March 26, 2020

Homebuilders ‘blindsided’ by Austin’s order to halt construction

From the Austin Business Journal
By   – Staff Writer, Austin Business Journal

Pacesetter Homes is being forced to shut down roughly a third of its operations in Central Texas in the coming days as Austin officials order most construction to halt in an attempt to slow the spread of COVID-19.

That is just one example of the wide-reaching ramifications of orders this week by the city of Austin and Travis County to shelter in place. And while questions remain about just what is allowed under the orders, for now it looks like homebuilders across the county will have to cease construction by March 27, potentially putting thousands of workers temporarily out of a job and delaying the moves of many buyers. (Editor’s note: Business advocacy organizations are pushing for Austin and Travis County to reverse the construction shutdown; for more, go here.)

“That’s a lot of capital risk there, but from a human side, I really feel for our trade base,” said Lee Whitaker, vice president of Pacesetter Homes, adding about 50 subcontractors work on their home sites. “We have a lot of landscapers and cleaners — real mom-and-pop businesses — that may not be able to recover from it or sustain it.”

While being concerned with public health, having to stop building in Austin’s red-hot residential market where a record number of houses are being built and purchased each year is a hard pill to swallow for many — and one that could be financially devastating for others. Homebuilders had been on pace to build more than 18,000 homes in 2020.

“We think we are essential, and we think we can safely put people to work and, at least, keep that portion of the economy going because when we come out of this it is really the construction industry that is the driving force of the economy,” said Joe Fowler, Home Builders Association of Greater Austin board president and principal of custom homebuilder JHF Homes LLC. “We feel like we are an important part of that.”

Nearly 11,500 housing units in Travis County could be affected by the shutdown, according to data provided by Metrostudy, which surveys homebuilding. Of that, 5,586 homes were in development in the fourth quarter of 2019 and construction had started on another 5,907 homes since the start of the year.

“It is a huge hit to the record-setting market,” Vaike O’Grady, Austin regional director for Metrostudy, said of the order. “We’ve had all of these people buying homes, and now what happens is some of them are going to have to cancel because they can’t wait that long or maybe their jobs are impacted.”

If the shutdown continues through at least April 13, that will delay home closings, which will effect builders’ bottom lines, she said.

“They don’t make money until they close homes,” O’Grady said. “That is a concern for those builders who are heavily invested in the city or Travis County.”

The shutdown order came just days after some builders had continued to see strong sales despite the pandemic, as buyers looked to take advantage of low interest rates, she said. In recent days, some builders only opened their sales offices for appointments or showed houses through virtual tours due to concerns over COVID-19. By March 25, builders were beginning to close model homes and sales offices altogether.

Different rules for affordable housing

The move by Austin officials to halt homebuilding was surprising to many in the industry. And, if city and county leaders are concerned about public health, industry leaders are confused why affordable housing builders are allowed to continue operating. Fowler said residential homebuilders had taken safety precautions and could keep workers more than six feet apart on job sites.

“We were a little bit blindsided and surprised that the verbiage in the city’s ordinance was the way that it came out,” Fowler said. “We really haven’t been able to get a lot of answers from them.”

He added: “It’s a difficult argument to make that affordable housing is different from a construction perspective than any other housing.”

Fowler said HBA is continuing to reach out to city and county officials in an attempt to persuade them to reverse their decision at least when it comes to residential construction.

“Whether we will be successful with that or not, we don’t know,” Fowler said.

He said HBA is doing all it can to keep builders working.

“If they don’t work, they don’t get paid,” Fowler said.

At his own company, Fowler said he’s already had some subcontractors call and ask if they can get partial payment on jobs “just so they can get a check, which we are trying to do within reason.”

“The world has to keep spinning around and the way it spins around is by payroll,” he said. “If these guys can’t work, they don’t get paid. That is the nature of their business.”

At Pacesetter, Whitaker said 160 of the 480 homes that they have under construction or sold are in Travis County. The rest are in Williamson County, where homebuilding can continue.

He said Pacesetter has 11 homeowners that were planning to close on their homes between March 30 and April 13. If these closings can’t happen, Whitaker said the sales team is reaching out to provide whatever assistance they can, like trying to find a place to move.

“Are they going to be able to have money for closing costs, if they are going to have to live in a hotel?”