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Rusty MacLachlan, left, says he has to be strategic when quoting a price. Kenny Bussell notes to watch for subcontractors taking advantage of deadlines.
Rusty MacLachlan, left, says he has to be strategic when quoting a price. Kenny Bussell notes to watch for subcontractors taking advantage of deadlines.

CEO Roundtable: Residential Construction

Posted online
Is residential construction back in the Ozarks? Springfield Business Journal Editorial Director Eric Olson sat down with owners Kenny Bussell of Bussell Building Inc., Rusty MacLachlan of MacLachlan Construction Co. Inc. and Danny Williams of Williams Home Builders LLC. They talked design trends, a construction comeback and future workers.

Eric Olson: In a word, how would you describe the residential construction industry right now?
Kenny Bussell: Challenging.
Rusty MacLachlan: Strategic.
Danny Williams: Good. I think it is better than it has been in years.

Olson: In the city last year, housing starts were down 14 percent while overall permits were up 10 percent. Do you see housing starts increasing?
Bussell: Well, I think there’s an obvious shortage. There’s just not enough of them to go around. We can’t build them fast enough.
MacLachlan: There’s going to be a spread outward where we find these housing starts. I think there is a good reason why there is a pent up demand right now and that is because the housing market, when it crashed, crashed so hard. On a national level, they call it the “lost decade of housing.” Now, on the other hand, developed lots took a major hit. There were some very strong developers that lost their developments, and it was just simply because of banking regulations and what they were forced to do. When the absorption rate changed, the investors in that property were forced to pony up more money or the bank had to take the land back. And there were a lot of them that took it back.

Olson: Are you speaking nationally or locally?
MacLachlan: Both. With that in mind, I think developers are very cautious now about breaking new ground. Who’s to say it couldn’t hit again fairly quickly? And if it does, I mean some of these developers took some heavy hits. They’re not so inclined to develop land so quickly again. I called Greene County today and asked them about that. They said that permits for developing subdivisions are way down and honestly we are running, in Greene County, at about 35 percent of normal for building permits. Normal being early 2000s, not the boom years of ’05, ’06, but the early 2000s we were running about 1,000 permits a year. In 2011, it was down to 193 and we are on target to hit 350-360 this year. That has a lot to do with developed land. Developers are cautious and builders are cautious.

Olson: In the city, developable land is scarce, right?
MacLachlan: It is. 
Olson: Are there pockets that you see?
MacLachlan: Christian County I think is up on their building permits. People are going to Christian County, and they’re going to Stone and Taney. Even Webster is starting to experience some growth. So, it is pushing outward where that land is available to develop at a reasonable price and where maybe some developers are willing to take the risk. 

Olson: Do you think there is a shortage of homebuilders or homebuyers? 
Williams: I don’t think there is any shortage of buyers right now. In the past, you used to find they wanted a new home but they had their home that they had to sell to be able to purchase something new. I find that really isn’t even a problem right now. If they have a home that is reasonably priced and it shows well, it sells relatively pretty quick. That’s what I see. I see there is a lot of demand for new homes. At the present time, there just are not a lot of areas for builders to go in and start several projects.
MacLachlan: I’m curious, Danny. What price range are you having the most success in right now?
Williams: Probably $275,000 and up.
MacLachlan: Kenny, what price range are you?
Bussell: $175,000 to $225,000.
MacLachlan: I typically build custom homes, and they’re going to run $400,000 to $650,000, sometimes above that. I personally have two clients that are waiting for homes to sell that are just over $400,000, so those aren’t jumping off the shelves quite as quickly. 
Williams: My case in point was the last client I dealt with, they needed to sell their home. They listed it on a Friday, an open house on Sunday, had eight couples through it and a Realtor wrote a contract on it on Monday.
MacLachlan: Yep. That’s not surprising. What price was that home? Do you recall?
Williams: It was in the $189,000 range.
Bussell: It’s not like what I was seeing prerecession where when someone had a house to sell, builders would want to take a contingency contract to tie up their property. And now, being a production builder myself, we just don’t have to wait on people to sell their homes. I just took a contract before this meeting here. You know, they put down a deposit and they have confidence that their house is going to sell and we haven’t had one fall through yet. That is where the big demand is, but there is also a demand for existing homes, too, because there are not enough new homes to go around. 

Olson: What can an entry-level buyer expect to pay for a new home per square foot in this market?
Bussell: I get asked that question a lot. I mean, a lot. If you are just out looking for a, you know, not a $600,000 house, just an average home, a good price point per square foot to expect to pay, in my opinion, is about $100 per square foot. It’s probably just going to go up from there. I mean, you’re probably not going to find something for $100 per square foot, but they’re out there. 
MacLachlan: I talked with two developers who are talking about bringing some subdivisions online if they can find a really good, flat piece of ground, easy to develop, avoid the rock, and everything goes well. They’re looking at starter home lots at $45,000 to $50,000. If you hit that, you’re not going to hit $100 per square foot.

Olson: That’s higher than what I’ve heard in the past, $25,000 to $30,000 is what I recall. 
Bussell: You talk about what the prices were prerecession as opposed to now and we’re not quite back there yet. The price of a home that we built prerecession is more expensive now than it was prerecession. 

Olson: So, the pricing trend on those is moving up, still?
Bussell: Yep.
MacLachlan: It’s going to have to continue to go up.
Bussell: With the labor shortage, you have a painter who charges just as much this week who knows you have a house that needs to be painted next week if you want to sell it, and so, he wants more money. And framers are the same way. I probably shouldn’t say this out loud, but framers and painters are the worst. The labor shortage, especially for production builders like myself, is really rough, because we need a lot of help. That’s why my word is “struggle.” We struggle with that every day. And it’s not just getting the help, it’s getting qualified help. 

Olson: How long have you been dealing with the labor shortage? You’re talking about subcontractors primarily, right?
MacLachlan: When the recession hit, anyone who was close enough in age to retire, pretty much did. This was a hard-hitting recession. I’ve been at this 34 years and I grew up in the business. My dad built. His dad built. So, I’ve grown up in it. A typical recession in the homebuilding business lasted six months. A year-and-a half was a really bad one. This one lasted 10 years. Anyone of the younger people that were getting into the business when it crashed decided they’re not ever going near that industry again and they found other jobs. I just read an article that the average age of a plumber right now nationwide is 42. So, there aren’t new plumbers coming in. What happens is that they begin to retire, and the demand hasn’t gone down. The demand has gone up. So, that’s why I say “strategic.” My goodness, when I’m talking to someone today about a house that’s going to be completed in nine months, I’d better be really careful in my planning as to what that house is going to cost. 
Bussell: I mean, I’ve chased a dollar. Like Rusty said, we have our core subs, our people who have been with us forever and they stick with us, and we don’t have to worry about those. But it’s the new guys. Those are the ones we have trouble with. When he’s pricing a house to a customer and then it starts coming in $10,000, $20,000 or $30,000 over budget and they’re not getting anything extra – it’s just increasing prices in getting the house built – it doesn’t sit well. 

Olson: I was looking at some numbers statewide and Missouri is actually in the bottom five states in terms of unemployment with 7.9 percent unemployed in the construction sector. The national construction unemployment rate was 5.3 percent. What does that say to you?
MacLachlan: The work is there. But, some people choose just not to work.
Williams: I’ll say this: I think young people go out, they get a job, say in the concrete business. They’re wanting to form concrete or pour concrete or do that. Well, they get in there not realizing it’s a lot of work. They stay there two weeks, three weeks or whatever and then they say, “I can’t do this every day. It’s too hard of work.” It’s not easy, but if you will stay focused and stay in it, it becomes easier over time. And you’ve got a career, you’ve got a job, you’ve got a good income. 
Bussell: That’s the same feedback I get from subcontractors who have the same problems that we have. They have trouble getting good help, steady help. 
MacLachlan: I read an article in Builder Magazine just this week and they said in interviewing 18-25 year olds, 74 percent knew what career they wanted to go into, and of those, 3 percent said they would look at construction. And they asked that group, if you do, what salary range would you expect to hire on for? They said they would work construction if they could get $75,000 per year. 

Olson: For those in our market who are considering career paths, what is a reasonable starting wage in the industry? 
MacLachlan: I’m hearing $12-$15 per hour to start and typically, they’re going to jump up into that $18-$20 an hour range if they’ve been there a year and they’re working pretty hard. You know, $20 an hour is $40,000 a year. 

Olson: How does being in a seller’s market impact your trade? 
Bussell: Well, seller’s market is definitely the way to go. That puts us in a good position because we don’t have to negotiate on the homes. We’ve all been through the recession and I know I’ve taken my share of money to the table, and given away my share of fences. But now the price we have is the price of the home. It’s not negotiable. We sell our houses for full price and being in a seller’s market we can do that. 
Williams: It’s good if you have a home that you need to resell. You know they are getting their equity back out of their home that they had in. They need it for their down payment. And when you can’t get their equity back out, then they’re not able to buy a house from us. The market’s good right now for everybody.

Olson: What trends are you guys seeing in new home design and building materials? 
Bussell: Grays are real popular now. Craftsman-style houses are becoming more popular, but the ranches still sell and people still pick earth tones. 
MacLachlan: Open floor plans are the big deal. To me, one of the exciting things in residential construction, and really commercial, too, is the LED lights are pretty neat. Those LED strips that you put on cabinets, just rolled out tape that produces great light, there’s some really neat things going on in that arena. I think we’ll continue to see some really neat products hit the market. Tesla is producing a shingle that will power your house. Their claim is that within five years, it will be in line with some of the upper-end shingles on the market today, the high-end architectural cut shingles. If that’s the case, boy that’s a game-changer. 
Williams: They come in and they want hardwood through the whole house. They want quartz countertops. They want stainless appliances, painted cabinetry. They want walk-in tiled showers. 

Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net, publisher Jennifer Jackson, jjackson@sbj.net and web producer Geoff Pickle, gpickle@sbj.net.
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