January 23, 2003

Inside Veritas -
Article 1 -Tell Your Story! Meeting to Focus on Sewer/ Water Impact
Article 2 - Local activity skewed by “Top 20”
Article 3 - What’s with these local rentals?
Article 4 - Taxation and Finance - Crisis Management Plans for 2003
Article 5 - Sewer and Water Update - Sewer/Water Focus Shifts to County
Association News Update From Laura
Economic Update - Low inflation’s a good thing; Right?
BS: Still about Nothing in particular
Housing Industry Update

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Tell Your Story! Meeting to Focus on Sewer/ Water Impact

   It’s been nearly 7 months since most of Genesee County was placed under a Sewer and Water moratorium. Although building was allowed to resume on previously approved lots, the development process has all but come to a halt pending the outcome of the legal challenge to the County Capital Improvement Fee (CCIF). And, despite the determination of County Officials to bring an end to the crisis (Board Chairman Rick Hammel made it the #1 priority), there has been little movement outside the legal process.
   Although the Builders’ Association supports the County’s position regarding the validity of the CCIF, we feel it’s imperative that a temporary solution be put into place immediately. And, that “solution” is available to the County with virtually NO RISK!
On Wednesday evening (January 29) our General Membership Meeting is geared toward that purpose. Drain Commissioner Jeff Wright, Board Chairman Hammel, and several commissioners (all have been invited) will be joining us during the evening to gain a better understanding of the Moratorium’s impact on the individual members of the Building Community. Members will be asked to Tell Their Story!
   Builders will talk about projects held up; their value; the financial hardship; and the impact on housing units in 2003 and beyond. Associates can note the impact declining housing activity will have on employment, sales, and the general condition of their business.
   We need your story ... and/or, your support! Please plan to attend the meeting to show County leaders how critical this situation has become. The event’s at Bonaparte’s; cocktails and hors d’oeuvres at 6:00 p.m., the meeting begins around 7:15. p.m.

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Local activity skewed by “Top 20”

Back in 1996, the local building community celebrated the kind of year we once had never expected to experience again. 1,852 single family and condominium homes were built that year, the same number as in 1978, which was the year before Genesee County’s activity began its tumble toward an all time trough of 222 units four years later.
   Last year’s permit data suggest 1,879 single family and condo homes were authorized, a number that’s nearly identical to the ‘96 figure. But times are different today, and the numbers mask dramatic changes in the venue and makeup of the activity.
   For example, in ‘96, only one of Metro Detroit’s largest home builders was active in Genesee County, building just 10 homes. Last year, there were six of the “Top 20” metro builders in the Flint area, building 331 units, or 17.9% of the county’s total.
   Also in ‘96, a total of 629 units (34% of the total) were built in the communities within the borders of Fenton, Grand Blanc, and Mundy Townships. In ‘02 that same area, making up just 16% of the county’s total, was home to 966 permits, or 51.4%. As you can see in the graph to the right, activity in that sector was nearly as strong last year as it was in 1999, when county permits were 9.6% higher.
   But that’s only part of the over all picture, because when we combine the large builder share and the greater numbers in the three township area (GB/M/Fen), we see just how much more south central Genesee County mirrors Metro Detroit.
   In recent issues, we’ve written a number of articles about the growing market share of major companies in metropolitan areas. Well, as is evident in the graph to the left, while the “Top 20” share’s been growing steadily throughout the Metro area, it’s jumped dramatically in Genesee Co. But, if we look at just the 3 townships, we find the “top 20” share has exceeded their Metro Detroit share each year since 1999, and has run over 34% for the past two years.
   The communities within Grand Blanc, Fenton and Mundy had 72 more starts last year than in 2001, an increase of 8%. The rear of the county experienced a 128 unit decline, or was off by 12.3%.
   Grand Blanc Township (466) led the way again, while Fenton Township held its traditional runner-up spot (183). They were followed by Mundy Township (167) Davison Township (149), and Burton (110). Linden also showed exceptional strength for the second consecutive year. After showing numbers in the 30s for in the late ‘90s, the county’s newest city authorized 81 units, up from 70 a year ago.
   In all, permits were only 2.9% below ‘01’s level, which is far better than the early part of the year when they were running more than 10% behind.

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What’s with these local rentals?

   When America’s housing industry was recovering from the devastation of the early 1980s’ recession, multifamily building played a significant role in that recovery process. From 1984 to ‘87, multifamily starts were responsible for 37% of all new housing activity with over 650 thousand units per year.
   However, a drastic change in Federal Tax policy in 1986 made rental properties, both residential and commercial, all but worthless, bringing virtual end to apartment building except for Government subsidized units. Less than 170000 units per year were built from 1991 through ‘93.
   After the Clinton tax bill of ‘93 reinstated most of the real estate tax breaks cut in ‘86, apartment construction recovered to some extent, but only to about half of its mid ‘80s level, and seldom made up 21% of new housing activity.
   With the exception of 1999, rental units hadn’t made up 20 percent of Genesee County’s housing starts in any year since the early ‘80s. Then, last year, there was an explosion in rental permits (Census data suggests 1,550 units [45%]; Housing Consultants says 835 units [31%]), which gave housing its strongest year since the early 1970s. But from an economics perspective, the surge in rentals is somewhat puzzling.
   Three recent events grabbed my attention (I’d say four if we include the fact that it’s Apartment developers that are suing the Drain Commission). First, I went to an “open house” at a project by an “affordable housing” agency and discovered that, while the subsidized rental rates were attractive, the non-subsidized rents were more than the monthly payment on any home within three miles of the project. Secondly, I ran into a friend who works for one of the new, high rent complexes, who admitted that rentals were extremely slow.
   But what really got me was the third, a Flint Journal article about “Lockwood of Mt. Morris,” a “senior housing” complex on N. Linden Rd. The article read: “Rent begins at $935 (1-BR) and $1,035 (2-BR). A limited number of ‘income restricted’ units are available at $540 and $650” for incomes below $26,700. The problem is that $1,035 per month is what it would take to support financing and property taxes on a $140,000 home with just 5% down. And, prices in that sector of the county seldom climb above $70,000. It truly makes one wonder about the basis for decision making in some of these companies? Or, is it all a charade to make all units subsidized?

Barry

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Taxation and Finance ---- Crisis Management Plans for 2003

   With the new year upon us, it is a very good time for for firms to ensure they have a crisis management plan in place so that the organization can recover quickly from a sudden major disruption of its business caused by an act of terror or by a natural disaster. Here are some key considerations in developing a viable plan:
1. Place responsibility for disaster recovery in a senior executive.
2. Review, evaluate and update security procedures throughout the organization.
3. Maintain an off-site list of all employee addresses, phone numbers, family contacts and other pertinent employee information.
4. Review business insurance policies for business interruption, extra expense, business income, ordinary payroll and terrorism coverage.
5. Evaluate adequacy of computer file backup procedures and off-site storage of the data.
6. Establish and practice employee evacuation procedures.
7. Provide an emergency off-premises meeting site for managerial personnel.
8. Arrange for use of alternative data processing facilities in an emergency.
9. Explore the use of wireless communication systems.
10. Arrange for the use of alternative production and administrative facilities on a temporary emergency basis.

R, P & T

Sewer and Water Update - Sewer/Water Focus Shifts to County

   Despite the continual changing of positions by the plaintiffs in the suit against the Capital Improvement Fee, it’s become obvious that the courts move much too slowly to expect any timely relief on the crisis. That’s why it was heartening to hear Rick Hammel elevate the crisis to his first remarks after being reelected County Board chair this morning (1/7/03).
   The county has the ability to provide the temporary relief necessary, with virtually no risk to its financial condition. So, that becomes the best avenue for a relaxation of the moratorium. A potential remedy is being looked at by county leaders at this time, and we hope there’s good news to report soon.

Beyond Seinfeld: It’s still about "Nothing" in particular

But can Blue Cross begin to redline Mormons?

   It’s not how much you drink ... it’s How Often! That’s the finding of a Harvard led study showing frequent alcohol consumption reduces the risk of heart attacks by 33%. And, it doesn’t matter what kind of alcohol is consumed. Beer and liquor are every bit as effective as red or white wine. So, you can still boycott products of France and California, and live a healthy life.
   The study found that drinking at least 3 times per week cut heart attack risk by 1/3, but less frequent consumption only cut the risk by 1/6.
Of course, the findings raise a new dilemma for the health insurance industry. Should they discount rates for drinkers, particularly those in groups that are known to frequently indulge?
   Or, should they raise rates on Mormons, Muslims and others who refrain from alcohol. We’ll raise this issue at the MAHB insurance committee meeting on February 27th.

So! Horses Hate Sprawl: But Do They Vote?

   Last Friday, BAMF’s EO told the ‘Flint Rotary’ that it’s been years since a month has gone by without an anti-Sprawl headline on the front page of Sunday’s combined “News/Free Press” editions. So, as if there was intent to accentuate his point, a 1/19/03 headline said “Sprawl squeezes out Metro- trails, stables.”
   Yes ladies and gentlemen, not only does your industry destroy farmland, eat up greenspace, and keep parents from reading to their children, it’s responsible for the demise of horse stable in the Detroit area, and the intimidation of riders and mounts.
   Intimidation? Absolutely! The new residents of rural communities “shout obscenities and honk their horns” when horseback riders get in their way.
   Things are so drastic that, as Michigan’s human population grows, its horse population is off 18.8% over the past six years. Well, it’s probably a good thing horses can’t vote .. after all, if they did, we’d lose another congressional district.

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Association News and Events by Laura

  

EXHIBITOR’S NIGHT: it’s coming Wednesday, February 26th, and we already have 36 tables reserved. Since its inception in ‘97, this has become the most highly attended membership event each year, even exceeding attendance at the BAMF Golf Outing.    This year, the evening begins at 4 p.m. with hors d’oeuvres, refreshments (beer, wine, soda etc.) and the exhibits, followed by the historic “Exhibitor’s Nite” menu (burgers, brats, pizza, et al) ... and, continues through 7 p.m. We’ll be making a special effort to get all local builders to the event (even nonmembers we hope to recruit). We’ll also have prize drawings throughout the evening.    So, don’t miss the opportunity ... plan to attend on February 26th .... AND, since we’ve moved to Bonaparte’s, there’s always room for more so, if you want to exhibit, call Laura or Tracey at 810.603.2200. SPRING PROMOTIONS:    The Spring Parade of Homes is set to open May 10th and run through May 25th. Contracts were mailed to potential participants last week, with the first deadline coming February 17th (final deadline March 10) ... if you haven’t received a contract and wish to participate, call the BAMF office.    And, with the Spring Parade comes Spring Housing Quarterly magazine. Advertising contracts are being mailed out to previous advertisers on Friday ... and, we’ll have contracts for both, the Parade and HQ at the General Membership Meeting. on January 29th, and Exhibitors’ Night on February 26th. The first deadline for advertising space in March 10, and all ad copy and payments must be to the BAMF Office by the end of March.    On a note regarding Housing Quarterly: We want to encourage members to submit articles that are “consumer oriented.” And, if there’s a new product that may be of public interest, we may be able to highlight that as well. CONGRATULATIONS TO: Dennis Schaefer (Creative Wood Products) for being chosen the Flint area’s “Entrepreneur of the Year” at the Flint Area Chamber of Commerce’s first annual Awards’ Program last Saturday night. Of course, we believe the deciding factor in his selection was his sponsorship of BAMF’s January 29th social hour.    We also wish to congratulate association members Artistic Decorating, Inc. and Dupuis & Ryden were also winners in two of the evening’s categories.    Cislo Title, Gould Engineering and the Builders’ Association were also nominees, but went home without an award ... still, former member Koerts’ Glass did win the Corporate Citizenship award, besting “Gould” and "BAMF", as well as, DuPuis and Ryden.

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Economic Update: Low inflation’s a good thing; Right?
  

   The theory suggests that, so long as house prices rise faster than the rate of inflation, housing’s still a good investment. And, as home prices continue to rise while other product costs decline, that investment must be safe. Well, as Lee Corso would say, “not so fast!”
   When the Labor Department reported last year’s inflation data, fears of deflation were once again brought to light. We found that the core rate (minus food and energy) of wholesale inflation, the prices manufacturers get for products, fell four times since July. Furthermore, our core wholesale prices were down 0.4% from a year ago.
   The following day we found that consumer prices were up 2.4% for the year and the core rate up 1.9%. However, we also learned manufactured goods’ prices were down 1.5% from a year earlier, as services’ prices rose 3.5%.
While gasoline, drug and even tobacco prices were rising, apparel, appliances, cars and computers felt prices tumble. In other words, services and necessities’ took a far larger share of the market.
   So, what about houses? Despite solid appreciation that’s been running at a rate of 5 to 6% annually, lower interest rates mean the actual “cost” of buying a home has actually fallen. While median prices are up roughly 11% since 2000, monthly payments for principal, interest and taxes are 3.3% lower than 2 years ago. So, in a sense, house prices are deflated as well.
   We’ve seen auto companies give incentives to bring car prices down to a level consumers will pay. If mortgage rates go up to ‘00 levels, will homeowners have to do the same?

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Housing Industry Update

Housing starts smash recent historicals

  The preliminary year end report on housing starts suggests the single family sector smashed its modern day record by 4.7%, as the Commerce Department announced single family activity was 4.9% above its “upwardly revised” November rate. Commerce’s data had single family starts at a rate of 1.473 million units for the month. Including December’s preliminary numbers, we can see that starts for the year averaged 1.3645 million units, for the biggest housing year since 1978.
   The total housing starts’ rate for the month was reported at 1.835 million, bringing the annual rate to 1.7 million, highest since 1986. Furthermore, as a positive sign for the immediate future, housing permits also hit their highest level since ‘86.

No wonder NAHB index of sentiment stays strong

   With housing starts (as well as sales) running at record levels, it’s no wonder builder sentiment, as charted in the NAHB Housing Market Index (HMI) remains “quite strong amidst an array of generally weak economic indicators.” Although the January HMI fell, it was down a two year high of ‘65’ in December (like the Institute of Supply Management’s index, any number above ‘50’ is favorable, meaning more builders see conditions as good than poor).
   The HMI found that builders sentiment regarding current sales’ activity was at 69; expectations for the following six months was at 68; while feelings about traffic in models, always the lowest HMI component, was at 50.
   In it’s HMI release, NAHB announced its projection that sales will remain strong in '03, but fall 3.8% to 942,000.

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