Coast home builders still down, but far from being out

Nearly three years after Hurricane Katrina hit the Gulf Coast,

However, while the situation remains difficult, home builders are hanging in there, and many see an improving situation. They may be down, but they are not out.

"Home builders are finding it really tough (on the Coast)" says Marty Milstead, executive vice president of the Home Builders Association of Mississippi.

Paying a premium

Milstead says probably the biggest hurdle home builders are facing on the Coast is insurance - or the lack thereof. He says homeowners are still finding it difficult to swallow the high cost of home insurance.

"That increases the price to build a home," Milstead says. "There is also the increasing cost of materials and high land costs. Many prospective homeowners simply walk away when they see the cost to build."

However, Michael Fritz is one Coast home builder who is guardedly optimistic and sees signs that encourage him.

"The insurance situation is getting better, and the market in general seems to be improving," says Fritz, whose Ocean Springs-based firm, Michael Fritz Development, LLC, builds custom and spec homes of 3,000 square feet and larger in Harrison and Jackson counties. "We're not as busy as last year, but business is steady."

Another positive is Coast home builders are not reporting a lack of available workers. Unfortunately, there is a glut of workers because building is not as brisk as hoped, says Michael P. Fearn of Champagne and Fearn Builders Inc.

Champagne and Fearn is based in Biloxi, and builds spec homes up to 2,000 square feet. Fearn says his firm is finding plenty of customers for its affordable houses. Still, it seems to him to be the quiet after the storm.

"Just as with other natural disasters, there was a surge of activity that lasted for about a year or a year-and-a-half, but the momentum has slowed dramatically," Fearn says. "The insurance issue is certainly one of the reasons."

Artificial props

Fearn says he is troubled by some of the numbers given by elected leaders of all the homeowners waiting to rebuild. He says those figures do not always reflect reality.

"I hate to differ with their numbers, but they keep saying there are all of these homes that need to be rebuilt," Fearn says. "They say those that moved away are going to come back. But, many of those homeowners moved away for good. Thy are not coming back, and are not looking to rebuild."

Fearn says what is needed is new economic growth. New casinos are a good example, he says. In short, new business will bring workers, who will need homes.

"That will help bring housing back on the Coast," Fearn adds.

Unfortunately, he sees a lot of incentive-based, investor-driven housing construction that he feels is not good for the market over the long term. And, generally this type of growth does not help area home builders.

In February, the Governor's Office announced that 16 projects on the Coast had been selected for a total of $150 million in long-term workforce housing funds. These projects are expected to result in the construction of nearly 6,000 affordable housing units on the Mississippi Gulf Coast.

In addition to financing of new, affordable housing units, the funds may also be used for home repair and rehabilitation, rehabilitation of foreclosed properties, revolving loan programs for developers, assistance for mixed-use developments and technical assistance.

Fearn says there is no doubt that these funds will help bolster home building in the short-term, and will help the area in its recovery efforts. However, these projects are incentive-driven - the funds are necessary to make these projects attractive to and viable for investors. In short, they are propped up artifically, and in the long run do more harm the market than good.

"And, many of these projects bring in outside builders," Fearn adds. "They don't help the local builders who are building one home at a time."