalized.
When Proposal “A” was created, it’s spirit suggested that any tax increase was, at least, offset by a tax cut. That seems to apply to everyone, except home builders, the only group that took multiple hits.
Theoretically, the 3/4% real estate transfer tax merely offset some of the benefits homeowners received from property tax relief. And, builders and developers did benefit from lower taxes. However, unlike homeowners, builders were hit by the rise in sales taxes, which added roughly 1% to the total cost of building a new home. So, builders were immediately hit with two tax increases, instead of one like the home seller.
However, what’s more maddening is the suggestion that failure to pay the full transfer tax is “shorting” school funds. In 1994, the Senate Fiscal agency’s analysis said a 1% transfer tax would bring $213 million (that’s $160 million when the tax was cut to 3/4). If we adjust that figure for inflation, the current fiscal impact would be roughly $189 million. However, this year’s budget expects to raise “$255 million.” In other words, the state is expecting a $66 million windfall from the real estate transfer tax during the current fiscal year, which is 35% higher than the rate of inflation since fiscal 1994- 95. If that’s some kind of shortfall, we should all be so lucky.

Barry

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Taxation and Finance ---- Independent Contractors; how to classify workers

With most contractors' busy season fast approaching, now is a good time to revisit one of our favorite topics - independent contractors. One of the steps we recommend to clients who use independent contractors and who therefore face a heightened risk of a costly IRS payroll tax or benefits audit, is a quick review of some of the key things the IRS tells its agents to look at in determining whether a worker is really an employee. The primary inquiries fall into three categories. Who has financial control of the job? Who can exercise control over how the worker performs the specific task? And how do the parties themselves view the relationship?
When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor.
Workers are more likely to be classified as independent contractors if they:
· Make a significant investment in business property (a home computer is not significant);
· Pay their own business expenses;
· Receive a flat fee that is not based on an hourly or similar rate;
· Are not prohibited from doing work for other companies;
· Can pay subcontractors to get the job done;
· Are not performing services as an integral part of your regular business;
· Have a contract with an enforceable liquidated damages provision;
· Can make a profit;
· Can suffer a loss.
Workers are more likely to be classified “employee” if they:
· Are given specific instructions and on-going training in how to get the work done;
· Cannot work for others;
· Have expenses paid by your company;
· Are paid with a salary or hourly wage;
· Do not have a significant investment in their trade or business;
· Are an integral part of your regular business;
· Receive direct reimbursement for all, or almost all, expenses; Less important is:
· Whether or not the work is performed on the business's premises;
· Whether the worker has flexibility in setting hours;
· Whether the relationship is temporary or short-term;
· Whether the work is full or part-time;
· Whether the worker performs services for one or more businesses.

If you suspect from this list that there might be a problem, you should consult your tax advisor to review your hiring practices and suggest effective solutions if necessary.

R, P & T

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Warning! Grand Blanc Builders

Last Thursday evening the Grand Blanc Township board voted unanimously for a rise in water tap-in fees of $1,000. The vote was made over the association’s protests, including questions regarding the legality of the decision which seems in conflict with a Michigan Supreme Court decision that set a three pronged test for “user fees” to be considered valid.
At this time, we don’t know when the new rate will go into effect, but anyone bidding a home in the township should keep the $1,000 additional cost in mind.
To this point, the Township’s only stated justification for the increase has been that surrounding communities charge more, which is clearly an invalid reason under state law. The association is investigating the situation in attempt to determine if there is any hidden validity to the action and, ultimately, what options the industry has in response.

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Beyond Seinfeld: It’s still about "Nothing" in particular

Fieger “Reality” explains Flint’s Finances

For nearly a decade there’s been a mystery that’s puzzled scholars, investment analysts and Michael Moore alike: How can so many Michigan, and even local communities, thrive, while cities like Flint go deeper and deeper in the hole? Well, we finally have the answer, thanks to TV attorney (and former Gubernatorial Candidate) Geoffrey Fieger, the mystery is solved.
Speaking to a rally opposing the recall of Flint Mayor Stanley, Fieger told the crowd that it’s John Engler, not Woodrow Stanley, who should, not only be impeached, but “tarred and feathered.” The problem, according to Fieger, is that Engler has cut “equitable funding” for cities over the past 12 years.
So, now we understand, in Fiegerland, the growth other communities have experienced was only made possible due to taking money that should have gone to Flint.

0% Auto Financing Leads to Crime Wave

Caught an interesting brief on a Detroit TV news show Monday evening, suggesting that last fall’s 0% financing was responsible for a crime wave in the Motor City. Apparently there was a sharp rise in vehicle arsons during ‘01’s fourth quarter, which came to an abrupt halt when the new year began. The suspicion of police is that car owners were burning their auto’s, then reporting them stolen, in order to get insurance money to take advantage of the zero percent loans.

Image of Ted Turner Greets NAHB Expo

Talk about hostile territory! In the state where Jimmy Carter began his climb to the presidency, NAHB held its annual convention at Atlanta’s World Congress Center, which just happens to be next door to the CNN building, with messages from Ted Turner flashing at all who attend. Just prior to the convention we learned that Ted donated some $31 million to environmental causes in 2000, and has personally bought up 1.8 million acres of land to keep it out of developers’ hands. In ‘03, back to reality in Vegas ...

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Association News and Events

Considering the note above concerning the decision by Grand Blanc Township to raise water tap-in fees, it’s some- what ironic that our scheduled guest at March 5th’s Land Development Council meeting is Genesee County Drain Commissioner Jeff Wright.
There are a number of issues on the docket, including a process for financing sewer and water capital fees, soil erosion procedures (Neil Martz, who’s heading up that department will be in attendance) and discussion of shortening the plat approval process. The meeting begins at 2:30 p.m. and will last until roughly 4:00 ..... all members are invited.

Is a “Habitat for Humanity” home in BAMF’s immediate future? Well, it’s beginning to look that way as, at the association’s request, the Grand Blanc Township board agreed to partner with BAMF and Habitat by transferring ownership of a lot on Kettering Heights (off Dort near the Grand Blanc Inn) to Habitat for a BAMF sponsored home to be built. Several members have already volunteered materials and services for the home that’s expected to be built, and open, for the fall Parade in October.
As BAMF President Steve Edwards and Treasurer Larry Corbett are spearheading the association effort, Habitat will be visible at this evening’s Exhibitors’ Night, where we expect additional members will sign on in support.
Although the association was heavily involved with Habitat in its early days (helping set up a materials’ warehouse and providing technical assistance to a number of projects), it’s never sponsored/built a home ... so, if you wish to get involved, call the office at 603-2200.

It’s starting to look like another strong showing for the Parade of Homes this spring. Despite the lack of mail Monday, we were at 34 homes this morning, with a few more expected at the post office tomorrow, and a number by the final deadline on March 8th. To put that in perspective, there were 33 entries on March 5 last year, and we opened the event with 42 models.
What’s interesting about the early entries is the number in the Fenton/Linden area. It appears that at least seven are already committed.
Once again, the Parade opens on Saturday, May 11th. If any member is planning to participate and hasn’t entered so far, the fee is now $2,700 per home, and the final deadline is March 8th.

Another reminder on Housing Quarterly magazine: We’ll be setting the size of the magazine when the Parade deadline hits, and will be limited in offering full color pages after that time. So, if you want a full color add, let us know ASAP.

Economic Update: Private forecasts now more optimistic

Early this month the Bush administration launched what the Wall Street Journal called a “new era of deficit spending” as it sent a $213 trillion budget to Congress. The fiscal 2003 document projects a deficit for the year of some $80 billion (which some call optimistic) as it uses all surplus social security funds and still puts the government back into its old borrowing mode.
And, it even had some revenue enhancement (taxes disguised as fees), including fees for timber operations on Federal lands. But, perhaps most noteworthy is that this administration, which had planned to reduce the federal deficit by $1.6 trillion by 2007, now expects the deficit to rise by $58 billion over the next five years.
The Bush budget includes its fiscal stimulus plan, which it believes will pull the economy out of recession early this year. However, despite the stimulus, it forecasts growth for the year at 0.7%, less than the Congressional Budget Office’s 0.8% forecast (and the CBO doesn’t include the stimulus).
What’s unusual is that private sector economists now appear to have a far more optimistic view of the current year. A consensus of 52 business economists surveyed by “Blue Chip Economic Indicators” raised its forecast for the first time in eleven months. In January, the panel’s forecast for ‘02 was at 1% growth, last week their consensus was 1.5%.
Much of the reason for the private sector optimism was evident in the recent Commerce Department report that inventories continued to fall at the end of last year. By the end of December, wholesale inventories were down by $16 billion from a year earlier, and manufacturing inventories fell by $35 billion during the same period. Add to that last week’s report that consumer spending remained strong in January, and it’s apparent that manufacturing (which was almost in a growth pattern at the beginning of February) will have to gear up to restock inventories in the near future.

The other “big” story on the economic front was the surge in productivity growth during the 4th quarter. On the heels of 1.1% growth in the previous quarter, It soared a whopping 3.5% from October through December, dropping unit labor costs 1.1%, the first such drop since the end of ‘99.
The importance of the productivity data relates to the ability of the economy to heat up again, without the usual fears of inflation that would, historically, spur the Federal Reserve to take action on interest rates. With the Federal Funds’ rate at its lowest level
in memory, any indication of stronger than expected growth could bring about a reaction by the Fed. However, with productivity’s level on the rise, Chairman Greenspan has ammunition to hold off temptation.

Inflation Remains Tame
Last week came the Labor Department report that Wholesale Prices rose 0.1% in January, after falling 0.6% the previous month. And, when we exclude energy and food, the core rate fell 0.1%, meaning that for the past 12 months, wholesale inflation fell 2.6%, the biggest drop since 1949, and is only up 0.3% when the volatile food and energy sectors are eliminated.
Then, this morning , the department said Consumer prices were up 0.2% in January, as was the core rate. So, when coupled with the productivity report, it’s obvious that inflation remains a negligible threat to the economy in the near future.

Housing Industry Update

Southeast Michigan Permits up in January

Housing Consultants released the first indicator of new building activity for ‘02 on Monday, and it showed total building permits up 9.3% from last January throughout Southeast Michigan. However, when rental units were eliminated, permits were up just 4.3%.
Considering only single family and condo authorizations, there were 1,128 units, up from 1,082 a year ago, with all counties up except for Oakland, Lapeer and Genesee.
“Flint” area data showed 104 new units for the month, down by 3 from last January, with the usual communities showing the biggest numbers: Grand Blanc Township (27); Fenton Township (21). Linden was third at 13 with Fenton fourth at 8. So, we find that, of the 104 units, 66.3% were authorized within the 11% of the county that exists within the borders of Grand Blanc and Fenton Townships.

Housing Market Index Slips 2 points this month
After rising 13 points from November through January, the NAHB Housing Market Index (HMI), which measures builder sentiment across the nation, fell two points this month, but remains at a strong “58,” meaning that more builders view conditions as good than poor. And, although the HMI’s sections that gauge current sales and model traffic fell, the section gauging sales expectations for the coming six months stayed at “a very solid 66.”
The HMI survey’s NAHB member builders, asking them to rate conditions as good, fair or poor. A score of 50 means an equal number believing conditions are “poor,” also believe conditions are “good.” So, the “66” on sales expectations shows extremely vibrant builder sentiment across the nation.

Metro Home Prices rose at "torrid" pace?
Last week the National Association of Realtors said that existing home prices rose at a 6.2% clip from the 4th quarter of ‘00 to the final 3 months of ‘01 in the nation’s metro-politan areas. And, despite some discrepancies in Flor-ida, as the Wall Street Journal put it, “few economists dispute the overall premise of the report: that home prices continued to grow at a fast clip in the fourth quarter.”
Which brings us to, what’s become, the usual question, how can prices continue to rise during a recession?
Well, we’d respond with another question: Does a rise in median prices of homes sold really mean that home prices grew in a particular period? Not necessarily; which is why it’s becoming clear that “few” economists have a real understanding of home prices, and their relationship to market and economic conditions.
It’s really not unusual when median prices rise during a recession. In fact, it should probably be expected. After all, during the recession year of 1991, median prices rose 5.4%, more than during any year of the subsequent expansion except for ‘98. And, the distortions that are evident in median and average price data are more prevalent in a recessionary market.
The analysis in column four attempts to make sense of this phenomena which confuses so many economists.

Housing Affordability hits 27 year high
The Realtors housing affordability index rose a whopping 9.4% during the 4th quarter, hitting 146.8, its highest level since 1973. The index showed the typical household income ($53,914) was 147% of the income necessary to purchase the median priced home of $148,000. In fact, the “typical” household could qualify for a $217,300 home, according to the realtors’ report.
“Low mortgage rates, rising family income and a seasonal dip in the median existing—home price” were credited for the improvement in the fourth quarter's "affordability conditions" according to the NAR.

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