INSIGHT ON: Residential Construction – Building up business

Posted on May 1, 2013 :: Construction , Insight On
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Posted by , Insight on Business Staff Writer

Residential construction companies that survived the recession were flexible and hands-on, undertaking significant amounts of remodeling while waiting for the markets to regain some strength, which is happening now. Sort of.

“People are still uncertain about the economy and not too many people want to build new homes or buy new homes,” says Stiliana Omdahl, director of operations at Alliance Construction & Design in De Pere. One result of the uncertainty, she added, is higher demand for rentals which is driving the construction of multi-family apartment and condominium complexes.

Alliance has been doing a lot of remodeling jobs as people sit tight waiting to see what will happen to the economy, she added.

“We don’t necessarily mind that, but it is always better to build new,” she says.

Craig VandenHouten, a co-owner of Van’s based in Dyckesville, says the outlook is improving.

“I am sure seeing a definite increase in people’s interest talking about doing things anyway,” he says. Getting them to pull the trigger is another story. “But there’s more optimism than I have seen in the last two years.”

House types are changing. Van’s is seeing demand for somewhat smaller houses with luxury touches such as granite countertops, wood floors, brick walls and better windows.

Steve Brown, of the Steve Brown Group in Green Bay, has just sold five spec homes in the $168,000 range. He attributes his sales success to simple designs, quality of construction and attention to price.

“I weathered the storm because I got my hands dirty,” he explained. “I am a real hands-on contractor; a lot of the people who fell by the wayside were ‘telephone’ contractors.”

Brown says he pays close attention to customers and modifies his design to meet current demand, like placing the laundry (area or room) on the first floor, vaulting the ceiling in the living-kitchen-dining area and building a fancier ceiling in the master bedroom so his homes feel bigger than the square footage might suggest.

“I decorate in early cheap,” he explains. His homes have none of the fancy frills that were common in many spec homes six years ago, unless the buyers request and pay for them in advance.

“My objective is an affordable house that people want to buy,” Brown says. He sticks to eight-foot ceiling heights – the seven-foot ceilings allowed by law feel like a cave, he says. Exteriors are maintenance-free vinyl siding and plastic soffits.

“In our hectic world, no one paints a house,” Brown says.

New homes provide great value to buyers because they come with everything new, so buyers don’t have to wonder how long it will be before they have to replace the roof, furnace and water heater.

“I price my homes very competitively,” added Brown. “If you can afford the extra dollars, why not buy new?” Also, the changes in materials since the 1970s and ’80s are dramatic.

“Homes built in the ’70s are built well, but the homes today are built much better because of upgrades in materials. The technology in the window business compared to 40 years ago is phenomenal. Back then they were just experimenting with this stuff.” New homes are also routinely sealed with air-tight wraps like Tyvek.

Mark Olejniczak, of Mark D. Olejniczak Realty in Allouez, says home sales are up and his firm is selling new construction, especially in the mid-range where Steve Brown builds, but also some homes costing $300,000 to $400,000.

“I don’t know that builders are rushing to spec-build homes in the $500,000 to $1 million range, though,” he adds. Some of those builders had never experienced a market that declined 25 to 30 percent. Some of them are no longer in business.

More builders are comfortable with new construction that can sell for under $200,000 where deals are more frequent and days on the market are fewer.

“They still have to compete with existing inventory that went down 25 percent,” says Olejniczak. “You can find a nice 20-year-old home with a lot more square footage than the same price will get you in a new home, but it may need new countertops, remodeling and upgrading.”

House styles have also changed, he added.

New homes are apt to have features like a master suite on the first floor with the kids’ bedrooms on the second, larger garages with rooms for all the toys people accumulate, in-floor radiant heat, sometimes even in the garage, more expensive tile or marble and wood floors.

 

Finance

Appraisals for new construction are a challenge, says Van’s VandenHouten, because appraisers have to use existing homes to develop their comparable prices (comps). Since values of existing homes have dropped 20 percent to 30 percent, there’s a gap between appraised values and new construction prices, although the gap is narrowing. “The finance side sucks, to use a technical term,” says Brown. “The number of hoops I have to jump through is monumental because the banking industry got caught with its pants down. I have been fortunate, but some other builders can’t get a construction loan to save their souls.”

The market in Door County is starting to wake up, says VandenHouten, both for vacation homes and retirement homes.

“A few homes I am working on now are for people who plan to build now and use it for a vacation home for four or five years and then retire there.”

 

 

 

 

A CLOSER LOOK

The greening of home construction

John Hofferber, who spends about $79 a month for gas and electric at his 5,543-square -foot Neenah home, says that green building has passed its interest peak.

The owner of Berhoff Homes, he is one of the most advanced green builders in Northeast Wisconsin. He starts with the construction itself, using advanced framing techniques which use less lumber.

“You walk into my houses when they are in the rough state and you think there is no material.”

On a house project three years ago, he recorded each time the framers cut a 2×4 or 2×6 piece of lumber and looked for ways to eliminate that waste.

“In a traditional home project, you probably have 15 percent waste. I am well under 10 percent. By cutting down on the waste that goes into the Dumpster, I can put that money into the house instead. I have taken so much cost out of the home in the way I am constructing it that clients have money they can put where they want it. I am absolutely swamped right now and a lot of it goes back to my green practice.” His sweet spot is $300,000 to $350,000 – once you get over $400,000 the pool of potential clients shrinks – he says, although he is just starting work on a home with a budget of $820,000.

“I just love big houses. They are more complicated and more challenging,” Hofferber says.

Cindi MacSwain, of Vanney-MacSwain Home Planning in Appleton, says advanced framing techniques avoid the use of heavy headers where they aren’t needed.

“That’s more expensive and doesn’t make sense,” says MacSwain, a certified Green Building Professional. Green builders put studs 24 inches apart and design corners to accommodate insulation.

“Advanced framing techniques have been around for more than 20 years,” she added. “They increase the amount of space for insulation, reduce the use of materials and reduce energy costs.” Good builders also use foam sheathing and extensive sealing on the exterior to keep air from moving in and out of the house. Hofferber figures he puts 15 to 18 more feet of insulation into a home than the average building because his framing gives him the space.

To get energy costs below $100 a month on a large house requires some extensive photovoltaic panels on the roof, LED lighting, and highly efficient appliances, says Hofferber, who has installed all sorts of energy saving devices on his home to see which ones are worth the investment. He recently added more cellulose insulation in his attic, taking it from R60 to R100 to see if that would pay for itself. Windows are a great place to save energy, and slated to get much better in the next five years, but the very best aren’t cost effective, he added.

“Will it change my $79 utility bill by 50 cents or a dollar? It gets to a point where it doesn’t pay to chase energy efficiency anymore.” For example, he has a heat exchanger which captures the 105-degree water from his shower and uses it to warm the cold water for his water heater.

“It has a 1,100-year payback,” he admitted.