If you can, build it now
For Ann and Ted Heimbach, now is the right time to build their dream house. They have wanted to build their own home for several years, but decided to get a permit for one last year largely because of the recession: It's lowered construction cost...
For Ann and Ted Heimbach, now is the right time to build their dream house.
They have wanted to build their own home for several years, but decided to get a permit for one last year largely because of the recession: It's lowered construction costs, made more contractors and workers available to get the job done more quickly, and tax incentives made building a home cheaper than it would have been in previous years. Construction of their three-bedroom home in the Hawk Ridge development in Duluth's Lester Park neighborhood will be finished in May.
"It's still a risk," said Ann Heimbach, a real estate appraiser. "But we felt like we're in a position to handle it."
Unfortunately, the Heimbachs were some of the few in the city willing to take the risk on building a new home. The 31 new residential construction permits issued by the city of Duluth in 2009 was the lowest number in at least a decade, and new home construction has seen a 73 percent drop from five years ago.
Even with the school district moving forward on its long-range building plan and the Duluth Entertainment Convention Center expansion, permits issued for business and industry construction and home additions and remodeling have slowed to five-year lows, according to city data.
It's not hard to figure out why.
"It's mostly all the recession," said Arno Kahn, managing partner with Builders Commonwealth, which specializes in general construction, architecture and millwork.
While a family like the Heimbachs have seen opportunity in the recession, most people with the money to build seem to be sitting tight.
"A lot of people are 'wait and see.' Everybody's nervous and not spending money they don't have to," said Jay Zierden, owner of Zierden Builders, which builds homes in the $500,000 to $600,000 range. "People also have to sell the homes that they're in. And that's a difficult market."
While Zierden said his business is surviving the recession and hasn't had to resort to layoffs, Kahn said many others have. All it takes is for one customer to not pay a bill for a business to be in serious trouble, Kahn said.
"Most of the industry is one bad job away from being out of business," he said.
Making matters worse is that the Twin Cities market is also suffering, causing contractors to bid on Duluth projects -- and in some cases coming up with estimates below the costs of construction, said Shane Johnson, president of Johnson Wilson construction.
"Everybody's bidding everything," he said. "There just aren't as many projects out there."
Another impact of the recession that hurts a business like Johnson Wilson, which specializes in commercial construction, is that many businesses have closed, leaving a glut of available space. Johnson said he's had to cut about 30 percent of its staff since about 2008.
He's not particularly bullish about 2010, either.
"The new school projects are putting people to work," he said, "But there's not a lot of other things going on out there."
Others are more optimistic that, at the very least, the bottom has dropped out and business will remain flat. At Northern Trends Building and Design, president Don Merritt said 2009 was one of its worst years in the 20 years it's been in business. But with an increase in the amount of remodeling and new home construction his company is bidding on, "it sure feels like business is going to pick up," he said.
"[Last year] mostly it was fear," he said. "People were afraid to spend their money. ... Now I think people are starting to get comfortable again."
Kahn said he envisions a new normal, where revenues aren't at the height they were five years ago, "but it won't put everyone out of business."
"I feel like the tide is shifting," he said. "It does feel like there's more work out there."