Frustrated by last summer’s ineffective housing tax credit and frightened by a worsening economic picture, builders around the country are going public about their financial plight and the effect on related businesses.

Their hope: to remind elected officials of the importance of housing in the economy and persuade Congress to salvage the economy by addressing the housing crisis. The solution, detailed below, would involve below-market mortgage interest rates and an expanded housing tax credit.

“In a healthy economy, housing-related spending is 15 percent of the GDP. It is the single largest component of the gross domestic product,” said Jerry Howard, NAHB’s president and CEO, referring to the size of the U.S. economy. “With all due respect to Detroit and the auto industry, it is but a small part of putting the economy back on track.”

Home builders are facing undeniably difficult financial circumstances. “We were rocking along pretty good … [until] all of a sudden, the phones stopped ringing in the middle of ’06. They haven’t started ringing since,” said Phil Hoffman, a third-generation builder in La Place, La.

He told reporters during a press teleconference that the downturn has decimated the family’s nest egg. “We have gone through all of our family’s savings in the last 22 months,” Hoffman said. “I laid off my own son. The day he got back from his honeymoon, I told him, ‘There’s two weeks more pay coming, and then you’ve got to find a job.’”

Building materials suppliers big and small have it no better. During a similar press teleconference highlighting the housing industry in Pennsylvania, Mike Kurpiel shared his experience with the current economy. “The associated trade partners are being dramatically affected" by the housing downturn, said Kurpiel, market development manager for ProBuild, the largest lumber-building materials dealer in the country with more than $5 billion in sales in 2007.

He too has seen layoffs at his company. "We've gone well past [cutting] the fat. We're into the bone,” Kurpiel said. Staffers with 25 years of experience are losing their jobs, and others still on the payroll are getting wage cuts. "It has caused a tremendous mental health issue--anxiety--in the company. You don't know when you'll get the tap on the shoulder.”

Meanwhile, employers are just as worried about how to retain the few people they can afford. At Lowe’s Cabinet and Lighting Gallery in Cleveland, Tenn., owner Patrick Abercrombie has reduced his workforce by 43 percent, from 14 people to eight. For those who remain, there will be no pay increases or bonuses anytime soon, Abercrombie says. “The ones we can hang on to we can’t afford to reward.”

The Tennessee dealer said yesterday that his business is down 31 percent compared to 2006 and more than 60 percent down from his projections. In Pittsburgh, Pa., builders “are taking the smallest jobs to keep their crews busy,” said Frank Thompson, president of Sweetwater Builders, whose own construction activity is half of what it used to be. In the suburbs of New Orleans, building permits have dropped 75 percent, according to Hoffman.

“Things couldn’t get any worse,” said Kurpiel, who like others who spoke during Wednesday’s teleconferences, urged the government to take action as soon as possible. “I just think it’s important that Congress address the root cause of the problem, which is housing,” Hoffman said.

The solution, as proposed by Fix Housing First, a coalition of more than 600 companies in the housing industry and the NAHB, includes the following:

  • A more substantial tax credit for people who buy a primary residence (not an investment property) between April 9 and Dec. 31, 2008. Unlike this summer’s tax credit, which was only $7,500 and had to be paid back to the government over a 15-year period, this new tax credit would be 10 percent of the home price. That would translate into a credit of $10,000 to $22,000, depending on the Federal Housing Administration loan limits for that market. It would also not have to be paid back.

  • An expansion of that tax credit to all home buyers, not just first-time purchasers. This would represent a change of direction for Congress, which perhaps attempted to do too much with last summer’s $7,500 temporary credit. “They were trying to combine social policy and economic policy,” suggested Howard, who also said that last summer, elected officials were concerned about the cost implications of a wider tax credit. “But the situation has deteriorated so much, they aren’t going to constrain themselves now,” he said.

  • A mortgage rate buy-down that would give buyers a 2.99 percent 30-year fixed-rate mortgage if they purchase a house by June 30, 2009. Buyers who close between June 30 and Dec. 31, 2009, could receive the same loan with a 3.99 percent interest rate.

“We are not asking for any direct relief for any individual company,” noted Howard, who says builders and others don’t want the government to give them a handout—just help stabilize the housing market so it’s not in freefall. “They can make the money on their own.”
Unfortunately for cash-strapped builders, though, resolution won’t come any time soon; Congress is out of session and won’t return until after New Year’s.

Alison Rice is senior editor, online, at BUILDER magazine. Craig Webb, editor of ProSales magazine, also contributed reporting to this story. Click here to read his ProSales story about how the housing crisis is affecting LBM dealers.

Learn more about markets featured in this article: Memphis, TN.