Housing permits plummet in state

People in the local building industry say they've never seen business conditions as difficult as they are today, and statewide new housing-permit figures released Tuesday seem to bear out their concerns.

New housing permits in Connecticut were down 43.5 percent in September compared with a year ago, according to figures released by the state Department of Economic and Community Development. Permit activity is off nearly 40 percent so far this year compared with the same period last year - and 2008 wasn't a great year, either.

"I've been in this business over 50 years and I've never seen it this bad," said Tom Lenihan, owner of Lenihan Lumber in Waterford. "It's worse than it was (during the last real estate recession) in the late '80s and early '90s."

The 218 housing permits issued in the state last month represented less than a quarter of the number approved for the same period four years ago.

"We're all in survival mode," said Norton C. Wheeler III, owner of the Mystic River Building Co.

Lenihan said the problem today is that people cannot get loans or mortgages.

"Money is not available; the banks are very cautious," he said. "That was not the case in '88, '89 and '90."

"People are scared, and the banks are being totally careful," said Renee Main, executive officer of the Builders Association of Eastern Connecticut. "It's just the opposite of what was going on" during the real estate boom three to five years ago.

Jim Cronin, president of Dime Bank in Norwich, agreed that local financial institutions have more stringent loan requirements than they did before the financial crisis hit last year. But he has seen few loan requests from individuals or developers, and those his bank does receive can be difficult to consummate because of low appraisals based on a falling real-estate market and the paucity of comparable properties on which to base valuations.

"Sales are down and values are down. It's a Catch-22," he said.

Adding to the pain, said Wheeler, a former president of the local builders association, is that banks are now requiring developers to put up about half of the cost of a project, using their own funds or private equity. This compares with banks' willingness to fund 80 or 90 percent of development projects before last year's financial panic.

"They want you to have some skin in the game," Wheeler said. "We're working on a smaller margin this year than last year."

Cash flow has become a problem for some builders, said Main, who noted that several longtime members have dropped out of the association because they can't afford the annual dues.

"These are members that made it through the '90s," said Main. "They've been members for 25 or 30 years."

Main said the problem is affecting just about everyone associated with building, including home renovators, lumberyards and even equipment-rental businesses.

While the cost of labor has come down, other fixed costs such as medical insurance and liability insurance continue to rise, according to industry insiders. Strangely, the cost of land hasn't come down as quickly as real-estate prices, builders said, making it more difficult for new home construction to compete on cost with already built residences.

"The spec market is certainly nonexistent," Wheeler said. "Things are pretty slow right now."

As an indication of the slowdown, Michael Mastronunzio, owner of Brom Builders in Norwich, said he had 17 houses under construction at one point in 2005; this year, he has only about half a dozen - and he considers himself lucky.

But Mastronunzio and others are starting to feel like the worst may be behind them. Brom Builders just took out a permit last month for a 22-unit affordable-housing project in Norwich called Summit Woods Apartments 2, and it is planning a few individual houses in Groton and North Stonington.

"We're feeling a lot better than six months ago," he said.

"There's decent demand for custom homes," said Wheeler. "In the last two months we've seen an uptick in inquiries on new homes. People sitting on the fence for a couple of years are starting to get antsy."

But many fence-sitters may stay there if worries over job losses persist, insiders said.

"People are just being very cautious on an individual basis," said Cronin of Dime Bank.

Building-industry officials say a key to breaking the slow building cycle will be to get real estate sales moving again. They praise the $8,000 first-time homebuyer tax credit, which has provided a life jacket for the lower end of the market, but said it will take a while before it affects to new construction.

"The key is the economy," Wheeler said. "People need confidence that there's some stability."

l.howard@theday.com