With a slowdown in new construction, homebuilders and landscapers throughout the Midwest have had to tweak their focus to keep their once-thriving businesses afloat.
Though contractors tell me they noticed telltale signs of the slowing economy over the past few years, the urgency these business owners feel to try new ways to build back revenue are hitting a fever pitch this spring. That’s because the economy took its biggest tumble last fall, at the tail end of the construction season, and nobody knows what the immediate future holds.
As the frost comes out of the ground, workers are eager to get on their equipment and break some ground. But before they fire up the excavator or point the telehandler skyward, they need work contracts. And the kind of jobs contractors have grown accustomed to - the bread and butter being new, ample-sized homes - haven’t been in the hopper.
The mortgage crisis, widespread layoffs and the worst economy we’ve seen in decades have seen to that.
THE REMODELING MARKET
A few months ago, I ran into a good example of a contractor switching gears to adjust to a new reality in the construction business. The young custom builder had just moved his family from North Dakota east a few hundred miles and hoped to pick up right where he left off last year, building a few new homes in the 3,000-square-foot range.
But the phone wasn’t ringing in Minnesota. And as he continued to shuttle back and forth between the two states during the business transition, he noted that few people in North Dakota wanted bigger new houses either. What he did find was homeowners hunkered down for the duration of the recession, scrapping plans to move up in the housing market.
While nobody is moving into new homes, the contractor told me people seem willing to open their purse strings to make improvements to their current homes. He plans to serve stay-put homeowners throughout 2009, starting with a $20,000 kitchen remodel and some basement build-outs.
He’s certainly not alone. Responding to the bleak economic forecast, builders are looking to remodeling services, building practical home additions and promoting smaller homes to a downsizing market. Finding lemons, contractors are making lemonade in order to preserve jobs for their employees and generate business-sustaining revenue until there’s a turnaround in mortgage lending, bolstered employment numbers and an attitude adjustment about spending in the country.
DOWNSIZING IS HERE
An indicator of a conservative spending trend among homeowners is the average size of new homes being built. Throughout the 1980s, ‘90s and into the new millennium, Americans were on a super-sizing binge when it came to their homes. As someone raised as part of a family of six in a 1,200-square-foot, three-bedroom ranch home, the whole “living large’’ trend was kind of tough for me to understand anyway.
A National Association of Homebuilders source recently told USA Today that the average size of new single-family homes rose from 1,750 square feet in 1978 to 2,479 square feet in 2007. But that trend suddenly started to reverse in 2008, as the second quarter average of 2,629 square feet fell back to 2,438 square feet in the third quarter. The homebuilding trade group then surveyed members on their plans moving forward, and found 89 percent were going to market and build smaller homes.
And it looks like the downsizing might be here to stay. Trendsetting architects for several years have been promoting the idea of stressing quality over quantity in new homes, building smaller houses, but giving them a higher-end finish. And consumers, pinched for cash, seem to be shrinking their plans not just to save money on construction, but to reduce energy costs down the road.
STAY IN THE GAME
Jason Steen of Steen Construction in Osseo, Wis., cut his teeth in the construction industry by doing remodeling projects. And that’s one emphasis he’s returning to this year as new-home orders are on the decline. The past president of the Wisconsin Builders Association, who had grown accustomed to producing homes in the $350,000 to $1.5 million price range, is also looking to market plans for the first-time home buying market.
He doesn’t view his business plans as a step back, but as a smart way to stay in the game.
“Now is a time when green building, less square footage and more practical uses of space is going to be a driving force,’’ Steen says. “If you can market that, you can excel the market beyond the competition.’‘
Remodeling seems like a natural move, too. Steen says that while he’s always taken on some remodeling projects, he’s never marketed to that area. Partly that’s because he enjoyed the custom home niche, but he said remodeling jobs, by their nature, take more time and oversight.
Now Steen says there is a compelling reason for contractors to shift to remodeling. As homebuilding exploded over the past decade, housing stock is plentiful. And many new homes were built with exposed basements and bonus rooms, which after sitting with cement walls and bare studs for years are now ripe for development. Many homeowners like where they live and they’ll make improvements now rather than move, he says.
“Look at the housing starts from 1998 to now. It was huge and the sustainability was not going to be there. We all knew that,’’ he says. “About 75 percent of the people really love their homes, but there’s just a few things they’d like to do to make them their own.’‘
Steen sees some builders staying with a remodeling specialty even if the economy turns around, while others, like him, will want to migrate back into custom homes. He envisions a day when both will be viable, thriving options for contractors.
CHANGES IN THE LANDSCAPE
Just like homebuilders figure to move into remodeling mode, so will excavators and landscapers replace declining new home site prep work with elaborate backyard projects at existing homes, like adding ponds, multilevel hardscapes and the like.
I recently talked to a landscaping pro I know who says he’s getting more calls than anticipated this spring for expensive outdoor kitchens and complex stone patios. As he explains it, the folks who could afford these amenities last year still have enough money to go ahead with plans. He also has customers who’ve told him they’d rather spend money on landscaping and enjoy the benefits every day than go on expensive vacations in an uncertain world situation.
BETTER TIME AHEAD
Smart contractors are doing what’s necessary to survive though the recession. And there’s reason for optimism that the current economic distress will pass and builders and landscapers will be able to get back to new home plans. I was reminded recently of the history of economic ups and downs the country’s been through just in my lifetime.
I was searching the Internet for background on our current situation and ran into a story chronicling the mortgage-lending crisis, talking about thousands of foreclosed properties and giving a generally grim outlook. The story speculated the country might never find its way out of the tailspin.
When I scanned back to the top of the newspaper story, I noticed it was dated 1990. Putting everything into perspective, I’d have to say we’ve enjoyed many prosperous years in the past almost two decades since that economic obituary was written.
Steen, too, says he wants to stay positive. In glass-half-full style, he tells customers it’s a good time to build. The cost of building materials is down, buyers will get a better price from builders competing for jobs and builders will give projects their full attention.
His message to builders is to hang in there.
“All we can do is reorganize our businesses and make sure we make it through,’’ he says. “So when the market is on an up tick, we’re ready to rock ‘n’ roll.’‘
What’s your response going to be to the economic uncertainty? What are the construction industry trends in your neck of the woods? If you’d like to share your ideas with other EQ readers, drop me a line at editor@eq-mag.com.
