Housing hiccups

Residential construction numbers dip slightly amid industry challenges

Posted on May 30, 2018 :: Construction
Jessica Thiel
Posted by , Insight on Business Staff Writer

A healthy economy, low interest rates and high demand for new homes would seem to portend a residential construction boom, but several factors are putting a damper on that, area homebuilders say.

A labor shortage, high material, land and development costs and even the April blizzard have had negative effects.

Statewide data for single-family housing permits for 2018 year-to-date through March, the latest numbers available, confirms this. While new construction is on the rise nationwide, Wisconsin is down 2 percent versus this time in 2017. Brown, Outagamie and Winnebago counties all have seen declines as well, with Brown County down by just three permits, Outagamie by 11 and Winnebago by 13.

Brian Calmes, president of Appleton-based Calmes & Rohm Construction and president of the Home Builders Association of the Fox Cities, says he’s seen demand plateau. He attributes the decline to the rising costs of building. In addition, people are having difficulty finding the just-right fit.

“People are having a hard time finding the perfect piece of property,” he says. “It’s picked over, and it’s just a lack of development.”

Developers are reticent to develop because the return on investment could be slow, and they can’t necessarily recoup their costs. In addition, the lot prices have increased, with many going for $70,000 to $80,000. That’s a big jump from the $40,000 to $50,000 people paid five years ago, Calmes says.

Ryan Radue, vice president of Denmark-based Radue Homes, says meeting demand for affordable new housing proves challenging.

“I think a lot of that demand isn’t being met, and I don’t see that changing for a while,” he says.

Developer Jill Hendricks, owner of Vision Realty & Development, agrees the cost of development is a problem. Developers must pay for every foot of infrastructure that’s included, and as a developer and community partner, it’s difficult to provide affordable new houses, she says.

Hendricks says people can’t get a new house for less than $250,000 anymore. However, with development costs so high, coupled with the labor shortage and high material costs, no one is getting rich, she says.

Despite challenges, Hendricks says Vision has experienced steady growth, especially within subdivisions. Her company has developments in north Appleton, the Town of Center, Clayton, Grand Chute, Fox Crossing and Fond du Lac.

 

Demand, labor challenges

Paul Soletski, president of Green Bay’s Bay Lakes Builders & Development, says in Brown County, demand for new homes has been high — greater than many builders can handle. “It’s a little out of control.”

One challenge, he says, is working within people’s budgets. As a custom homebuilder, it can be difficult to work within a price range because every home is different. He typically builds homes in the $250,000 to $400,000 range.

Many builders, he says, are overwhelmed, taxing their time and increasing timelines for certain tasks. For example, it used to take two weeks to put together a bid, and now it takes three or four, and when people are rushed, key points can be overlooked. Winter Storm Evelyn didn’t help matters with builders’ schedules, causing headaches and setbacks.

To manage the demand, Soletski’s company, which builds in Brown and Door counties as well as the Fox Valley, ensures it focuses on working with clients who are dedicated and ready to proceed with projects.

Radue says his company could take on as much work as it’s willing to handle. He calls the demand overwhelming and says competition for labor is intense.

“We just have to kind of pace ourselves a little bit, be a little more selective about the work we take on,” he says.

The labor shortage continues to put pressure on the industry. Radue sees big demand for framing contractors, siding contractors and trim carpenters. He sees crews that are smaller, but experienced.

Calmes says he sees a lack of people wanting to work in the trades and a shortage of subcontractors. As a result, scheduling is one of the toughest issues he faces. Build times are getting longer. Gone are the days when a house could go up in three months, and people must adjust to it taking four or five months, he says.

Every area of the industry is hurting, Soletski says. He mentions a foundation contractor who had several people quit because they were overwhelmed and overworked. Throughout the recession, parents talked their kids out of going into the field, and it’s still hard to find people who want to work in the industry, he says.

Soletski does see some positive signs with more high schools bringing back industrial arts programs. Fond du Lac High School is building a $1.1 million, 5,750-square-foot Career Construction Academy that’s expected to open in November. In addition, Northeast Wisconsin Technical College has several construction programs that are full.

“I see a silver lining in the black cloud we have with the labor shortage,” he says.

 

What people want

In terms of amenities, Soletski says open-concept layouts remain popular, and four-season rooms and covered porches have come into favor — until people see the cost, he quips. He’s seen people become more reasonable in their expectations for home sizes.

While small homes have become trendy nationwide, Radue doesn’t necessarily see that holding here, however. Perception between what people think they want and actually want often differs, he says.

Calmes agrees: “Everybody wants to be under 2,000 square feet, but their demands push them above that.”

Both Radue and Soletski see growing demand for condos, and Radue says he’d look to do a 55-plus community in the future.

Location, location, location still stands in Hendricks’ realm. School districts are a big deal to people, she says, and properties in the Kimberly and Appleton North school districts always go quickly. People want parks, woods and a lot where their neighbors aren’t right behind them. At the same time, they still want to be close to city amenities. So basically, they want everything.

Hendricks anticipates that if the economy and business sector continue to go strong, people will continue to take risks. There’s a lot of pent-up demand, and she expects that to continue for the next 18 months.

Despite industry challenges, she expects people to continue to invest in new homes. Life’s too short to not have exactly what you want, she says.

“Everybody should be in a new house,” she says. “That’s my motto.