A building boom Fed can't stop

A probable interest rate hike is not likely to curb demand for plumbers

After working long hours each day, contractor Mike MacDonald comes home to dozens of phone calls from frantic customers. It's gotten so bad that he finally took the lettering off his truck so people would stop knocking on the windshield. He doesn't need - or even want - new business.

"On a busy scale of one to 10, I'd say I'm a 15," says Mr. MacDonald, a heating and air-conditioning installer, over a hamburger at Ye Olde Cottage Restaurant in Weston, Mass.

MacDonald's tale could be repeated around the country. It's filet mignon times for the lunch-bucket brigade - the craftsmen who remodel houses, sweat pipes, or wire junction boxes. They are giving up vacations, missing the family dinner hour, and scheduling work years into the future. The long hours for MacDonald are symptomatic of the frenetic pace of the economy - a pace that Federal Reserve Chairman Alan Greenspan is expected to try to slow today by raising interest rates 0.25 percent.

"Maybe Greenspan tried to renovate his house," quips Dave Bush, president of the Associated Builders & Contractors Inc., a trade group in Arlington, Va.

Normally, any interest rate increase creates a lot of squawking on Capitol Hill. Labor leaders, business organizations, and trade groups crank out the press releases bemoaning the higher cost of money. But this time, many of the organizations are actually relieved to see rates rise.

"I suggest we might not want to make a lot of fuss right now," says David Seiders, chief economist for the National Association of Home Builders, who usually is one of the complainers.

The reason Mr. Seiders is keeping mum is that the housing industry, which employs many of the MacDonalds of the world, is hard-pressed to keep up with demand. Shortages of wallboard and insulation persist.

Because of tight supplies of labor and material, it now takes an extra month to build a house compared with two years ago.

"Suppliers and builders are struggling," says Seiders, who adds that "there are some pretty healthy increases in housing prices."

Why home prices are rising

Contributing to the rise in home prices is competition from the commercial sector. General contractor Henry Moseley of the Goldsborough Company in Tampa, Fla., says commercial firms pay more for labor and material. For example, 18 months ago, masons earned 65 to 67 cents a block. Now, it's more than $1 a block.

"They are able to draw out of our trade base," says Mr. Moseley.

But the labor shortages are even getting to some contractors who do commercial work. Mr. Bush, who is also president of Adena Corp. in Mansfield, Ohio, says he is actually turning down work.

Other companies are as well: The number of firms bidding against Adena to build new Wal-Marts is shrinking. "Everyone has a lot of work and it's hard to get workers," he says.

Contractors in residential markets are also getting increasingly selective. In Spartanburg, S.C., Parker Champion of Champion Construction says he has almost stopped building custom homes. Instead, he's concentrating on the "spec market."

"It's a lot easier just to build a house and sell it," he says.

Contractors are not just being selective but also brutally frank with customers. Back at Ye Olde Cottage in Weston, Mass., Ed Frothingham, an electrician, says he's telling people it could take up to "10 to 12 weeks" before he can get to a job.

Once the customers get the bad news, they hang up, says Mr. Frothingham, who is clocking close to 60 hours a week. "They hang up but then call back, saying they can't find anyone to do the work any faster."

Some tradesmen welcome the prospect of higher interest rates. Pete McGowan, a Boston area landscaper, says, "I could use a slowdown. I'm sick of working 150 hours a week."

Mr. McGowan knows from personal experience how hard it is to get a fellow tradesman. "I'm building my own house, and I've been waiting for a plumber for weeks," he says.

The backup stems from several factors. The booming economy has given consumers a lot of disposable income. Or, as Frothingham puts it, "People are spending money like water."

Era of huge homes

They are also building enormous houses that take more time to put up. Homes now often sprawl over 6,000 to 10,000 square feet compared with 2,000 to 3,000 square feet 20 years ago. Builder Moseley says it took him six weeks to find a subcontractor who would work on a large house in north Tampa.

For consumers, the busy tradesmen can be frustrating.

Debbie Raybon and Marty Sauerzopf recently moved into their newly built home in Glendale, Ariz. The Phoenix area is one of the fastest-growing in the country, and the couple expected a long wait during construction.

"We were surprised when we got a letter saying they were a couple months ahead of schedule," says Ms. Raybon. "They seem to be getting homes done quickly."

The difficulties, however, began after they unpacked. They couldn't find anyone to do the finishing work - stucco, paint touchups, concrete walks.

"We were told that the workers were rotated onto other sites, and would only be in our area a couple days a week," says Mr. Sauerzopf. "That was kind of a pain."

Contractors say they've been forced to set priorities. "If you want a stand-alone garage, people are going to tell you that it's not living-square footage. Therefore, it's not at the top of the priority list," says Moseley.

And, he says, if a contractor does take a nonpriority job at a reasonable price, "we're going to bounce in and out of there between gaps in other work." He estimates residential renovation work is now 15 percent more expensive than the early 1990s.

Homeowners hoping to do a little remodeling may also be in for a shock. Many contractors are so busy they won't even bid on business.

"We could build two new houses in the time we could do one major renovation because the design is more complicated and we have to work with the owner," says Moseley. He advises prospective renovators to wait until the economy cools.

Mr. Parker in Spartanburg says some trades are taking advantage of the good times. Ceramic work, for example, has shot up in price. Some tile layers now charge $5.50 a square foot. "I think they're making out like bandits," he says.

Tradesmen are in such short supply that some companies are stealing them from their competitors. The Independent Electronic Contractors Association has 74 chapters.

"If one member loses an employee, they call us and ask us to put the other member out of the Association," says Ike Casey, executive vice president. "We're seeing a lot of that now."

Bush of Adena blames the worker shortage on the industry itself for not luring a new generation of high school students into the trades. "We don't talk about the potential of starting your own business - the kid's don't see a future out there," he says.

Boom and bust

One reason the business may not be appealing is that it's so cyclical. If interest rates were to rise much further, many of the contractors who are busy today would be out looking for more roofs to shingle.

"You've got to make hay when the sun is shining," says Mr. Casey. In fact, yesterday, the Commerce Department reported the sales of new homes fell 5.1 percent in May. This follows two months of rising mortgage rates. But the downturn has yet to be felt in the contracting community.

"We're not really worried," says painter Matt Noonan, finishing an Italian sub sandwich and soda at Ye Olde Cottege. "Lots of us have work scheduled into next year already."

*Kris Axtman in Boston and Monitor intern Neil Irwin in New York contributed to this report.

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