Slowdown in building increases concern

Maryland gains 1,000 jobs

November 23, 2005|By JAY HANCOCK

Few things light up an economy like pouring foundations and nailing shingles. They employ skilled workers in your town, not overseas. They add to the community's capital stock and tax base. They generate revenue for lumber, drywall and carpet vendors.

And the permanent growth that they represent - new resident families needing sofas, dish soap and leaf bags - supercharges the larger commercial climate.

So the stalling of Maryland's construction-job growth this summer and fall is something to be concerned about.

Many economists view housing construction as an early indicator of what's in store for the whole economy.

A homebuilding slowdown might foreshadow less-robust growth in other sectors, too.

Even as overall Maryland job expansion is registering its best showing since 2000, federal Labor Department data show that growth in building-construction employment is lagging be- hind.

It's headed for its worst performance since 1998 or maybe even 1995, when the state was struggling to emerge from the early-1990s slump.

Overall, year-over-year Maryland job growth for October was a healthy 2 percent, the Labor Department says. That's 52,000 jobs more than the level of October 2004.

But after adding an average of 1,500 jobs a year from 1999 through 2004, Maryland building construction employment was basically flat last summer compared with the level a year previously, at 44,000. It recovered in September and October but was still growing at only about half its previous pace.

Yes, rising interest rates and the cooling market for all homes, new and used, have much to do with it. But those aren't the only factors. Builders report that growth is pinched by a triple-shortage of capital, labor and building lots.

Higher mortgage rates have priced some buyers out of the market, reducing demand. But even for the remaining buyers, builders often have trouble getting lots and permits. And even when lots and buyers are there, builders have trouble growing because they can't find skilled workers.

"The worst issue that I have is, I do want to try to increase my production, but I can't find the people who have the skills to do it," says Chris Rachuba, a small, custom-home builder based in Ellicott City.

Nobody thinks Maryland construction employment will crash, as it last did in 1991.

"I don't perceive that it will," says T. Kevin Carney, president of Thomas Builders, which puts up about 100 homes a year in Baltimore, Calvert and St. Mary's counties. "My land position is good, and I perceive that I won't have any reason to lay off people. We probably just won't produce as many units."

But not everybody is in a good land position. Smart-growth policies that try to limit development to built-up areas, plus resistance from environmentalists and community activists, have crimped the supply of buildable lots.

"Absolutely the biggest control on the number of homes built is the supply of land," says Michael DeStefano, president of Sturbridge Homes, which builds mostly condominiums and townhouses in Central and Southern Maryland. DeStefano plans to build 200 units next year, up from 125 this year, an acceleration that he credits to delayed permits that finally got approved.

Carney had to go out of state for some of his land, as have other builders. Last week, he signed a deal for a 200-unit tract in rural Waynesboro, Pa., north of Hagerstown. What does Waynesboro have that Maryland doesn't? Available land and cheap prices, which solve two of builders' three problems.

"You can find pieces of land at prices that people can afford to buy houses," says Carney, and they'll make long commutes to work if they have to.

To be sure, Maryland's economy still seems to have formidable mojo. Huge federal spending for defense and homeland security should continue to propel job growth. Thousands of military-base jobs moving here will boost the population.

But where will everybody live? Sometimes a lackluster housing industry is a demand problem, with too many homes and not enough people. Sometimes it's a supply problem, with too many people and not enough homes.

Either way, it's a problem.

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