Slow growth has posed challenges for Watertown

The Forest Hills development on the east side of Watertown was designed for hundreds of single family homes and townhomes, but currently features only about a couple dozen homes. Growth has been slow in general in Watertown, with only one new home permit issued in 2012. (Staff photo by Matt Bunke)
The Forest Hills development on the east side of Watertown was designed for hundreds of single family homes and townhomes, but currently features only about a couple dozen homes. Growth has been slow in general in Watertown, with only one new home permit issued in 2012. (Staff photo by Matt Bunke)

When the Watertown City Council and city staff met at a retreat earlier this year to develop a set of missions and goals for the city, it also took some time to not only assess the city’s strengths and successes, but also identify its greatest challenges and concerns.

Among the recurring themes when it came to the city’s foremost challenges was a recent lack of residential growth. The problem has affected cities across America during the tough economic conditions of the last half decade, but continues to plague Watertown even as other towns in Carver County are showing signs of recovery. Permits in 2012 for new home construction in Carver County were up 84 percent from just two years ago, but in Watertown, there was just one new residential permit issued last year.

That’s a long way from the average of 64 residential permits that were issued in Watertown each year between 2002 and 2006, including a peak of 84 in 2002. The slowdown in growth hasn’t come without consequences, and those effects started to become more and more visible over the last year.

Water and sewer rates saw another round of increases just several months ago to make up for less than anticipated rate and fee revenue, and the city was forced to slash numerous full-time positions in 2012 as a cost-cutting measure. The challenge now for the city is to try keep taxes as low as possible but still maintain service levels despite increasing costs and a declining taxable market value in the city.

“Growth is important for a community like ours because we’ve made investments in infrastructure to facilitate growth with the idea that it would be paid for by growth when it happened,” city administrator Luke Fischer said. “We only have one pot of money to go to collect money to provide services, and that’s our tax base. When we grow our tax base, we basically grow the pie and reduce the tax liability for our existing residents.”

That’s why the city council included its desire to increase residential growth as one of the four major goals it adopted last week when the council officially approved its new missions, values and goals that it set during that January retreat. The one new home permit issued in 2012 was a far cry from the roughly 100 that were expected to built, a projection that led to significant problems in the city’s water and sewer funds. Rate and fee collections fell short of what was anticipated, forcing the city to use its general fund to support bond payments on infrastructure that was built to accommodate the rapid growth that never occurred.

Instead of the roughly 100 homes that were projected to be built each year over the last several years, the city issued just two residential permits in 2008, five in 2009, six in 2010, five in 2011 and one last year. Like it did across the nation, construction slowed to a halt in 2008 after the housing bubble burst and the economy plummeted.

Watertown certainly wasn’t alone in that trend. In Carver County, a peak of 1,150 residential permits were issued in 2002, a number that dropped to 614 by 2006, and plummeted to a low of 225 in 2008.

Gradually, however, new construction is back on the rise in many parts of Carver County, especially the eastern portion. There were 514 permits issued county-wide in 2012, up from 387 in 2011 and 280 in 2010. Much of that growth is in cities like Chanhassen, which jumped from 85 permits in 2009 back up to 171 permits in 2012, and in Chaska, which jumped from 44 permits in 2010 to 123 in 2012.

However, growth has been seen closer to Watertown as well. Nearby in Waconia, the city issued 87 residential permits in 2012, up from just 24 in 2011. And in Mayer, the 15 permits that were issued in 2012 were more than had been issued in the previous three years combined, including just one each in 2010 and 2011. The 15 permits last year were still a long way from the average of 72 that were issued in Mayer between 2002 and 2006, but was still very promising to city administrator Luayn Murphy.

“It appears housing is back on the upswing, which is a good thing for the city,” she said.

Much like in Watertown, the slowdown in Mayer caused problems when it came to the water and sewer funds. The city was using funds from building permits to pay bond payments on infrastructural improvements to the water and sewer plants, and when that building permit revenue stopped coming in, the city had to levy on the taxes for those bond payments.

However, growth seems to be slowly recovering in Mayer, a welcome sight. Murphy said the growth appears to be occurring naturally, and that the city hasn’t done anything specific to facilitate that upswing in construction. Mayer has offered incentives in the past, including the decision to waive permit fees in 2011, but the city issued only one permit that year.

“There was no indication that it enticed builders to come to the city to build,” Murphy said.

Fischer said that in Watertown, the city has considered several times in the last several years the idea of reducing permit fees, and as part of a development incentive program, did cut the building permit cost in half for a limited number of permits a few years ago. Fischer described the program as “short lived” and the results as “mildly successful.”

One of the biggest reasons for the lack of new construction in Watertown could be that all of the new housing developments are still developer owned. While some of the individual lots may be owned by banks, Fischer said none of the developments have been taken back by banks.

In bank owned developments in other nearby cities like Delano and Waconia, however, banks have been slashing prices to get rid of lots.

Real estate agents Kevin Butcher of Edina Realty and Jeff Vanderlinde of the Vanderlinde Group both pointed to the Fox Meadow development near Delano as an example. The development, started about seven years ago by now-bankrupt auto dealer Denny Hecker, was virtually empty until banks started reducing prices by as much as 70 percent last year, and the sixty-some remaining lots sold out in a matter of months.

In Watertown, however, the developers have so far been able to ride out the economy, and prices have therefore remained higher.

“The developers are still holding on, and they couldn’t afford to give them away like the banks could at $15,000 apiece,” Vanderlinde said. “The developers weathered the storm, and now they’re just trying to break even.”

Still, Vanderlinde sees signs of promise. He says his group has been involved in more new home constructions in the last eight months in the west metro area than it was in the last five years combined. He also said his group is currently involved with two new home constructions in Watertown, which would be more than all of last year.

Even though lot prices have remained higher in Watertown than in many Delano developments, Vanderlinde believes it’s only a matter of time before construction picks up again in Watertown.

“It’s because of Watertown has to offer,” Vanderlinde said. “The small feel. A lot of people are moving back to their hometowns and starting to slow down in life. Watertown has that small town community feel.”

Butcher also noted that the existing housing market in the Watertown area is also improving, saying he feels it is better now than it has been at any time since 2005. Like much of the country, he said it’s a seller’s market in the area right now, with low inventory — especially of homes listed at less than $150,000 — and plenty of interested buyers.

“It’s the best time it’s been in several years for sellers,” Butcher said. “If things are priced correctly, they’re moving pretty quickly.”

Vanderlinde added that the lack of inventory of  existing homes is actually starting to fuel interest in new construction. Fischer also said he’s beginning to hear good things and is hopeful things will start to turn around in Watertown, where he said there are roughly 385 available lots that are currently served by streets and utilities.

A large chunk of those are in the Forest Hills Development on the East side of town. Started about five years ago, the development was to include roughly 100 single-family lots in Phase 1, followed by many more townhomes, but currently the development has only about two dozen homes.

“We have had more phone calls than in the past couple years this spring about home development,” Fischer said. “Our building official has been out talking to developers, and he’s hearing positive things about Watertown. We’re hopeful some of that will materialize and come together.”

As part of its newly developed missions and goals, the city council hopes to develop some sort of marketing plan to draw new families and residents to Watertown. Mayor Charlotte Johnson has also long championed the idea of local residents spreading positive reviews of the city through word of mouth.

“We need to be cheerleaders for Watertown,” she said. “We need to be pointing out all the good things that we have living in Watertown.”

Johnson pointed out many of the aspects that locals love about Watertown, including it’s small town values and charms, its many churches, progressive schools and safe streets. Johnson said all those things can be promoted as reasons to move to Watertown, and added that she sees no reason why new growth should threaten any of things local residents already love, as some people may fear.

“We do want to retain the small-town ambiance of Watertown, but I think we can still do that while increasing growth,” she said. “I see no conflict between the two. As far as I’m concerned, having new people move to Watertown, we need to continue to be a welcoming, caring, supportive city.

“By doing that, by bringing these people in, we will make them feel part of Watertown and we will be able to retain the values that we have as far as being a caring and supportive community. Just because we have more people should not affect that.”


Contact Matt Bunke at [email protected]