Mar 26 2012

Mendiola: Tough times in construction

Published by at 9:11 am under Idaho

This is a report by Mark Mendiola, a Pocatello journalist, taking a look at what the drop in eastern Idaho home sales has meant in that area.

Dave Fredrickson and his son Shane, 28, have barely survived a slump in home sales and a sharp downturn in new housing construction in Bannock County that have forced droves of Pocatello-area real estate agents and building contractors out of business since 2008.

New home sales in Bannock County have steadily declined the past six years, dropping from 129 in 2005 to 27 in 2011. “That’s the lowest in more than seven years,” Dave Fredrickson says.

Total single family home sales during that period fell from 1,199 to 684, according to statistics compiled by Greg Johnston of Home Specialists Real Estate Company.

Most of the new home construction has been in Chubbuck, Fredrickson says, but that has declined from 282 in 2006 to 22 in 2011. So far in 2012, five new houses have been built in Chubbuck, next to Pocatello.

Frederickson
Dave Fredrickson, left, and his son Shane recently completed construction work on five houses on the south end of Pocatello. (photo/Mark Mendiola)

The Fredricksons, partners in “Memory Builders” since 2009, recently completed constructing five new houses for a Jason Street residential development on Pocatello’s south end, which included curb, gutter, sidewalks, all utilities and a storm water drain system.

Memory Builders was general contractor and project manager on the Kahni Newe’ housing community project for Northwestern Shoshones – a U.S. Housing and Urban Development (HUD) 184 project that took 10 months to complete, starting in September 2010.

“We’ve been six months waiting for our full payout,” Dave Fredrickson says, blaming the delay on bureaucrats failing to authorize Zions Bank to make the payment despite the submission of full documentation.

He says a government requirement for the project’s storm water drain system unnecessarily added more than $25,000 to the project’s cost or about $5,000 per house when the same could have been accomplished for less expense.

Fredrickson says enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act unduly restricts the ability of banks and other financial institutions to make loans, dashing hopes among housing contractors that financing for construction would loosen up.

“Until Dodd-Frank is repealed, it’s going to be a struggle to get construction back to where it should be,” he says, noting there is a large pent-up demand for new houses to be constructed in Bannock County, but lending requirements are much too strict.

The president of a large bank reportedly said his company had to hire 100 lawyers to ensure it was not violating Dodd-Frank, “but what do small banks do?” he asks.

Shane Fredrickson adds: “They can’t seem to find a happy medium. It’s either too loose or too tight. The banks should be smart about it in the first place and not have to worry about the federal government interfering.”

Kim Weber, vice president and manager of the local D.L. Evans Bank, says his bank has been more receptive the past six months to lending on presold or owner-built projects. It also would consider a “spec” project (built to specifications) for the right builder.

“I have done three to four presold construction projects in the last nine months. I have not seen any interest at all by builders to construct spec houses. Of course, the builder’s financial strength would be key in our assessment of a spec home project,” Weber says.

Before he started building houses, Fredrickson worked as a Realtor from 1975 to 1982 when mortgage rates climbed to more than 20 percent. He estimates more than half the 350 Realtors in the Pocatello market left the profession and about 150 of them went bankrupt.

“It was extremely difficult for Realtors to make any money at all. I was one destroyed financially because of the condition,” he says.

Many building contractors in the area in recent years also have left the trade and gone bankrupt, Fredrickson observes. Some have set their businesses aside to go into other lines of work. His son Shane also has a job on the side to help make ends meet.

“Builders who stay in the business are picking up whatever they can find. Obviously, there’s not enough new construction to go around to everybody,” Fredrickson says, estimating he averaged about five new houses a year for 16 years.

The Fredricksons say large construction companies that have overbuilt houses by the hundreds have worsened the plight of small contractors. Brand new houses in the Boise market are going for less than $100,000 because thousands of new houses have been overbuilt there, they say.

“Big corporate builders are dropping prices to lower their inventory. Nobody is making money. The ones in business a long time and have developed a good name seem to be staying busy,” Shane Fredrickson says, adding that contractors who build high quality homes, “not cheap crap housing,” are the ones who survive.

His father adds: “The health of the new construction market is the barometer of the economy. Unfortunately, government intervention has hurt the housing market severely.”

Mark Mendiola is a veteran reporter and editor, based in Pocatello.

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