Dark Skies Loom For Builders

December 18, 2006
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LANSING — As the economy foretells gray skies for real estate, it's even darker for home builders in Michigan

A new report from the National Association of Realtors projects an upswing for the housing market nationwide, yet numbers for October show the Midwest market hasn't improved.

For existing homes in the Midwest, October sales were 10.2 percent lower than they were a year ago, the report said.

The number of building permits issued in the state in the last year is down nearly 25 percent from previous years, said Henry Green, director of the Michigan Department of Labor and Economic Growth's Bureau of Construction Codes.

The decline follows several years of steady numbers, Green said.

Contractors didn't see a drop in demand for new homes until early 2005, said Lee Swartz, vice president of government affairs for the Michigan Association of Home Builders.

As for future prospects, "We're 18 months to two years out before we start to see a turnaround," Swartz said.

Factors contributing to the decline range from government regulations to the stagnant economy, he said.

Bill Slating, president of the Montcalm County Realtors Association, said when builders ask about putting up several homes on speculation, he advises them that building more than one would be risky.

"A couple of years ago that would be no problem," he said.

However, Slating said the Greenville housing market hasn't seen the decrease other parts of the state have because the area is growing and houses are cheaper than in Grand Rapids

"We've had some newer developments, they are lower-cost, newly constructed homes, and they are competing with existing homes," Slating said. "The buyers are looking at that."

When it comes to building homes, Swartz said, "People are nervous about making that type of purchase when they don't know what will happen with their jobs and the economic future in the state."

He added that regulations can account for 20 percent to 30 percent of the cost of building a new home. "Affordable housing in this state is becoming an endangered species — not because builders don't want to do it, but because of the regulations."

Swartz cited a proposed building code that would require all new homes to have sprinkler systems costing an average of $4,000 to $5,000.

According to the State Fire Marshal's office, in 2004 there were 94 fatal residential fires, and most were in homes without working fire alarms.

The amount of professionalism and training required of licensed builders is another factor that contributes to competition within the industry, Swartz said.

A package of bills being reviewed by the House Regulatory Reform Committee would increase fines for building without a license, heighten the educational requirements to obtain a license and double the licensing fee.

The proposal for increased fines is in response to a common scam where a builder offers to work for less money if the owner obtains the permit, Swartz said. Yet the individual obtaining the permit is liable for faulty work, defects and accidents, including workers' compensation.

That can result in poor quality work, with all the responsibility laid on the homeowner, Swartz said.

"It happens a lot," he said.

There are 79,000 licensed builders in the state, Swartz said.

An increase in the licensing fee would weed out registered builders who work for only the short period they have free each year, such as those who have seasonal jobs that leave a few extra weeks of free time, he said.

"We think it will make a big difference in professionalism and shake out those who go to get a license for those who have one to two weeks," Swartz said.    

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