business

The housing downturn is forcing the Builders Association of the Twin Cities to cut costs and shore up its finances. Membership is falling, investments are performing poorly -- and builder participation in the group's showcase event, the Parade of Homes, is down sharply.

Joshua Fowler, the group's executive vice president, says that while the situation isn't dire, three of 20 positions have been eliminated, and an e-mail to members said that "failure to act now could be catastrophic to the association."

The number of houses in the Twin Cities Parade of Homes, the group's biggest source of revenue, has fallen from a high of 1,200 in 2006 to 500 this year. The association has increased its entry fee for next spring's Parade to $2,900 per house from about $2,200.

In 2007, the association spent $400,000 more than it took in, and this year it expects to dip into its reserves by another $1.2 million. The booming housing and financial markets over the past several years, Fowler said, helped the association amass a healthy reserve account that "has allowed us to put money in the bank for a rainy day, and right now it's pouring." He expects revenue and expenses to return to balance by 2011.

The association's president, custom home builder KC Chermak, said the fee increase is the first in a decade. Since 2006, association membership has fallen 20 percent, to about 1,800, and is expected to hit a low of about 1,400.

Residential construction activity in the Twin Cities metro area continues to be stagnant as home builders focus on reducing inventories of unsold homes. According to data released Thursday by the association, home builders were issued 224 permits to build 447 units including single-family houses, condominiums, townhouses and rental apartments. That was a 39 percent decline in planned units.

When the market was still booming, many builders didn't pull back in time to avoid an overhang of unsold homes, and many are now focusing on building houses only when there's a client in hand. From January through September, home builders were issued 2,223 permits to build 4,126 new units. At the market's peak, builders were issued 8,444 permits to build 14,028 units.

With construction activity falling, Chermak said that although some members have gone out of business or left the industry, membership declines are primarily because of consolidation. For example, a home builder might have a remodeling division as well as a land development company with association membership for all three entities. In these tough times, however, such organizations are paring down to just one $700 membership to save money.

Despite the downturn in construction activity and a credit crunch on Wall Street, home builders expressed some optimism based on the number of people who toured Parade houses this fall. About 80 percent of the builders who responded to a mid-Parade survey said that traffic at their model homes was better than it had been during the past two years. And Chermak, who built a $1.8 million house in Minnetrista that was part of the association's "Dream House" promotion, said that an average of 250 people a week paid $5 each to tour the house. He expected 100 to 150. "I was ecstatic," he said.

Jim Buchta • 612-673-7376