The housing crash and home loan foreclosures savaged the housing market in towns like Orange, N.J. But not every builder in Orange is out of work.
"We have properties and we are moving them forward," says Patrick Morrissy, executive director for New Jersey HANDS, a local development company. "We've acquired seven in the last few months."
The neighborhood nonprofit has made a business out of rehabbing and sometimes redeveloping vacant houses, using a mix of bank loans and government grants. This year, while many developers are idle because they lack the cash to build, HANDS has $1.4 million from the federal Neighborhood Stabilization Program to help it keep busy.
Tired of waiting for the slow-moving recovery to come to your town? The National Association of Home Builders (NAHB) offers little hope of relief. Its latest forecast of housing starts calls for the pace of starts to remain tepid. Unlike a few years ago, when there were as many as 2.2 million housing starts per year, NAHB forecast last month that annual rates won't top 700,000 for most of 2010 and now rise above 1 million until late in 2011.
Given that new-home building is so weak, maybe it's time to expand your business in a new direction. A notable share of the residential construction work this year is likely to be done by developers such as HANDS, who are building thanks to government money sources ranging from stimulus funds to military housing appropriations. While large parts of the conventional housing business seem frozen in place, developers like HANDS that use government money are still working–and a few are busier than they've been in years.
Lumberyards and building supply firms will need some patience and persistence to hunt down all the housing developers in their area who are actively using government money. Every state, city, and county seems to have its own set of housing programs. One easy way to start is by tracking the largest affordable housing developers. Affordable Housing Finance, a sister publication of ProSales, publishes an annual list of the 50 biggest at www.housingfinance.com.
To dig a little deeper, research the activities of a few of the largest housing programs. Because many developers combine money from several programs to finance their projects, researching the most important programs should turn up most of the government-funded housing construction in your area.
Working for developers using government money can mean extra rules, regulations, and paperwork. For example, projects that receive stimulus money from the American Recovery and Reinvestment Act of 2009 have to follow a "Buy American" clause.
"It comes up on you quickest perhaps in lumber," says Chris Cluss, president of O.C. Cluss Lumber, based in Uniontown, Pa. Cluss, like many lumberyards, gets a lot of its lumber from Canada and most of its fasteners from overseas. It's still possible to find 2x4s sawn from trees grown in the U.S.A., but "It's hard to find a fastener that's made in America," Cluss notes.
On the whole, though, relatively little red tape stretches down to entangle the companies that provide materials to government projects. Take prevailing wage laws. Contractors who work at building sites that receive grants from the federal government have to pay their workers a "prevailing wage" set by the Department of Labor for their local area under the federal Davis-Bacon Act. The wages are generally close to local union wages. But building supply companies only have to worry about prevailing wage rules if their workers spend significant time working at the construction site. "A supplier generally doesn't have to worry about Davis-Bacon," says Brian McGillin, project executive for Hunter Roberts Construction Group, a contractor familiar with government work.
When you're dealing with an entity as big as the federal government, you end up with many different kinds of companies that are receiving dollars from Washington for construction and renovation projects in their communities. Three key subgroups are housing authorities, military housing contractors, and affordable housing developers. Here's a look at each.
Flush with new funds, the Philadelphia Housing Authority is busier than ever.
This year, workers will tear the rotted roof off the brick row house at 2127 N. Gratz St. in Philadelphia. They'll put a new roof and energy-efficient windows onto the century-old home, redo the kitchen, and install a truckload of new drywall. The renovation is just a tiny part of the work envisioned by the Philadelphia Housing Authority (PHA), which plans to build or rehab more than 900 homes and apartments in 2010 alone.
"Despite a challenging economy, we are currently managing more than $280 million in development projects citywide," says the authority's executive director, Carl Greene. "In the last decade, PHA has become one of Philadelphia's most innovative and successful developers."
PHA is busier than it has been in years. Because so many of its homes and apartments are reserved for low-income families, tough economic times have only made its homes more desirable. PHA also has more construction dollars to help meet that demand. Last decade, capital budgets for housing authorities shrank steadily; PHA's annual capital budget dropped from $78 million in 2001 to $58 million in 2008. In contrast, thanks to the 2009 stimulus act, by Sept. 30 of this year PHA must commit $126.9 million in funds for projects that have to be completed within three years.
Nationwide, local housing authorities will get $2.5 billion to pay for capital improvements in fiscal 2010. That's in addition to the $4 billion for public housing capital funding in the stimulus act. All told, housing authorities are working with more than twice the money they're used to getting. And even more new cash could be on its way. Congress has allocated $200 million nationwide this fiscal year for a program called HOPE VI to rehabilitate distressed public housing.
"We're seeing a lot more activity from PHA," says McGillin. PHA hired Hunter Roberts to rehab more than 300 vacant row houses owned by the housing authority, including the house on North Gratz Street. Hunter Roberts is also building 100 homes from the ground up in the second phase of PHA's Mantua Homes project in West Philadelphia.
Building supply companies interested in working with contractors like McGillin should start with a phone call. "They should contact their local housing authority," says McGillin. "Find out what the local procurement requirements are."
However, the competition is fierce–and it's not just on price. "We're certainly looking for best practices and the best service," says McGillin.