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EL PASO, TX-A little more than a month ago, the city council passed an initiative to encourage construction of military housing in anticipation of the potential hordes of solders anticipated to descend on Fort Bliss in 2010. One area developer cautions, however, that it may be too soon to hit the panic button over a potential future military housing shortage.

“As of today, there isn’t a housing crisis,” says Dan Dawes, vice president of El Paso, TX-based Bohannon Development Corp. “Things are in flux. The city’s fee structure got a lot of notice. But there are some things happening here that are mitigating the overall enthusiasm for development.”Statistics from Apartment Realty Advisors’ Q1 multifamily report show a 93.7% occupancy with an inventory of just over 5,5000 units. This seems like a stable figure that could end up leading to some scarcity, if the proposed 10,000 new soldiers anticipated at Fort Bliss materialize. However, the ARA report notes that the first quarter occupancy was actually down from Q3 2008′s 94.2%.

Added to that, the potential 10,000 soldiers anticipated could end up being a lot less. Dawes tells GlobeSt.com that Defense Secretary Robert Gates proposed a reduced number of brigades at Fort Bliss. The installation is also losing a couple of components, such as air defense, he adds.

Furthermore, as enticing as the city’s incentive might be on the surface, “it doesn’t amount to a make-or-break decision for a developer,” explains Bohannon Development’s president Tom Bohannon . The city’s rebate incentive doesn’t kick in for the first 250 units built. And while there is a 25% rebate for units 251-500 (with 501 units and above commanding a 50% rebate), still other costs have just been added to take back any potential gains from incentive programs.

Topping all of that off is that rents are too low in El Paso for any multifamily development numbers to make sense right now. ARA’s statistics put the average rent at about $.78 per square foot. “Military housing allowances aren’t sufficient to pay higher rents, which is what is needed to justify any new housing activity,” Dawes remarks.

Though construction costs are dropping in other regions, they’re on the rise in El Paso. Bohannon and Dawes explain that construction is taking place at Fort Bliss, meaning a high demand for concrete and asphalt. The government also pays union wages, so labor tends to be more expensive overall.

So while the city council’s intentions were good with the initiative, Bohannon says, developers coming to the area for possible projects aren’t sticking around. “We have a low rent per square foot. Costs are being driven up by city fees and lending rules. A lot of government construction is making it hard to find labor, and expensive when you do,” he adds. “We’d love to have projects going on in our backyard, but you just can’t build something for less than it’s worth, just because there’s future demand expected.”

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