With thousands of homes destroyed by Hurricane Katrina, there continues to be a large need for replacement housing. But a variety of factors — with high costs of insurance topping the list — are a drag on new home construction on the Mississippi Gulf Coast.
“The Coast has seen a slowdown in new home construction,” said Don Halle, president of Gulf Construction Company and vice president of the Homebuilders Association of the Mississippi Gulf Coast. “At a time when our area should be doing better, we’re not doing well at all. A lot of people need affordable homes. But we can’t seem to build for them because of the high cost of land and the high cost of building. There is definitely a slowdown and a lot of inventory in the marketplace right now.”
With the high demand and low interest rates, home builders should be in a hay day. But delivering homes at costs people can afford is a huge challenge. Halle said the problems start with affordable land. Land costs have increased since the storm.
“Available land with utilities is almost not available to us right now,” Halle said. “We have some coming on line later. People can’t pay high costs for land and end up with affordable homes. Then, there is the insurance problem. Our insurance costs have quadrupled in the past 24 months. We have young people trying to buy homes, and we need housing for the workforce. But payments on insurance can be as much as mortgage payments. So, that is not helping us.”
Doing something to bring insurance costs down is a major priority. Halle said it is important to the Coast’s recovery to have some kind of national all-perils insurance to spread risks broader to bring down the cost of insurance. The Homebuilders Association has endorsed an insurance bill introduced by Rep. Gene Taylor (D-Miss.) that made it out of the U.S. House of Representatives. But Halle said there isn’t a lot of optimism on the Senate side about coming out with some kind of federal wind or all perils insurance.
Halle recently attended the National Association of Homebuilders board meeting where there were reports that homebuilding may see slow times through 2009. But pockets around the country are still doing well.
“If certain conditions changed locally, we could be doing a lot better,” Halle said. “Right now, everything is very slow. We just don’t seem to have the market for the houses we have. There are a large number of people living in FEMA trailers. We don’t have affordable housing for them. We don’t have housing for the workforce. That is a problem we are wrestling with that we just can’t seem to find a solution for. Right now, our hands are tied. If we were able to build something someone could afford, then we have the insurance issues that are causing people not to be able to buy. It is a myriad of things we have to do to try to resolve the housing shortage here.”
One reason land costs are high is that much of the available land on the Coast has wetlands. It takes time and money to obtain permits for building on property with wetlands, and wetlands can reduce the amount of land in a project that can be developed.
“The government has done things we don’t necessarily agree with as far as what is a wetland,” Halle said. “Some areas shouldn’t be under that classification like manmade wetlands and those not associated with a body of water. It makes anything we can get without wetlands more valuable and harder to find.”
Housing costs along the Coast have also increased because of new elevation requirements. It is costly to build to the new elevation required by the National Flood Insurance Program. Because of the many challenges, there has been a northward movement for home building into counties off the Coast where land and insurance are cheaper.
“Because it has gotten extremely costly to have to build near the Coast, that is causing people to move further north,” Halle said. “I’ve been down here 25 years. What we are doing now is preparing for what may be a long, dry spell. I hope we are wrong and something will change the direction pretty soon. But we have a real unique situation here as to what we can do to put someone in an affordable home or workforce home. Every way we turn, we have an obstacle we just about can’t climb over.”
Charlie Green, owner of Green Way Builders, Pascagoula, said very little spec housing is taking place right now in Jackson County. But many people are still building homes back, and he is staying busy doing custom home building.
“I have four spec houses in Pascagoula, and I don’t know of any others than those four,” Green said. “There are lots available in Pascagoula for the first time I can remember in 38 years, lots for your choosing in all price ranges. But insurance is killing us. When you are looking at 40% of the cost of a home going into escrow, that is getting tough. Thirty years ago, 5% going into escrow was average.”
Green said it isn’t just the cost of insurance that is a problem, but the hassles of having to purchase separate policies for builder’s risk, flood, fire and windstorm.
“I deal with insurance problems every day,” Green said. “I can’t just call and say I want to insure this house. It is a nightmare. The Wind Pool is so backed up they will wait three months to cash a check. Until they cash the thing, you don’t know if you have coverage. With the 40 or 50 properties I’m juggling, you can imagine the nightmares we have.”
Green said policies for builder’s risk are easier to deal with and more reasonably priced. But when someone moves into a home, builder’s risk is void, so new insurance has to be lined up. Overall, he believes insurance is far too complicated and difficult, and reforms are needed.
Green has seen many ups and downs in the home building business during his career. He remains optimistic about home building activity on the Coast.
“I’m busy as I can be,” Green said. “It is a classic case of looking at the glass as half full or half empty. One man’s graveyard is another man’s nirvana. I think home building is the greatest business in the world, the last true bastion of enterprise where a guy who is willing to work can build something and though shear will and ability make something of himself. It is a great business to be in even with all the problems.”
Green agrees building affordable housing on the Coast is a major challenge. Most people don’t have any idea of the regulations and fees that make it hard to build housing people can afford.
Charlie Gant, a Gulf Coast homebuilder with Gant and Shivers, agrees that insurance is a major problem.
“Home building is real slow right now because the insurance is still an issue,” Gant said. “It isn’t a fact of houses not being needed. But insurance, and the uncertainly of being able to afford the insurance, is what has everyone mixed up. There is affordable insurance, but it would help a lot to pass an all-perils bill to get it even cheaper. Newspapers are printing things saying it isn’t a buyer’s market yet. I think it has been a buyer’s market for two or three months. With the inventory out there, buyers couldn’t pick a better time. There is insurance out there, and it is affordable insurance. I think everyone has been reading the paper and getting the wrong read on it.”
Gant said some homebuilders may be forced to start laying off workers because there it too much inventory on the market. One problem may be that people are staying rent free in FEMA trailers, and may have chosen to spend their income on new vehicles rather than investing in a home.
“I think people aren’t ready to buy,” Gant said. “I believe there are a lot of people sitting on houses right now waiting for the buyers. We have two subdivisions we are starting with houses at around $150,000. There is not a housing shortage right now by any means. It is just a problem having the buyers.”
Contact MBJ contributing writer Becky Gillette at email@example.com.