Illustrations By Dave Arkle
WITH PRE-ELECTION POLLS FLUCTUATING daily, it's anyone's guess which candidate the public will elect next month. But most builders are pretty clear whom they would like to see as the next president. Based on two surveys Builder conducted this year, nearly three out of every four builders will vote to re-elect President George W. Bush.
When asked in June whom they planned to vote for, 70 percent selected President Bush, and 25 percent opted for Democratic presidential candidate Sen. John Kerry. A second survey we closed in August found that Bush had gained a little: 71 percent said President Bush is best positioned to serve the interests of the home building industry, while 20 percent preferred Sen. Kerry.
Our surveys and interviews with builders indicate the industry has a huge stake in the election outcome. Builders by and large are fiercely conservative, small-business people, so it's not surprising so many plan to vote for President Bush.
The candidates, of course, have had a lot to say about myriad political issues. To find out which ones resonate with builders, we asked them for their top business concerns. Multiple responses were accepted. The two issues cited as most important, by far, were rising health and general liability insurance costs. The two insurance issues came in at 51 percent each, followed by material shortages, at 45 percent, and finding qualified employees, at 39 percent.
Only 50 percent say they want the federal government to play a more active role in health care. And 56 percent want the government to stay away from getting more involved in environmental regulations.
As concerned as many builders are about material shortages, particularly the recent cement shortage, only 35 percent say the federal government should step in. On a national level, the NAHB was still hoping President Bush would agree to repeal tariffs on Mexican cement to help relieve shortages in the United States. Both The Wall Street Journal and the Los Angeles Times ran editorials in August endorsing the NAHB's position. As of early September, the NAHB was still waiting for the president's decision.
Anxiety over general business conditions was also fairly high on our survey list, with 36 percent checking off the economy as a top concern. Some builders even spoke out against the Bush administration's economic policies.
Sarah Peck, a principal with Progressive Housing Ventures in Malvern, Pa., is troubled by the economic policies of the Bush administration, which she says now include growing budget deficits, aggressive tax cut policies, and rising interest rates.
Peck says Sen. Kerry is talking about rolling back tax cuts for people in the upper income brackets and cutting the deficit in half over four years, policies she says demonstrate his fiscal responsibility. She says budget cutting during the Clinton era signaled to the bond market that the federal government intended to get the budget under control. Interest rates were lowered and the economy recovered.
“Low interest rates have been it for our industry; if they start creeping up, all bets are off,” she states. “I think the bond markets will respond more favorably to a Kerry presidency … although I don't think Kerry's [deficit-cutting plan] may be enough to create the kind of confidence in the bond market we need to sustain low interest rates.”
Peck's leaning toward the Democrats is atypical of most conventional builders, many of whom view the Republicans as supportive of free enterprise, streamlining what they perceive to be excessive environmental regulations and getting tough on tort reform to reduce frivolous lawsuits. Keep in mind that Peck's company largely builds urban infill projects, where the politics tend to be more liberal. Additionally, Peck says the local governments are often very cooperative, because they want new housing built in their communities.
“I'm working with the wind at my sails,” she says, adding that “local jurisdictions want you and are willing to collaborate.”
Mark Leas, president of Bethesda Builders in Bethesda, Md., who builds two to three custom homes a year and also runs a custom woodworking business, is more typical of the average builder. He says the Democrats just plain scare him.
“I've been in business 27 years … and the longer I've been in business the less the Democrats have to say to me.
“I'm concerned about potential tax increases [under a Kerry administration] and the effect they'll have on the home building and remodeling market,'' he says. “Kerry says he'll raise income taxes [on the upper income brackets]. That's not a question, so it scares me, because the people we do work for won't have excess dollars to spend.”
Greg Strom, president of Builders Commonwealth in Duluth, Minn., says one big reason for the building industry's general liability insurance crisis is that the Clinton era empowered trial lawyers.
“We need to take some of that back,” Strom continues. “Overall, times have been great,” he says. “Low interest rates offset the high materials costs, but I'm very concerned about the further empowerment of trial lawyers under a Kerry/Edwards administration.”
SICK SYSTEM In addition to jobs, the economy, and interest rates, health care is one of the top builder concerns that both candidates have spent a lot of time on—and for good reason. The Census Bureau reports that 45 million Americans, or 15.6 percent of the population, lacked health insurance in 2003, up from 15.2 percent the year before. And the National Federation of Independent Businesses estimates that more than 60 percent of the uninsured are small-business owners, their dependents, or their employees and their dependents.
For the vast majority of builders—large and small—these numbers sting. Many have seen premium increases of 15 percent or more in the past year, and the best many small and midsized builders can do is offer employees a stipend.
“Over the past three years, the cost of health insurance has gone up cumulatively 60 percent,” says Steve George, general manager of Authentic Construction, a builder and remodeler based in St. Paul, Minn.
George says Authentic Construction has 19 employees, with 10 carpenters and nine office staff people. The company pays up to $175 a month for an individual employee's health insurance but does not pay for family coverage. Although Authentic's system is not perfect, it's the best the company can do given the stiff premium increases.
“We need to fix the health care system,” says George. “If your employees are healthy and use health care properly, they will be more productive, so providing health care is just damn good business.”
Unfortunately, not much help is on the way from Washington, at least not until after the election. The major small-business bill that would let trade groups more easily form association health plans (AHPs) passed in the House last year but is stalled in the Senate. The Congressional Budget Office estimates that by leveraging their memberships, large trade groups can reduce average health care premiums 13 percent to 25 percent annually, which would help insure roughly two to three million previously uninsured workers.
“It's really a shame,” says Jenna Morgan Hamilton, the NAHB's federal legislative director, and the trade group's lead on the AHP legislation, “because when you talk about the labor issue and the problems builders have finding good employees, if builders can't offer employees the benefits they need, they won't stick around.”
President Bush has been a strong supporter of AHPs. He's said repeatedly that by allowing small businesses to band together and negotiate on behalf of their employees, AHPs would help small businesses and their employees obtain health insurance at a more affordable price, much like large employers and trade unions.
Morgan Hamilton says there are small signs of light for AHPs. Sen. Robert C. Byrd (D-W.Va.) recently signed on as a co-sponsor with seven Republican senators. And Senate Majority Leader Bill Frist (R-Tenn.) has talked favorably about AHPs in recent speeches.
Sen. Kerry has not endorsed AHPs. His health plan proposes refundable tax credits for up to 50 percent of the cost of coverage to small businesses and their employees. He also wants to give small businesses access to the Congressional Health Plan, which the Kerry campaign estimates will save small-business people about 15 percent in health care costs on top of the tax credit.
BUILDER VIEWS Leas of Bethesda Builders says his company covers 50 percent of the cost of health insurance for its 20 employees.
“We're doing real high-end stuff,” says Leas, who builds infill projects with price tags of $2 million to $3 million. “Retaining people is tough, so we give them as many benefits as we can. That's how we keep people and are consistent with the quality of work.
“The tendency is for the Democrats to favor socialized medicine,” Leas remarks. “I favor privatized medicine,” he continues, adding, “I was disappointed when Sen. Kerry picked John Edwards, a trial attorney, as his running mate. It pretty much says where these guys are on any tort reform or on reining in medical malpractice lawsuits.”
Strom of Builders Commonwealth says his company is organized as a cooperative, so all 40 employees are essentially self-employed and buy insurance on their own. He pays $300 a month for a family of five for major medical. But he has no prescription plan or dental, and the deductible is $2,000 per person. Strom is buying lowest common denominator insurance, but he's typical of many small builders.
“The medical profession as a whole is overexposed to legal expenses, and they have passed it on to us,” says Strom. “I think the situation would improve under a Bush administration,” he says, adding that “the insurance thing is haywire and needs to be fixed.”
Basically, builders don't want to rock the boat. Many remember the double-digit interest rates in the late 1970s and early 1980s and want no part of going back to those lean times. President Bush has been a strong advocate for homeownership, and Sen. Kerry hasn't really said much about housing during the campaign.
Home building has been one of the few bright spots in the national economy during the Bush era—and President Bush will get much of the credit.
It's hard to imagine that Sen. Kerry can convince builders that he's the right guy for the industry. He's a Northeastern liberal with a prep school background, hardly a folksy type who would appeal to builders. President Bush is no less a creature of privilege, but his Texas charm still makes people feel he's the kind of guy they can talk with. Some builders, such as Peck of Progressive Housing Ventures, may feel they can cut through Republican rhetoric and see that the Democrats really can run the economy—but they are few and far between.
Moving into the fall, the election was a dead heat and all the pundits expected that domestic issues like the economy and health care would edge back into the limelight. Vote your pocketbook—or vote your conscience—but the main thing is to vote. Your vote counts more than ever!
It will take state and local governments and local HBAs to fix the general liability insurance crisis.
Although our survey found that concerns over the affordability of and access to general liability (GL) insurance were equal to concerns over health insurance, GL insurance is regulated by the states, and it more than likely will not be on the president-elect's plate.
Many builders are paying 50 percent more for liability insurance, but reports of increases in excess of 1,000 percent are not uncommon. Builders also face numerous riders and exclusions, and availability has become a big problem.
“While it's certainly reasonable for home builders to experience changes in coverage, what happened is far beyond what other industries experienced,” says Clayton Traylor, the NAHB's senior staff vice president for state and local political operations.
Builders in Southeastern Virginia took matters into their own hands when Zurich North America, the largest carrier of general liability insurance for builders, stopped writing liability insurance for 1,800 residential general contractors statewide.
The 1,060-member Tidewater Builders Association (TBA) launched the Builders Insurance Association, a TBA subsidiary charged with providing members with general liability insurance. Chip Iuliano, president of the TBA, says the trade group enrolled 37 builders in the new insurance program. The group has collected $300,000 in total premiums. Annual insurance premiums run from as low as $2,000 to $50,000.
Iuliano says one of the unique aspects of the TBA's insurance program is that builders must get their subcontractors to sign written agreements that the subs' work will meet local building codes and perform their work in a workmanlike manner. Another interesting feature is that home buyers sign an agreement in the sales contract that all disputes will be settled in binding arbitration.
Another way builders have been working to temper the liability insurance crisis is by getting state legislators across the country to pass notice and opportunity to repair (NOR) laws. The basic idea is that before homeowners can sue a builder in court, they have to notify the builder of an alleged defect, and then give the builder an opportunity to make an inspection and make an offer of repair.
“We put a ton of work into making the NOR legislation a priority,” says the NAHB's Traylor. “Three years ago, no one had an NOR law; now, 24 states do,” he points out.
Insurance Runs Amok Survey finds builders are most concerned about rising premiums for health and general liability insurance.
Which of the following issues are your top concerns? (multiple responses accepted)
Builders Pick Bush The vast majority of home builders say President Bush is the best candidate for the home building industry.
Which candidate is best positioned to serve the Interests of the home building industry?
Unsure About Feds Only about half the group surveyed says the federal government should get more involved in solving the nation's health insurance problems.
Do you think the federal government should play a more active role in solving the problems caused by rising health insurance premiums?
President Bush The president supports the Republican Party's pro-business agenda:
Sen. John Kerry The Democratic challenger has some proposals that could turn some builders' heads: