Cottage Grove housing permits lagging but new subdivisions on the horizon

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The Twin Cities housing market is perking up in 2012, industry figures show. So, what about Cottage Grove?

Once the engine that drove the city’s rapid growth and provided a hefty chunk of revenue for its general fund, new housing construction in Cottage Grove has remained at historically low levels in 2012, according to a city tally.

The number of single- and multi-unit residential construction permits issued by metro cities has risen steeply this year over last, according to a recent report from the Builders Association of the Twin Cities, with almost 90 percent more new housing units permitted in September 2012 than September 2011.

In Cottage Grove it has been a different story. Through October, the city had issued just 40 permits for new single and attached residential units. Longtime City Administrator Ryan Schroeder estimated last week the city would likely issue only around 50 by the end of the year — something he attributed largely to a lack of available lots for homebuyers to choose from.

But, while mired in the city’s longest housing construction slump in its modern history, Cottage Grove officials say positive signs abound.

A recent monthly report from the Minneapolis Association of Realtors shows that, through October of this year, closed sales of existing homes in Cottage Grove are up 26 percent over the same time a year ago. The price of those homes sold is rising, too, the report showed, averaging $195,000 this year, up from $180,500 in 2011.

And, last week, a pair of housing developers, Newland Communities and DR Horton, proposed new subdivisions to the city’s Planning Commission they say would build more than 200 new homes and that city officials say would pad Cottage Grove’s critically low lot count.

In recent years, Mayor Myron Bailey said in an interview, “all we’ve been doing is extending [existing] development agreements” to give homebuilders more time to fill up long ago-approved subdivisions. “The good news is it looks like we’ve got some more interest from developers.”

Just about 50 empty, for-sale residential lots remain, according to the city’s count, as its inventory continues to shrink nearly six years on from a housing crash that brought a decades-long building boom in Cottage Grove to a grinding halt.

“Our challenge at the moment is the low lot count,” Schroeder said recently. “The more lots you have in inventory the more likely your housing production is going to increase. There isn’t enough choice in the market.”

Since 1970, an average of roughly 224 new homes per year have been constructed in Cottage Grove. From 1990 to 1999, the city averaged 308 new permits per year; from 2000 to 2009, the figure was 189.

Those decades of booming growth were a valuable source of revenue to city that grew from fewer than 13,500 residents in 1970 to more than 35,000 in 2010, with new home construction-related costs making up as much as 10 percent of the city’s annual general fund budget, Schroeder said.

Today, that figure is closer to 3 percent, he said, as the city hasn’t seen more than 90 new housing units permitted since 2006.

“When that revenue source goes away life gets a little more difficult,” Schroeder said.

While Bailey says there has been little the city could do to arrest what has been part of a national trend, city officials have worked with developers to help speed the city’s housing recovery, the mayor noted.

City planning officials picked the brains of a contingent of developers at a forum last year to generate ideas for how to ease the residential development process going forward. From that, Bailey said, came changes that included cutting city development fees and lowering the dollar figure developers must contribute into a park fund to bring them more in line with other communities.

Cottage Grove also reduced required lot sizes and setbacks from roadways in the master planned East Ravine area to account for changes in the residential construction market post-housing crash.

Though the days of hulking suburban McMansions, Bailey says, “are no longer,” he and Schroeder say they remain positive a turnaround is around the corner.

It might not be next year, Schroeder said, “but 2014 should be a good year for us.”

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