fedgazette

Flux in military base operations disrupts housing markets

Kathy Cobb - Associate Editor

Published October 1, 1994  |  October 1994 issue

Gwin, Michigan, and Grand Forks, North Dakota, are two of several Ninth District communities that have benefited from military facilities that provide jobs and contribute to the fabric of the community. And like a marriage, the communities share the changing fortunes of those facilities—for better or worse.

Gwinn, in Michigan's Upper Peninsula (U.P.), is the location of Sawyer Air Force Base, the only Ninth District military installation on last year's Base Closing Commission's hit list. While central UP leaders struggle to keep their economy afloat, an anxious Grand Forks awaits the 1995 round of base closing announcements. But the uncertainty itself is playing havoc with the housing market, which in turn is hampering the city's economic expansion plans.

Sometimes you build it ... and they leave

Last year when the U.S. Military Base Closing Commission sounded the death knell for Sawyer Air Force Base in Gwinn, the impact on the area's housing market was immediate: Single-family home values plummeted by 10 percent to 15 percent. By the time the base closes its gates in September 1995, at least 100 off-base homes will be affected in some way, and 1,693 base housing units will be empty, not including the 800 dormitory spaces.

Although the market value of a typical Gwinn home dropped dramatically, some properties haven't been affected at all by the pullout, says Sam Elder, president of Elder Agency Inc., Marquette, who does business in Gwinn. "Hobby farms, lake properties, large lots—I don't expect those to change," Elder says. To add some stability to the housing picture, some civilian employees with government standing plan to take early retirement and remain in the UP because job opportunities at other military installations have become scarce.

Elder adds that some of the 50 houses that have changed hands in the past few months have been sold to people from Marquette who want to live in a smaller community and are willing to commute the 20 miles or so, and to those who already commute a greater distance and want to be closer. Gwinn, with an average single-family home price of $68,400, is currently more affordable than Marquette. "The taxes and prices are lower [in Gwinn]," Elder says.

Most of the houses already sold by military personnel have come under the Housing Assistance Program offered by the Air Force, through the Army Corps of Engineers. The program protects eligible homeowners from taking too great a loss on the sale of their homes and by doing so keeps prices closer to previous market value. So while only military can take advantage of the program it also protects non-military personnel who might want to sell. After the base closes and the assistance program ends, the Corps of Engineers will auction unsold homes.

Despite some home sales activity, the full impact of the closing on the housing market is yet to be felt, says Kathleen Gassett, Sawyer's housing assistance program coordinator. Although about 1,100 military personnel have already left the base, about 2,000 remain. And probably about one-fourth of those live in off-base housing, according to Gassett.

Major redeployment will begin in mid- to late winter, says Gassett, and about 200 military personnel are expected to depart each month until the closing. The winter departures will especially hurt the housing market, Gassett adds, when there is not much home buying activity in the UP.

The loss of the U.P.'s fourth largest employer, with an estimated economic impact of $157 million, is bound to be felt in Gwinn and nearby communities. But the Sawyer Conversion Authority, an organization of community and business leaders charged with developing a reuse plan for the base, is optimistic about replacing lost jobs—and filling those empty houses.

The authority has given its support to one plan that would put some on-base housing back in use. The Sault Ste. Marie Chippewa Tribe would transfer 271 base houses to tribal ownership for rent or sale to Indians and non-Indians. The housing request is part of a larger economic development plan proposed by the tribe and submitted to the Bureau of Indian Affairs for approval.

And Marquette is a growing university and medical center for the area. "If you look at major businesses, like Red Lobster and Wal-Mart, that chose to build in Marquette after the base closing was announced, it doesn't look so bad," says Ray Amtmann, the authority's executive director.

Grand Forks waits to see who's "it" in military base game of tagMeanwhile, because of uncertainties about the long-term presence of the Air Force in Grand Forks, new housing construction there has almost come to a standstill.

"It's a real catch 22," says Hal Gershman, a Grand Forks business leader and a member of the Minneapolis Fed's Advisory Council on Small Business, Agriculture and Labor. "The Air Force says we need more housing, but they may leave."

Gershman says base officials suggest to new personnel that there is little available off-base housing. "They're telling their people not to bring their dogs, much less their families," Gershman says.

And not only is there little room for Air Force base personnel, but students at the University of North Dakota are feeling the effects of a 1.5 percent vacancy rate for apartments. There have been stories of graduate students who have simply chosen to go to school elsewhere for lack of an apartment.

John O'Leary, executive director of the city's Office of Urban Development, says that while the base is certainly playing a role in housing issues, developers are also looking at projects that will make money. And with rising costs of building, that's not so easy.

Builders must pay 100 percent of the costs of special assessments on infrastructure improvements, bringing the cost of a single-family lot as high as $35,000, Gershman says. And as the city spreads away from its riverfront, the logical area for expansion is largely held by two landowners, who can command high prices from their captive market. This all adds up to a single-family home that can easily run $150,000 and up, Gershman says.

"There's a shortage in the $75,000 to $100,000 price range, where there's almost no selection," O'Leary says. And, he adds, "the small developer building two or three spec houses a year can no longer afford to buy a lot and build a home."

While Grand Forks waits on the fate of the Air Force Base, outlying communities are picking up some of the slack. For example, in Manville, 10 miles from Grand Forks, "little subdivisions are popping up," O'Leary says, "because the land is cheaper and the taxes are lower."

Regardless of what happens to the Air Force Base, a commission of business people and public policymakers has been formed to look at housing issues and develop some alternatives that might make it easier for developers to build, such as changes in building codes, arrangements with the banking community and developing partnerships. O'Leary also thinks there are some good housing opportunities in Grand Forks' older neighborhoods.

Although housing construction in Grand Forks has been slowed, commercial construction speaks to faith in the Grand Forks economy, O'Leary says. Grand Forks is expected to see $75 million of commercial building in 1994, including university research labs and retail and other businesses, according to Gershman.

In the past six years, 1,000 new jobs have been created in Grand Forks, O'Leary says. "But those efforts mean nothing if we don't have housing for workers and executives."

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