Even in Hard Times, Remodeling Contractors Still Nail Down Jobs
Blair O’Callaghan does not have his name on residential developments all over the state.
But the 35-year-old contractor may well be the envy these days of builders with bigger names and broader reaches.
O’Callaghan is working. Every day.
He is a remodeling contractor.
And when times get tough in the building trades, remodelers typically do a lot better than their brethren.
“Remodeling has always been kind of counter-cyclical,” said Ben Bartolotto, research director for the Construction Industry Research Board in Burbank.
“It does well in good times, and does a lot better than new-home building in bad times.”
Thus, in the 1981-82 recession, when the value of new home and apartment construction in the state plummeted 24% the first year and fell an additional 23% the next year, remodeling permits sagged only slightly--off 6% in 1981 and down 3.5% in 1982.
As the Southland economy heads into a recession this time, the research board is predicting back-to-back record years for remodeling contracts in the state this year and in 1991.
That’s not to say that everything is as easy as it was in the boom years.
O’Callaghan had five employees a year ago and says he “rarely took a job for less than $25,000.”
A lot of his work was done in Newport Beach, where $200,000 remodeling jobs were not uncommon, and he often would have to hire scores of subcontractors to do the jobs his crew couldn’t handle.
Business was so good back then that O’Callaghan, who doesn’t advertise--not even a Yellow Pages listing--had a six-month backlog of jobs.
Today, O’Callaghan Construction is Blair O’Callaghan and one helper.
Part of that is by design: He said he took half the year off to remodel his own home and get married.
“Now I’m paying for that time off,” he said. “When I decided to cut back, I wasn’t planning for a recession. I lost contact with the market.”
But even without the comfort of a big backlog, and in the midst of a mild recession, O’Callaghan bubbles with optimism.
He is working two jobs--building a three-car garage and workshop for a neighbor in north Santa Ana and reconfiguring a Costa Mesa home to turn a labyrinth of small rooms on one side of the house into an airy kitchen and two new bathrooms.
In his business, reputation is the best marketing tool; O’Callaghan said he is “very comfortable” with his.
Money is tighter and jobs sometimes are smaller, but O’Callaghan said he has “a lot of confidence in my ability to keep myself busy. . . . People always want to add on or fix up, and the desire gets stronger when they can’t move into a newer, bigger house.”
O’Callaghan is in the right place.
While the once-blistering pace of home sales in the Southland has slowed to a crawl, people are spending record amounts improving existing homes, according to building permit records.
For the first 10 months of this year, homeowners in Southern California counties spent nearly $1.6 billion on remodeling, up 4% from $1.53 billion for the same period last year.
For all of 1989, Californians spent $3.14 billion on remodeling projects for which they obtained building permits, with 57%, or $1.8 billion, of that amount spent in the six Southland counties. Los Angeles County led the pack with $1.16 billion, or 35%, of the state total.
And those totals reflect only jobs for which permits were issued--a small part of all remodeling work, experts say.
“Most people just don’t bother to get a permit on the smaller jobs” that make up most of the market, said Dickson Clements, spokesman for the Remodelors Council trade group in Washington. His group estimates that permits reflect just 13% of the value of work done nationwide.
Nationally, the remodelers trade group is projecting a record $105 billion in remodeling permits for 1990, up 4.1% from last year. “The pace for remodeling is very strong, while new-home building is falling off,” Clements said.
Leading the nation, as it leads the state, is the Southern California area.
For the first half of 1990, the Census Bureau reported recently, the Los Angeles-Long Beach market posted a total remodeling permit value of $538.4 million.
That was more than twice the $215-million value for the second-place market, which includes Washington and suburban Maryland and Virginia. San Diego County was in 11th place nationally, with $110.1 million in remodeling permits, followed closely by Orange County, with $110 million, the report said.
Statewide, the value of permits issued for remodeling projects this year is expected to increase 5.4% to a record $3.31 billion, according to the Construction Industry Research Board. That compares to an anticipated 30.4% decline in the value of new-home and apartment construction, to $18.2 billion from last year’s record $26.1 billion, the research group said.
And in 1991, remodeling permit values are expected to jump 6% more, to $3.5 billion, while the value of new residential permits falls 6%, to $17.1 billion.
None of that comes as a surprise to O’Callaghan, who started his contracting business in 1980--after a five-year apprenticeship as a carpenter and just in time for the start of a major recession.
“I was just getting going when the last recession hit” in 1981-82, he said. “But I was really busy all through it. People were remodeling then, because interest rates were so high they couldn’t afford a new house. So they decided to cash in some equity and fix up what they had while they waited for the market to improve.
“This time, though, people have money, and interest rates aren’t all that high. It’s just that people are real tentative about the economy. But the effect is about the same. They aren’t buying new houses, so they are fixing up their old ones.”
The challenges, as O’Callaghan sees them, are twofold: People are becoming a lot more conscious of costs as the economy worsens, which means jobs are getting smaller and profit margins thinner; and a lot of workers in construction trades who have lost jobs with new-home builders are competing with established remodeling contractors.
Increasingly, he said, homeowners want to do some or all of the finishing work themselves: “Contractors like myself, guys who have been around for 10 or 15 years, are losing out to the neighbor who was a carpenter. So if you want the job, you have to lower your prices.”
No Recession For Remodelers Although new construction is expected to drop by as much as 30% in 1990, remodeling will contiunue its growth of the past four years. Source: Construction industry Research Board Remodelers Keep Adding On The value of building permits issued in the Southland for residential alterations and additions was up for the first 10 months in all but Orange County. However, the 10-month total for Orange County of $202.9-million is higher than for any full year except 1989. Residential permit values, percentage change from previous year: 1989 Ventura: 14.6% Los Angeles: 19.7% Orange: 27.3% Riverside: 35.0% San Bernardino: 29.2% San Diego: 16.0% 1990 Ventura: 4.5% Los Angeles: 2.3% Orange: -1.7% Riverside: 1.9% San Bernardino: 3.5% San Diego: 18.5% Source: Construction Industry Research Board