Monday, December 7, 2015

More Than 50% of New Home Builders Have Closed Their Doors

Where have all the home builders gone?

By Jay Fitzgerald BOSTON GLOBE CORRESPONDENT  

Liz Kovach co-owned Windswept Custom Homes (no website) in Dennis, MA for more than two decades, building one or two custom homes per year on Cape Cod. But five years ago, Kovach and her husband decided to close up shop, with Kovach taking a job as a manager at a lumber company and her husband becoming a custom cabinet maker.

“It was an economically driven decision,” said Kovach, noting that the construction industry was still reeling from the recession when she shut down her company. “It used to be fun to build homes, but it just became too difficult and more of a hassle.”

Windswept Custom Homes is among the hundreds of home builders in Massachusetts — and thousands across the country — that have vanished in the decade since the housing boom went bust. Membership in the Home Builders and Remodelers Association of Massachusetts has plunged to about 1,500 companies, a 44 percent drop from the prerecession peak of 2,700 in 2006. During that period, membership at the National Association of Home Builders dove 47 percent to about 30,000 companies from 57,000.



Those numbers closely track US Census data that show about half of all residential construction companies — many of them mom-and-pop home builders — were wiped out during the Great Recession.

But even as the economy has improved, with the unemployment rate sliding to 5 percent nationally and 4.6 percent in Massachusetts, the home construction industry isn’t close to recovering from the housing crash.

Nationally, new single-family home construction is expected to hit 700,000 this year, about half the 1.3 million housing starts normally expected at this point in an economic recovery, said Mark Zandi, the chief economist at Moody’s Analytics, an economic research arm of the Moody’s credit-rating company.

In Massachusetts, the number of housing permits issued is on track to end this year at about 14,000 units, down 44 percent from the prerecession peak of 24,500 permits in 2005, according to census data.

The economics of home building simply aren’t there for most industry players, especially for smaller contractors with limited access to capital, Zandi said. The main reason: tight construction financing. Banks, which absorbed big losses from construction loans during the recession, remain reluctant to lend for home building.

“That’s really hurting smaller firms,” Zandi said. “Larger home builders often have the capital to finance projects on their own, but the small guys, they can’t build without bank loans.”

Builders agree that tight credit is hurting them, but they say the industry in Massachusetts has deeper problems than that. They say state and local regulations — from environmental rules to 55-plus age restrictions to zoning that requires large lots — have made it harder and harder to build homes in the state.

Municipal officials counter that zoning rules are meant to protect the environment and character of communities, or prevent school systems from becoming overburdened. But home builders say the practical effect is that they can’t find affordable land — so they’re throwing in the towel by closing, selling, or only doing remodeling.

Greg Spier, the owner of Maystar Homes in Foxborough, said his company is now phasing out construction of homes after it finishes a handful of projects in Foxborough and will become primarily a remodeling company.

“Building new homes is just too risky and capital-intensive,” he said. “If there were less regulations and if the profit margins were better, I’d surely stay in the business. But the business model of building new homes doesn’t work anymore.”

The number of home builders has declined for decades in Massachusetts, industry officials say. Bob Ernst, president of the Builders and Remodelers Association of Greater Boston, said his group counts about 400 members, down from more than 1,000 in 1980.

At the state builders association, about 10 percent of members are “pure home builders,” relying almost exclusively on constructing new houses rather than remodeling existing ones, said Brad Campbell, executive director. That’s down from about 35 percent in 2006.

The shift was so pronounced that five years ago the industry group changed its name. The Home Builders Association of Massachusetts became the Home Builders and Remodelers Association of Massachusetts.

Profound change

48,557: Home building companies in 2012

98,060: Home building companies in 2007

SOURCE: US Census

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2 comments:

Anonymous said...

Profit erosion; regulations; capital requirements; and consolidation based on market or lot positions have played a role in reducing the number or builders in the housing industry.

Although we as a group reference a market opportunity of 97% in reality based on the market share of the majors (Top 300) as reported by Professional Builder ( http://www.probuilder.com/2014-housing-giants-overview-and-analysis ) we should be referencing 62% or less depending on the volume of the top 500 builders to account for regional firms that build more than 50-100 homes a year.

Although we have seen factory consolidations we have not seen vertical integration ( European models); Factory builder partnerships; or even regional builder consolidation ( Andy Gianino suggestions) that may lead to better marketing; sales efforts; or consumer awareness.

Hopefully the factory Round Table will explore these options as well as more effective builder recruitment but unless the factories are willing to help the 4-6 a year builder increase his sales and delivery rate I believe many of these builders will stay satisfied with their on site operations.





josh margulies said...

all a bunch of nonsense. the same nonsense we talked about in '96 - "where have all the builders gone!!! THERE ARE NO BARRIERS TO ENTRY IN THIS BUSINESS! All you have to be is relativity entrepreneurial and not fit to work for anyone else. What we need is demand! Healthy strong kick butt demand for good, affordable, custom homes. Cause that is what we do see. We need what you call massive amounts of "gross domestic private investment" Why no investment? Remember '04 ... as soon as the last box was set the owner made 50k in equity. Not no more. What has to happen to bring back the willingness for people who want to push this very big button. What does it take to see healthy demand return for scattered lot housing, in all its forms, in all kinds of neighborhoods. The answer to these questions go to things no controllable by the builder's universe.

But it will change. It always does. It will come back at us. I wish i could see it.