Local Problems Source of Worry to Builders : Economies of General Motors, Oil Patch, Farm Belt Affecting Home Construction
As housing officials gathered here last week to discuss complex issues, such as tax reform and budget deficits, builders picking their way through the crowded exhibit hall of the National Assn. of Home Builders’ annual convention had other thoughts on their mind.
“I’m not worried about tax reform. I’m worried about all the problems at General Motors,” said Stephen Wickens, an apartment builder in Lansing, Mich. “GM is going to lay off 25% of its management, and that could hurt a lot of us.”
Indeed, while 1987 is expected to be another healthy year for the home-construction industry, around the country builders like Wickens are facing local problems that could hurt business far worse than tax reform or budget problems ever could.
For Don Pitts, vice president of United Bilt Homes in Louisiana, the problem is oil. United Bilt operates in Texas, Oklahoma, Arkansas and Louisiana--states where thousands of people have been thrown out of work by the troubles plaguing the oil business.
Layoffs and Foreclosures
The layoffs have proven to be a multi-edged sword for United Bilt and hundreds of other home builders in the Oil Belt. Sales first tumbled when the layoffs began a couple of years ago, and then fell further when workers who still had their jobs put off home buying plans because of the economic uncertainty.
Thousands of people who already owned a home eventually went into foreclosure, and that resulted in banks and government agencies holding mass auctions that depressed sales of new houses even further.
“The good news is that the auctions are over and oil prices are doing better,” Pitts said. He added that his firm might recover faster than other builders because United Bilt makes “rough-finished” houses in which the buyer completes minor plumbing and electrical installations.
The homes, which sell for between $25,000 and $40,000, could attract buyers who are reluctant to pay $60,000 or $70,000 for a finished house.
Chantilly, Va., is 900 miles northeast of United Bilt’s Shreveport headquarters, but it’s worlds away from the Oil Belt’s problems.
Infrastructure Lagging
“Things have almost been too good for us,” said Gary Garczynski, an official at Chantilly-based Signature Communities Inc. “We’ve had a very strong market going on four years now. But now that growth is causing some problems.”
Garczynski, whose firm built 350 homes last year and 100 apartment units, said improvements on the local infrastructure--roads, sewers, water sources and the like--have lagged the area’s explosive growth of new housing and office space. If improvements aren’t made soon, he added, the area’s growth rate could sputter.
Compounding problems is local residents’ increasing displeasure with new construction projects. Garczynski said he and other local builders are trying to fend off slow-growth movements, much like those already approved in cities across California and the East Coast.
On top of that are problems caused by the Tax Reform Act’s elimination of many of the tax benefits apartment builders enjoyed. “We’ll finish up another 300 units that are already under way, but the rest of our apartment projects are on hold,” Garczynski said.
Overbuilt in Fargo
In Fargo, N.D., builder Jim Brekke has also grown leery of starting new apartment projects. The problem isn’t so much tax reform, but overbuilding.
“Yes, we’re even overbuilt in Fargo,” said the president of Brekke Construction Inc., which built 70 apartment units last year and 80 single-family homes, condos and town houses.
Brekke, however, says he’s lucky: The agricultural industry in his area is thriving, thanks to the fertile Red River that cuts through his state and flows into Lake Winnipeg. “Builders in other parts of the Farm Belt aren’t doing so well,” he said.
Indeed, builders from cities with economies closely tied to the agricultural business generally predicted continued weakness in their housing markets, although many feel the worst of times are behind them.
Plans to Diversify
The outlook is brighter for builders in northern parts of the Midwest, a housing market that rebounded about two years ago with the resurgence of the auto business.
However, the problems at General Motors--where profits are sliding and layoffs are rising--has some builders worried.
Lansing builder Wickens said he’s planning to diversify into the hotel business this year, in part because layoffs at the local GM plant would hurt the city’s housing market. He figures his 129-unit hotel “will do well” because it’s located near a large college, which should generate a steady flow of out-of-town visitors.
California builders aren’t worried about the economy. However, many expressed concern about the proliferation of slow-growth initiatives on the West Coast and rising fees that developers must pay to fund new schools, transit projects, and other public services.
Higher Developer Fees
“In some cases, we’re looking at $6,000 or $8,000 in fees on every lot,” said Ralph M. Lewis, chairman of Upland-based Lewis Homes. Since the fees result in higher home prices, Lewis said, “they’re adding to an affordability problem” in a state where only one-third of all households make enough money to buy a median-priced home.
Out of more than 60,000 convention attendees, perhaps the only builder who didn’t have a complaint was Bernie Dolat, owner of JBD Construction Co. Dolat, who lives in the Cape Cod town of Pocasset, Mass., will soon complete a Cape Cod-style home which he figures is worth between $400,000 and $500,000.
“I only build one home every year or so,” said Dolat, a retired educator and administrator. “When you’re that small, you don’t have too many problems.”
