DOING BUSINESS WITH
- HOME BUILDERS -
ECONOMY OWES DEBT TO HOMES, SWEET HOMES
BYLINE: By Joe Catalano. Joe Catalano is a freelance writer.
SECTION: EXECUTIVE EDITION; Page 08
January 17, 2000, Monday NASSAU AND SUFFOLK EDITION
LONG ISLAND'S home-building industry does more than provide new housing. It's one of the engines that drive the Island's economy, said Pearl Kamer, chief economist for the Long Island Association, a business trade group. While the industry's impact is less than it was in the '50s and '60s, when vacant land was plentiful and suburbia was growing rapidly, it is still significant, Kamer said.
New-home building was a $ 1.5 billion industry last year, said Robert A. Wieboldt, executive vice president of the Long Island Builders Institute, the trade group that represents major builders. The industry employs about 11,000 people on the Island. When lawyers, lenders, title companies and others connected with purchasing a home are added in, the number swells to 90,000, he noted.
In addition, new housing has "a tremendous ripple effect on the economy," Kamer said. Once a home is bought, owners buy furniture, appliances and other items while utilizing landscapers, pool cleaners and additional services. While she said she has never done a formal study on the economic impact of the ripple effect, she estimated the dollar amount to be significant.
How significant can be seen when home building slows, as it did in the early 1990s, Kamer said. It affects many economic sectors, especially retailing, another vital sector of the Long Island economy, she added.
But the industry also helps pull Long Island out of recessions, as was witnessed in the mid-'90s, said Rick Frey, president of the Long Island Builders Institute and vice president of Progressive Homes in Patchogue, which builds about 20 units a year. Once home building picked up, the overall economy improved, he said.
Home building "is one of the most challenging professions," said David A. Scro, president of Scro & Scro in Melville, which builds 50 to 80 units a year. It requires numerous skills from accounting to marketing. It's like conducting an orchestra, added Donald Eversoll, president of Klein & Eversoll in Commack, founded in 1976 and averaging 80 to 90 houses a year. "There are so many components," Eversoll said.
Long Island has 300 to 400 active home builders, 80 percent of which are smaller firms constructing fewer than 25 units a year, Wieboldt said. And unlike other areas of the country, there are no large builders who put up several hundred houses a year in large developments.
There are two types of home builders: spot and subdivision, Eversoll said. The former builds on single lots scattered throughout an area. The latter requires many acres, where developments of anywhere from a few units to a 100 or 200 are built. Because of the costs involved, larger developers tend to do subdivisions while smaller builders do spot building. However, there is crossover.
For the past few years, home building has been in high gear. In 1998, building permits issued totaled 942 in Nassau County and 4,454 in Suffolk County. Last year saw even more construction, though December's figures are still unavailable. From January to November, 1,097 permits were issued in Nassau and 4,727 in Suffolk.
One thing the current building boom has seen less of than in the hot market of the mid-1980s are "nonbuilder builders," Wieboldt said. These are people from other professions who, in good times, buy land, secure financing and put up mostly speculative housing-homes built before having a buyer. These "developers" are bad for the industry because they don't have a long-term commitment to it, Scro said. Once the local market weakens, they flee.
There's less of this currently on Long Island, partly because lenders aren't making money as readily available to them as in the 1980s, Scro said. Many lenders had to foreclose on speculative developments and ended up with unfinished projects from these builders after the market soured in 1990. There are also fewer of these developers today because of a shortage of tradespeople such as plumbers and carpenters.
"Try to hire help," Eversoll said. "Employment is stretched to the limit." This has affected all builders, often causing delays in completing houses.
While larger builders often employ in-house architects and marketers, they rarely have on-staff construction crews due to the industry's cyclical nature, Frey said. Most of this work is subcontracted out.
Another result of the present building boom is increased material costs. Wallboard, for example, has doubled in price during the past year, Frey said. The high cost of today's housing is not because builders have a 100 percent markup, he said. Profits are typically 10 percent to 15 percent of the selling price.
By far the biggest problem facing today's developers is finding buildable land. "We're an island, and land is a limited commodity that becomes scarcer each year," Wieboldt said. The lack of buildable land explains the smaller number of new building permits in Nassau County, where almost no "new" land is available to build on.
Not only are builders competing among themselves, but they're also vying with the government, which is buying land for preservation, he said. Scro recalled how last year he was outbid on one parcel by Suffolk County. The land, which he wouldn't identify, was fronted on three sides by roads and had all infrastructure and utilities in place. "This raises the value for land," he said.
During the past year, land prices have increased about 25 percent, Frey said. This makes much-needed affordable housing projects harder to pull off.
Progressive Homes of Patchogue does both spot building and subdivisions, Frey added. The firm, however, is doing more of the former because of the difficulty in finding land. But doing four houses in four different municipalities means working with four different government bodies, which can be time-consuming. When larger parcels are found for a subdivision, it can take two to three years to get the necessary government approvals, he said. By then, the housing market could have changed.
Most developers, like Eversoll, expect the strong housing market to continue through 2000. But for the industry to thrive in future years, "we have to look at the way we use land," Scro said.
"We can't continue to build one house on a 1-acre parcel because it's eating all the land," Frey said. One solution is to take unused excess industrial property and turn it into housing with more units per acre. If higher density were allowed on sites like that, other land could be left open for preservation elsewhere, he said.
"We have to look at current zoning and see how we can modify it and still maintain the suburban ambience everyone wants," Kamer said. Existing downtowns could be renovated to include affordable housing suitable for seniors and singles, she said.
Another solution is mixed-use developments that combine commercial sites with housing for seniors, first-time buyers and trade-up purchasers, Eversoll said. His firm will soon be starting such a project called Timber Ridge At Mount Sinai.
Five People to Watch
RAFAEL VASQUEZ, 54, is president of JJR Associates Inc. in Setauket, which he started 17 years ago. Vasquez, who was born in Colombia, South America, became interested in building affordable housing because he could recognize the difficulty minorities have in purchasing new homes. His first affordable units were for the Long Island Housing Partnership during the recesiion of the late 1980s. This kept his firm working when many homebuilders were idle. Today, JJR has diversified into housing at all prices,
including homes costing $ 1 million and up. It closed on 12 units in 1999. Four years ago, JRR opened an office in Wilmington, N.C. Vasquez hopes to expand there and throughout Long Island's East End.
RICHARD GHERARDI, 44, president of J&R Development Corp. in East Hampton, believes modular or manufactured housing is the future for Long Island developers. His 10-year-old firm built its first modular home seven years ago. That was followed by five homes for East Hampton Town's affordable housing program. Today, along with wood-framed structures, Gherardi is building modular houses as big as 3,000 square feet selling for up to $ 300,000 plus land costs throughout the Hamptons. Modulars are built better
today and are ideal for the current tight labor market, he said. Fewer craftsmen are needed to complete them. J&R Development delivered 20 units in 1999.
STEVEN A. KLAR, 52, is president of the Klar Organization, the East Meadow firm started by his father 50 years ago. Klar joined the company in 1970, taking over the reins in 1975. The firm does everything in-house, from designing to marketing the homes it builds, which range from affordable to luxury. Future plans include senior housing in Coram and several lifestyle condominium communities. Klar is one of Long Island's largest builders. When asked how many homes his firm has built, Klar would only quote
the company's slogan: "Over 50,000 satisfied homebuyers." That slogan, however, was coined 10 years ago and won't be changed, Klar said, until the firm hits 100,000.
CLIFF FETNER, 39, is president of Jaco Custom Builders in Hauppauge, which closed on nine units last year. He's the third generation of builders in his family, his father having built developments throughout Staten Island. Fetner left the family business 10 years ago and started Jaco in 1994. His goal is to grow slowly, doing 15 units this year. He remembers the last market downturn and how builders were left holding high-priced inventory and land. As treasurer of the Long Island Builders Institute, he
wants fellow builders to explore how existing developed land can be successfully redeveloped like it is being done in New York City.
SUSAN BARBASH, 45, has been president of Barbash Associates Inc. in Babylon since 1985. She never intended to join the family business started by her father 30 years ago. But in 1977, a year after graduating from Radcliffe, she became one of only a handful of female builders on Long Island. Barbash is now completing the sold-out, 248-unit project called The Villages At Huntington. She is exploring with local civic associations what type of housing to build next on the adjoining 65-acre plot her firm also owns. Between late 1998 and the end of 1999, Barbash closed on 120 units. The firm also manages two garden apartment complexes.
Copyright 2000 Newsday, Inc. Reprinted with permission.