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Homebuilders' Tales From the Bottom


Many builders at the convention said they're settling for a 5% to 10% profit on each house they build, down from the traditional 12% to 15% range and drastically lower than the margins of 20% or even 30% that some builders enjoyed in the boom years of 1988 and '89.

* To soften the blow to their bottom lines, many builders are squeezing their subcontractors and suppliers to reduce their charges for labor and material.

"With housing starts down, these guys are hungry for work and they're more willing to make concessions," said Bruce Karatz, president of Kaufman & Broad Home Corp. "So, we're just asking them to share some of the pain."

* As usual, developers at the convention blasted government regulators, slow-growth advocates and environmentalists for causing costly delays that jack up the cost of building a new tract--costs that they say are ultimately borne by home buyers.

One of this year's favorite targets of builders' wrath was the northern spotted owl, an endangered species that lives in the forests of Washington, Oregon and Northern California.

About six weeks ago, a federal judge issued a ruling that blocked most U.S. Forest Service timber sales in the Northwest to protect the owl's habitat. Builders say that the ruling has caused a lumber shortage and sent the price of wood up by one-third.

"It's fine to try and save a little bird, but this judge's ruling has added $3,000 to the cost of building a $150,000 home," said Mark Ellis Tipton, president of the National Assn. of Home Builders.

"The spotted owl isn't the endangered species here," Ellis said, his voice rising for dramatic purposes. "The real endangered species on the West Coast is the first-time home buyer."

* As if the sales slowdown wasn't bad enough, California builders are also facing some tough battles with state legislators.

Perhaps their biggest worry is a bill authored by Assemblyman Mike Gotch (D-San Diego) that they say could virtually eliminate caps on the fees that many cities can levy on developers to build new schools.

Currently, cities can charge builders a maximum fee of $1.58 per square foot of new construction to raise money for educational facilities. So a builder can expect to pay a maximum of $2,370 in school fees for each 1,500-square-foot home he builds.

Gotch's bill, which has already won approval in the state Assembly and is now working its way through the Senate, would allow cities to flatly deny projects if there aren't enough schools in the community.

Builders worry that passage of the measure would encourage cities to withhold approval of new projects unless the developer agreed to forget about the $1.58-per-square-foot limit and instead pay a much higher levy.

"If builders have to pay even more money for school fees, it's just going to drive up the cost of buying a new house," said Robert Rivinius, chief executive officer of the California Building Industry Assn.

"The last thing builders need right now is higher development fees. It would only make an already bad situation even worse."

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