Mark H. Leff – Permits ‘unpredictable’

For more than 20 years, Daniel Finn constructed new homes in Beverly and other North Shore communities. But after years of wrangling with town officials over the details of the developments he proposed and confronted with ever-changing and stricter regulations, Finn decided it was time for a change. Last year, Finn, who runs Finn & Sons in Beverly, decided it was more profitable and easier to install septic systems than build new homes.

“I can make an easier living, from a standpoint [of] hours spent and money earned, by doing something else,” Finn said. “Isn’t that sad?”

Finn is like many other Bay State homebuilders who are saying goodbye to new-home construction and turning to other businesses like remodeling and renovations. Driven out of the industry by high land costs and a complicated development process that can take years to wade through and lead to thousands of dollars in expenses, many homebuilders are abandoning the trade they’ve learned and come to love. And many homebuilders say building restrictions passed in many of the commonwealth’s 351 towns and cities are pushing even more to at least rethink their occupational options.

“The problem is, over the last three years in particular, the approval process has become so unpredictable, in terms of obtaining permits and the appeals processes, that it’s been important for many homebuilders to get a secondary source of income to support them until permits become available,” said Mark H. Leff, legislative chairman for the Home Builders Association of Massachusetts.

Leff, who is a construction loan officer at Salem Five Cents Savings Bank, said he knows many homebuilders who rely on income from remodeling work or investment properties.

“If they don’t do remodeling or have some other cash flow to fall back on, I think more and more they’re being excluded from the process,” Leff said.

The upfront costs for a small subdivision can easily run as much as $100,000 and that doesn’t guarantee that a homebuilder will get permits to start projects, Leff said.

“That’s a hefty price of admission,” he said.

The homebuilding industry in Massachusetts has historically been different than in other parts of the country. According to Leff, smaller homebuilders traditionally played a larger role and held more of the market share in Massachusetts, while big national homebuilders have been drawn to other parts of the country where they can build larger subdivisions on huge tracts of land.

That’s changed over the years, according to homebuilders interviewed by Banker & Tradesman.

Leff said the homebuilder profile in the Bay State is changing as land costs rise and as more communities make it increasingly difficult for homebuilders to obtain permits. There are many local quality homebuilders who have learned the trade over the decades but can no longer sustain the costs of building homes over several years. So, they turn to remodeling or other work, Leff said.

Remodeling can be more attractive to builders because it doesn’t involve as much upfront cost and typically doesn’t involve months of negotiations with planning boards and conservation committees to get a permit.

“Remodeling is much less regulated,” said Benjamin Osgood, a builder and developer who has constructed homes in Andover and North Andover.

‘Barrage of Legislation’
Osgood, who has been in the business since the early 1960s, said years ago the industry was occupied by local craftsmen who built in one or two towns and were well-known throughout the community. Today, the industry is not attracting young homebuilders, according to Osgood, and many communities are seeing more and more national firms – like Toll Brothers, based in Huntingdon Valley, Pa., and Pulte Homes, based in Bloomfield Hills, Mich. – doing business within their boundaries.

The bigger firms have the money and know how to deal with the complicated issues that arise during the development process, he said.

Osgood blames the “barrage of legislation,” including growth-management ordinances that limit the number of building permits doled out each year, that many towns and cities have passed.

The result is that it can take at least two years to get builder permits for a 10- to 15-home subdivision in most parts of the state, Osgood said.

In Massachusetts, a builder has to contend with individual town planning boards, conservation commissions, appeals boards, health boards and community engineers and inspectors. All through the process, builders are wracking up bills to pay for engineers, environmental consultants, lawyers and other services just to stay in the game.

It took Osgood 12 years to get the permits to build Abbott Village, 50 luxury single-family homes in Andover that sell for more than $700,0000.

“It [the industry] is just regulated to the hilt,” Osgood said.

With all these challenges, it seems only natural that homebuilders without the resources will walk away from the industry, according to homebuilders.

Another factor pushing some builders into the remodeling business is that in this market many homeowners cannot afford to move to bigger homes – or upgrade – and chose to add a room or fix their current homes instead, said Lillian Montalto, a Realtor and owner of Signature Properties in Andover.

“That was also a driving force to move to the remodeling end of business,” said Montalto.

American homeowners spend $180 billion a year on remodeling, nearly as much as is spent on new home construction, according to a study by the Joint Center for Housing Studies of Harvard University that was released earlier this year. Boston is among the top 10 areas for remodeling expenditures, according to the study.

The Greater Boston, Worcester, Lawrence, Lowell and Brockton areas ranked eighth among the top 35 major metropolitan areas in the country in terms remodeling spending, with a total of $14 billion spent.

The National Association of Home Builders could not provide statistics on how many homebuilders have made the switchover to remodeling. But Mark Carliner, a NAHB economist, said it is not unusual for homebuilders to cross over to related fields.

“It is not uncommon for builders to move from new construction to remodeling or vice-versa, and many operate in both markets,” Carliner said. “It is more common, however, for builders to switch from new [construction] to remodeling when the new-home market is weak, and it isn’t especially weak in Boston now.”

While the home market may be strong, Carliner acknowledged that a restrictive environment can be discouraging for homebuilders.

“When the regulatory environment is especially restrictive, builders without bureaucratic skills or patience are often deterred, and the market becomes less competitive. The Boston area has been one where the regulations have been daunting for some time, so I don’t know if the situation has gotten markedly more difficult recently.”

According to Bay State homebuilders, the situation has gotten worse – bad enough for more and more builders to call it quits.

Just ask Beverly builder Finn.

Finn, who said he is only taking a break from homebuilding and may return to the business in the future, said town leaders today “think nothing of” making all types of demands from developers. It is not uncommon for town and city officials to ask developers to install granite curbing for an entire street or to do traffic studies – all of which ends up costing the developer money and eventually gets added on to the home price.

“They can be very whimsical with their demands,” said Finn, referring to town leaders. “If it’s a small enough subdivision where they can’t get a playground out of you, they’ll find something else.”