Twin Cities homebuilders watch promising season turn sour

Just a couple weeks ago, Tony Wiener's Oakdale-based homebuilding and remodeling company was on track to have one of its busiest years ever. Today, he's grappling with what appears to be a sudden recession that could shrink his business by nearly half this year.

"We're on edge," said Wiener, who lost one new home buyer and two remodeling jobs this week. "We're just waiting for the next shoe to drop."

As schools close and bars and restaurants shutter, homebuilders are still hammering away across the Twin Cities metro on job sites where social distancing happens naturally and for the most part isn't difficult to accomplish. But in the midst of what was expected to be a near-record year for home and apartment construction, the industry is facing a barrage of challenges that could quickly slow homebuilding in the Twin Cities, which is already navigating a dire shortage of housing in some parts of the metro.

Aside from the question of whether people can afford to buy a home or rent an apartment in the coming months, tops on builders' list of concerns is that suppliers will no longer be able to deliver key building components and that municipal building inspections will slow or be halted, shuttering job sites during the prime construction season.

"If one of those dominoes falls, it'll temporarily shut down construction," said Wiener, who expects to build 10 houses this year compared with a pre-COVID-19 forecast of 15 to 18 homes. Wiener and other builders expect buyers who are making elective purchases to hit the pause button. That includes one of Wiener's clients, an empty-nester who had planned to buy a one-level, villa-style home in Woodbury where prices start at $390,000. Wiener had another client, a small-business owner, say he was worried about cash flow and canceled a $10,000 upgrade.

One of the most critical pieces of the development puzzle happens far from those job sites in city halls and planning departments across the metro where developers seek approvals to open new subdivisions. There's growing concern within the industry that if municipal meetings are canceled or delayed, there will be delays in bringing new building sites to a market that's already constrained — and expensive. Such projects typically take a year to get approved, so delays this spring could limit the supply of new sites next year.

"A lot of developers are trying to get in front of councils," said David Siegel, executive vice president of Housing First Minnesota. "If they can't, we're literally going to delay projects to a subsequent year."

During February, a near-record number of permits were issued to build new houses and apartments in the Twin Cities, but that data doesn't reflect what's happening on the ground in recent days. Builders are now concerned about how to market their homes without putting buyers at risk. On Tuesday, Housing First took the unprecedented step of suspending the biggest marketing event of the year for homebuilders, the Parade of Homes Spring Preview, until at least April 2. Another key event, the Remodelers Showcase, was canceled.

Gary Kraemer, president of Housing First Minnesota and the owner of a Twin Cities custom homebuilding company, said that in lieu of traditional open houses builders are asking buyers to make appointments to see homes. He hasn't lost any contracts yet, he said, and he's still working with several willing and able buyers.

"This does not seem to be derailing our buyers," he said. "Our clients believe there's a rainbow at the end of this story."

Still, association members are nervous about their ability to build homes amid so much instability. Siegel said he's working with state and local officials to make sure that building inspectors are still available. He said several communities have cut back on the number of days their inspectors are working, and some cities are restricting inspector access into homes that are being remodeled.

"We want to be careful about public safety," he said. "But if you can't get a permit approved or an inspection done, that's problematic."

Wiener, the east-metro builder and remodeler, said he has not yet run into any such delays. Right now, he's most worried that as the unemployment rate increases and people fret about the stability of their jobs, he'll lose more work. And that could mean temporarily laying off staff.

Given current estimates on the spread of COVID-19, he now expects a three- to five-month pause in business, which pushes construction schedules into the winter.

"That's not a good buying season, so we're not very optimistic at this point," he said. "But it's out of my hands."

Jim Buchta • 612-673-7376