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Propane gives builders more options on land

Where land prices and associated development fees are rising, choosing propane helps builders avoid sacrificing amenities.

For builders competing in today’s tight land market, the question of whether a piece of dirt is worth buying boils down to two variables: how much they’ll pay per improved lot and how quickly they can get homes to market on that piece of land. It turns out, building with propane can help turn both of those numbers to builders’ advantage.

Just take the example of Doylestown Greene, a community of 25 half-acre lots originally developed by K. Hovnanian (before being sold to Toll Brothers) in Doylestown Township, Pennsylvania. The community, which recently finished selling out, shows how building with propane can reduce development costs and speed up development timelines.

Rick Buchholz, who was the director of land acquisition at K. Hovnanian when the company was competing to buy the property, saw the opportunity to grab a great parcel in the heart of the hot Bucks County, Pennsylvania, market. But the lots weren’t served by natural gas, even though a nearby community was.

Without natural gas, he’d be at a competitive disadvantage if he built homes only served by electricity, since access to popular gas-powered amenities such as fireplaces, spas, and outdoor kitchens can often affect a customer’s purchase decision. Selling those types of options also helps add to a builder’s bottom line.

"The natural gas infrastructure was only about a quarter mile away," says Buchholz, now president of homebuilding consultancy Waypoint Construction Services. "But there was a state highway that separated us from it. We ran the numbers, and extending the gas line to go across an overpass was not only going to add a couple hundred thousand dollars to the project, the design and approvals for it were going to add a year or more to the build. It just wouldn’t have made sense."

In other words, both numbers that are critical to a builder's success — the cost per improved lot and the pace at which the builder could get those homes to market — would have been negatively impacted by extending the natural gas infrastructure. The solution was a partnership with nearby Liberty Propane to install propane on site at the community, with no cost to the builder and at an accelerated pace.

"When we purchased the property, it was fully approved," Buchholz says. “All the entitlements were in place, so you could go in there, pull permits, and start building houses."

Buchholz says Doylestown Greene is just one example of how builders can use propane to their advantage in a market where finished lots sell at a premium and large parcels of land are increasingly hard to come by.

Land prices and fees are rising
For example, according to the Lincoln Institute of Land Policy, land prices across the U.S. rose by an average of 42 percent between 2013 and 2016 (the latest figures available). In popular urban areas, the increase was even greater: more than 208 percent in Fort Worth, Texas, and 156 percent in Tampa, Florida. Meanwhile, impact fees have also been on the rise. According to the National Association of Home Builders, the contribution of government fees to a home’s final cost increased 29.8 percent between 2011 and 2016.

Building with propane can help offset those increases. For example, since propane can be installed on site without expensive infrastructure investment on the builder’s part, builders can look farther out from the city and town centers, where more land is typically available, without having to compromise on the options they offer buyers, as they would with electric-only homes. Buchholz says that in his own area, that’s exactly what builders are doing, as the market has now extended past Plumstead Township, Pennsylvania, halfway between Trenton, New Jersey, and Allentown, Pennsylvania.

"They’re pushing into areas that haven’t seen a lot of new development because there’s obviously more ground out there," Buchholz says. "Those communities are seeing more development now than they’ve ever imagined, and natural gas isn’t there yet." Instead, propane offers developers a ready gas option.

In addition to cheaper land, impact fees in less-developed areas can also be lower, while smaller municipalities may not have as much red tape.

But Buchholz also often reminds clients that propane can be used in denser infill areas as well. He points to Carriage Hill, a community of 563 condos, townhomes, and single-family homes recently completed in Plumstead Township, which is served by a jurisdictional propane system.

"I talk to builders who build on small lots that may be just 8,000 square feet, and they say they can’t really use propane because they don’t have room," Buchholz says. "But I’ll show them something like Carriage Hill and say, 'Yes, you can.' You can probably still find room for a tank on the lot, and if you can’t, you can put in a jurisdictional system."

For builders who haven’t built with propane before, the learning curve isn’t steep, especially when it comes to interfacing with their established plans and processes.

"Builders want to use their prior communities as a template for their next one," Buchholz says. "They want to be able to push a button and have purchase orders sent out, because the fewer changes they have to make within their system, the more efficient they're going to be. The beauty of building with propane is the only thing they really have to do is change the model number on the stove."

Messaging to homebuyers
Maybe the biggest hurdle for builders who haven’t built with propane yet is learning how to sell its benefits to their end homebuyer customers. Those benefits include propane’s clean emissions, high efficiency ratings for heating both water and living spaces, and the comfort of the heat it produces.

“Sometimes, builders who are used to natural gas and then put propane into a community think, ‘OK, we’ve got propane; we just won’t say anything about it,’” Buchholz says. “But I think that’s a misstep because they’re underselling it. You have a really good product here, and you want to let your customer know that. You want to use it to your advantage.”

With builders competing over land in most markets in the country, that propane advantage can help them get a leg up while building faster and offering more options in areas where the numbers might not otherwise add up.

Published October 23, 2018

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