Builders diversify to survive

BRANCHING OUT: Thomas McNulty, president of E.A. McNulty Real Estate, at a new 
construction site in Cumberland. “If you were a new-home builder, you had to get into 
new aspects of the industry,” he said. / PBN PHOTO/NATALJA KENT
BRANCHING OUT: Thomas McNulty, president of E.A. McNulty Real Estate, at a new construction site in Cumberland. “If you were a new-home builder, you had to get into new aspects of the industry,” he said. / PBN PHOTO/NATALJA KENT

For many Rhode Island homebuilders and tradesmen, the last five years have forced a choice between diversification and retirement.
When the recession hit at the end of 2008, house construction in the Ocean State already had been sinking for two years. The foreclosure crisis pushed it to uncharted depths.
Now four years into a slow recovery, new-home starts are only slightly improved and developers, contractors and tradesmen still search far and wide for opportunities.
“If you were a new-home builder, you had to get into new aspects of the industry,” said Thomas McNulty, president of E.A. McNulty Real Estate, a development and construction company in Cumberland. “When the permits drop, you have to get into other things. I don’t see it returning to the way it was anytime soon.”
For many in the building trades, the lack of new subdivisions being laid out has forced a move to repair and remodeling work.
Others have shifted from residential to commercial construction, which also has been slower than it was in the boom years, but still shows some activity.
McNulty is doing more remodeling work than before and is still building homes on land purchased and laid out into developments before the market sank.
“We haven’t come out of the ground with anything new – just managing the things we already had in the pipeline,” McNulty said.
Like the rest of the economy, educational and medical institutions have provided work for some companies, and the federal stimulus package, now ended, delivered some infrastructure work for those willing to cross over into that market.
But for builders based in Rhode Island, where the collapse of the construction market has been worse than in neighboring states, especially Massachusetts, diversification has often meant traveling to work elsewhere.
“You have to drive out of state for work – I am traveling as far as Hartford and Boston,” said Robert Baldwin, owner of R.B. Homes and Trinity Excavating of Lincoln, about how business has changed since the recession. “Nearly every state is doing better than Rhode Island. The reality of it is beyond obscene.” According to a National Association of Home Builders analysis of Census Bureau construction data, only 10 other states in the country saw housing starts decline as much as they did in Rhode Island between 2000 and 2008.
At the bottom of the recession, Rhode Island’s new-home starts were down nearly 80 percent from the average total between 2000 and 2003. The states with steeper declines in new construction included Michigan, which saw two automakers file for bankruptcy protection, and foreclosure hotspots Florida, Nevada and Arizona.
Since then Rhode Island’s new-home starts have rebounded from just over 20 percent to more than 30 percent of their 2000 to 2003 average, inching the Ocean State ahead of Connecticut, but still firmly in the bottom third of all states. Massachusetts is at roughly 40 percent, right around the national average.
Despite some ups and downs, new-home starts and sales nationwide have been creeping up nationwide this year, bringing with them construction-company stocks and predictions that housing will soon be helping the economy rebound instead of dragging it down.
“The context is getting back to normal – from the boom, to the bust, to 2011 bouncing along the bottom, to now starting to see some real progress,” said Robert Dink, economist with the National Association of Home Builders. “But everyone is so beaten down, it is going to take a long time to come back up.”
Dink pegged the new “normal” he expects to reach at that 2000 to 2003 level of 1.3 million new-homes built, which is fewer than the subprime-inflated peak a few years later and the larger volumes of many years dating back through the 1990s to the 1970s, 1960s and post-war years.
Looking ahead, the National Association of Home Builders predicts that nationwide new-home construction will climb to 42 percent of that 2000 to 2003 average by the end of this year and 55 percent by the end of 2013.
Unfortunately, the association expects Rhode Island will continue to lag the rest of the nation in that recovery, remaining below 50 percent of previous construction along with Connecticut, Vermont and New Hampshire. The association predicts Massachusetts home starts to outperform the rest of the Northeast and get to between 60 percent and 70 percent of its 2000 to 2003 level. In June, Rhode Island had 15,600 seasonally adjusted construction jobs, the same number as in January and up from the 14-year low of 15,400 jobs last June, according to figures from the R.I. Department of Labor and Training. Rhode Island’s construction-industry employment peak was 2006, when 23,000 people worked in the trades here.
But other drags on growth include increasingly tough land-use restrictions and anti-development sentiment that seemed to crest in many New England communities during the boom.
“Moving forward, the fact that a lot of rural towns have beefed up their regulations is going to reduce what can be done even when the economy comes back,” said McNulty, whose company’s full-time employment dropped from 16 during the recession to 10 now.
In many communities in Rhode Island and elsewhere, regulations mandating minimum lot size, frontage, road width and sidewalk construction come up against environmental regulations to limit rain runoff and smart-growth principals for denser settlements. The result is high infrastructure costs, exacerbated by the price of materials and oil, making the economics of subdivisions nearly impossible, McNulty said.
And so far those people with developable land to sell, like many owners of existing homes until recently, have been slow to accept how far the market for their property has truly fallen.
“We have looked for land and there is definitely a disconnect,” McNulty said. “We have seen landowners whose families have owned for a long time and they got a civil engineer in the boom times and by the time they got their permits and started shopping it the market started to fall.”
As slow as things remain, there have been signs of some improvement in new construction this year in Rhode Island, Baldwin said.
“We might be a smidge better than last year, but not breaking the doors down,” he said. “People are buying foreclosures and bringing down inventory, so human factors are starting to come into play.” •

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