Tuesday, July 18, 2006

Loudon Gridlock--Greedy Developers

Developers are pushing Loudon County to open up a huge tract of land to construction of some 27,000 new homes.

Virginia's Dept. of Transportation has performed an initial study showing, not surprisingly, that such a massive development would add 300,000 car trips PER DAY to the already overburdened roads, exacerbating highway gridlock throughout Northern Virginia, particularly along I-66, Rt. 50, Rt. 28, Dulles Access Rd. and the Greenway.

The developers have reportedly offered to fund $200 million in highway improvements around the project, a figure that at least some Loudon supervisors seem to think is generous.

Let's look at the economics of the project and see.

This is a roughly $10 billion development, assuming an average home sales price of $350,000 and 27,000 homes ($9.45 billion to be precise). That's probably quite conservative.

Assuming the developers have a profit margin of 10 percent (also very conservative), they stand to make about $1 billion on the deal. Indeed, having purchased property zoned for about 5000 homes, they stand to make a killing if the property is rezoned for 27,000 homes. In other words, they want Loudon County to give them a huge gift.

Under the circumstances, $200 million--about 2% of the overall project--is a pretty paltry sum for road improvements (and it won't buy much, either).

Developers need to pay for the external costs of their projects, just as manufacturing companies need to pay for things like pollution control and other externalities of their enterprises.

If Loudon is to go forward with such a massive development (something all current Loudon residents, and many in Fairfax and Prince William Counties as well, will surely regret down the road), it needs to assess the developers with a realistic sum.

Our math suggests that something on the order of $1 billion--10 % of the project and equal to the profits the developers hope to earn--would be more reasonable, although it may still fall short of what's needed.

If the developers balk, so be it. (We predict they won't.)

[You can bet the developers will cut other corners as well. We're reminded of a story told us by a pastor at a church in the Cascades, a massive residential development between Rt. 7 and the Potomac River. The developers set aside all of four pieces of property for churches to serve more than 50,000 people. Heck, we've got more than four churches in my Arlington neighborhood of roughly 700 homes.]

Let's hope the Loudon Supervisors get real about where all this is headed.

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