Natomas loses its housing mojo as developers hesitate to build

April 02--Two years after a moratorium on new construction was lifted in Sacramento's Natomas area, the community of 100,000 people that had earned a reputation for booming growth is starting to build again -- slowly.

In 2008, the Federal Emergency Management Agency imposed strict restrictions on new construction due to safety concerns about the levees that ring the Natomas basin, resulting in a de facto moratorium. When regulations were relaxed in 2015, city officials expected developers to immediately jump back into the fray. Officials had predicted that up to 1,000 homes could be built in the first year alone.

The explosion of new communities, however, has yet to materialize. From April 2015 through February, only 497 single-family homes were built in Natomas, according to city permit data. Another 514 permits were issued, though construction has not completed.

"It hasn't been as fast as we originally thought it would be," said associate planner Arwen Wacht, a 17-year veteran of Sacramento's Community Development Department who watched the bust of Natomas nearly a decade ago.

As for multi-family housing such as apartments and town homes, 302 permits were issued, but none have been finalized, according to the city. With 40,000 housing units and 30,000 jobs, Natomas was the city's fastest-growing region until the area was hit with the moratorium.

New housing construction was halted as officials feared that a break in the 43-mile levee that protects the bowl-like region could trigger flood depths enough to submerge a two-story house. In 2012, $410 million in repairs were made on the most critical levee segments by the Sacramento Area Flood Control Agency. More levee work is needed, but funding remains held up in Congress.

Concerned that developers would rush into a building binge, city officials initially proposed limits on new home construction of 1,000 for the first year, increasing to 2,000 in the second year and 3,000 in the third.

Michael Stretch, president of the North State Building Industry Association, attributed the slow pace of development to "tremendous constraints on our industry," including environmental rules and a labor shortage. After several lean years during the recession when new home construction grounded to a halt, most of the workers either left the state or found other jobs, Stretch said.

"They just vacated," he said. "It's a whole new population of folks that we need to come back in to help rebuild the industry."

Developers region-wide are also proceeding much more cautiously, with memories of the recession still fresh in their minds. They are opting to sell a home before they build one, according to Kevin Carson, Northern California president of The New Home Company. Previously, the standard practice -- known as speculative building -- was to build 10 or even 20 houses ahead of market demand, since it can take up to four months for construction to complete.

"The new normal is very different from what was going on in 2007 when Natomas was going gangbusters," Stretch said.

Today, there are 18 new home communities in Natomas, down sharply from the several dozen that dotted the fields around Interstate 5 at the turn of the century. The area still has roughly 7,000 lots for single-family homes, though more than half remain undeveloped raw land.

The New Home Company, based in Orange County, recently finished a community -- a recession holdover that had unfinished lots -- in Natomas and hopes to start another subdivision soon.

"Of the different submarkets in the Sacramento area, it's one of the strongest by far" in terms of demand, Carson said. "Natomas is great. You are literally five to six minutes away from all the job sources and all the entertainment downtown."

On average, for every 16 people who visit a community in Natomas, one person will buy a new home, an indication that the area is highly sought after, Carson said. For El Dorado Hills, where homes sell more slowly, the ratio is 64 people to each sale, according to the Ryness Report, an industry marketing resource.

Despite its selling point as a suburban stronghold, Natomas is awakening from a seven-year-long slumber to a much different regional market. New infill projects across the central city, such as The Creamery at Alkali Flat, are also taking potential buyers.

Dan Trescott, president of the Natomas Chamber of Commerce, doesn't have an issue with the restrained growth. The small business owner said the gradual pace reduces the strain on public services and local infrastructure that would occur in a building boom.

Despite the repairs conducted on the levee system, flood insurance will remain a requirement for Natomas residents until all work is finished.

Jon Redding moved in January from a small Walnut Creek condo to a new single-family home in Natomas twice the size of his condo. Redding elected to purchase from builder K. Hovnanian because he wanted to "pick out all the goodies."

"I was really attracted by the fact that you could customize everything," he said, adding that the open spaces in Natomas was a welcome respite from the crowded Bay Area.

The resale market in Natomas has showed considerable strength, said Pat Shea, president of Lyon Real Estate. Natomas-area inventory dropped to 68 homes as of March 1, half the monthly average, Shea said.

"Natomas was under a superficial cloud with the moratorium. Some people shied away," he said. "Demand could be stronger moving forward, especially with the proximity to the airport and downtown."

Richard Chang: 916-321-1018, @RichardYChang

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