February 28, 2016

Drinking The Homebuilder Kool-Aid

A weekend topic on this Aurora Sentinel editorial from Colorado. “There’s only one thing left to do in the controversy over whether Colorado should back off requiring homebuilders to stand behind the condos they build and end so-called construction defect laws: Call it the total bull crap that it is.”

“Bull. Crap. It’s cockamamie construction bull crap that the home-builders have been using to blackmail Colorado into letting them off the hook when they build stuff that falls apart. And you’re lying to yourself, me and everyone else in Colorado if you say that there hasn’t been a past plague of crappy condos built here in the metro area, There’s been a city-full of poor suckers who got left holding the bag on the junky homes they bought.”

“Not only were there projects bursting with junk, but there were evaporating homebuilders that would claim bankruptcy under one name and reappear as a new company to do it all again. The problem was so bad that state lawmakers actually mustered the nerve to change the laws in 2007. The change made it easier to create group lawsuits against these shoddy and shady homebuilders. It did nothing to stack the deck in court in favor of homeowners saddled with buckling concrete floors and driveways, warping siding and a long list of expensive, rampant problems. It just helped to even the playing field for victims of an industry that has long owned endless numbers of city councilmen, county commissioners and state legislators.”

“Few industries like homebuilders and developers donate as heavily year after year after year into the campaigns of so many. And in many ways, they get what they pay for. For the past several years, many of these homebuilders have complained and whined that the reason they no longer build affordable condos in the Aurora-Denver metro area, is because their insurance costs too much. They say that when legislators evened the playing field, some insurance companies raised rates.”

“Maybe. But that’s because these shoddy builders had to pay for their mistakes, and then were successful at charging it back to insurance companies.”

“But here’s the real reason why this entire argument is bull crap. Builders say they haven’t been pounding nails in affordable condos because they can’t afford to, given the price of insurance to cover their shoddy mistakes. The real reason why is because ever since the economy tanked in 2007, there was no market for anything. For the past few years, rental rates have gone up faster and more seriously than gasoline prices have plummeted. While the anemic housing market has slowly been coming back to life, the market is for 1. High-end homes. 2. Apartments. And that’s exactly what builders are putting up.”

“This from Metrostudy, the industry’s communication organ in Colorado: ‘Along with trade labor shortages, the other major impediment to stronger housing growth in 2015 and into 2016 are rising home prices,’ said John Covert, Director of Metrostudy’s Denver market. ‘Strong demand for move-up buyers combined with rising costs have placed more emphasis on higher priced product over the course of the last several years. The most prominent change in the past year has been in the $400,000-$499,999 price band where 34 percent of all homes started in 2015 were concentrated. 2015 was a low water mark for new home starts below $300k, representing only 7 percent of total starts for the year.’”

“Even in Aurora, home of the three-story walk-up, hardly anybody is building condos — because the market for apartments and high-end homes is hot, and so are the margins.”

“Want more proof? Even though cities like Denver, Aurora and Lakewood drank the homebuilder Kool-Aid and wrote their own anti-construction-defect bills, those cities are building, guess what? High-end homes and apartments. If someone builds a condo, and it isn’t in Aurora or Lakewood, you’d be laughed out of town if you called it ‘affordable.’”

“Why build lower-margin condos when the market is so hot for expensive homes and easy-to-sell apartment complexes? The profits are so much better than hawking condos.”

Bits Bucket for February 28, 2016

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