In the countdown to Election Day and this issue of BUILDER’s date with the printer, we checked in with a builder who leads a privately held company that hails from and conducts most of its operations in the swing state of Ohio.
During 2013 budget planning, he and his team mapped out three scenarios. Each resembles a helix that roughly mirrors a corresponding helix the shape, purpose, and impetus of which our freshly elected or re-elected government representatives will determine.
A best-case scenario calls for volume, revenue, and profit growth of as much as 25 percent in 2013. A worst-case scenario, on the other hand, would lead to a scant 5 percent gain in the year ahead. And of course, the middle scenario improves on the worst but falls way short of the best.
“We could actually have a worse year next year than we did this year,” this builder tells me. “In some of our markets, we may even lose money.”
How could that be? As national headlines, consumer confidence, employment trends, and housing data on permits, starts, and home builder sentiment point to gathering momentum, what’s dampening the outlook for this Ohio-based builder?
Policy inaction, that’s what.
The three scenarios each factor in varying magnitudes of consequence from the speed bumps in demand from China and other economies, the continued eurozone financial crisis, and ongoing flare-ups and unrest in the Middle Eastern oil-producing nations, among other issues.
But the material risk to our home builder friend’s 2013 business plan—and the plans of many of his peers—is domestic inertia, not global dislocation.
Like it or not, hope for the time-heals-all-wounds solution to the nation’s debt, its high unemployment, and its housing crisis hasn’t worked as a strategy.
“If we don’t deal with all the entitlements we can’t fund and get out from under our debt and put people back to work producing things here in this country, we’re not going to go far in this recovery,” the builder says.
Hanging in the balance for this company—the spread between the worst-case and best-case scenarios—are roughly 120 home completions that would generate about $30 million. Add up the multiplier effect on that lost business, and you’re talking about some pretty serious local economic consequences, and that’s just one builder.
A worst-case scenario for this organization might easily come of policy gridlock or leadership ineffectuality, which would:
• Cause companies to delay hiring more employees
• Make it more difficult for willing and able home buyers to borrow money for a mortgage
• Load more health care costs on firms
• Stymie private investment’s engagement in the secondary mortgage market
• Allow the chokehold of our national debt to force the majority of current problems onto future generations.
We’ve heard from builders that in communities that were ravaged by foreclosure, more than three of every 10 new-home buyers is a “rehabilitated” borrower. This is clear proof that the American dream of homeownership is pulsing with life.
The hard work to do now involves a Gordian knot of how much money we as households, companies, and governments can make and how.
Economist Tyler Cowen, in The Great Stagnation, writes:
“We should have a greater awareness that there is a political malaise and we should not add to it. Be tolerant, and realize there are some pretty deep-seated reasons for all the political strife and all the hard feelings and all the polarization. Government revenue, and private sector revenue, simply isn’t rising at the rate of our demands and expectations. No matter what your political commitments, be part of the solution to the current rancor, not part of the problem. Don’t demonize those you disagree with.”
We’re all lame ducks now.