Notes from a conversation with a home builder in Western New York
On May 12 Western New York is still on lockdown and only those businesses that Governor Cuomo deems essential are allowed to work. The following are my notes taken from our one-hour conversation today.
In New York State, Erie County
- Residential construction remains shut down
- Home Depot (appears) to be at full capacity regardless. They are closing at 6 pm.
- 75%-80% of commercial work has found a way to be deemed essential so work continues
- All government-funded (Davis Beacon) projects appear to have been deemed essential
- Anecdotal observations are that most are ignoring social distancing and PPE requirements.
This builder’s profile
- Average starting sale price is $400,000. Given the cost of resources, most WNY builders cannot start a house under $320k. The numbers just don’t work.
- We build 30-35 units a year. Out of 10 jobs on the books, only one has canceled so far. “I believe we will keep the other nine.”
- No starts for 75 days so far
- They are not allowed to have in-person meetings so there have not really been any sales during the shutdown. It’s been difficult to sell a house that you cannot walk through and touch.
- Not using their 401k to build their houses
- Many of them work for the government in some way. In NYS, government employees, on the whole, do better than most and are not subject to economic swings. There is some minor concern that new sales will likely hold off until they see the direction the economy is going to take. He thinks that in the end, his usual customer will likely buy either way.
Supply chain questions
- For the foreseeable future, there will be no trade stacking on a project. In other words, it will be hard enough to get more than one person on a job at a time let alone the electrician and the plumbers at the same time. How much will this slow production?
- Our very seasonal building season has been cut in half. Trades like concrete cannot happen in the winter. When things open up, demand on the sub-contractors is going to be huge and backlog will be enormous. Anticipate renegotiated contracts where the highest bidder gets their work done before the snow.
- Do wages get pushed up? Will we see inflation? Labor was in very high demand BC. What happens to it now?
- This COVID break has given small business time to maybe rethink themselves and what they really need to do to be profitable. Will they run leaner going forward?
- Will commercial work slow down? If you were going to build a hotel before, will you now?
- If unemployment remains high, perhaps this is an opportunity to pick up reluctant talent from the commercial sector? Is it a good time to bring subcontracted work inside to self-perform?
It would have been nice to have the entire transcript of our conversation as these few bullet points do not do it justice. I enjoyed it. It got me thinking about how to perhaps pivot my own business are we see events unfold.