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HOUSING SLUMP COULD EASE CONSTRUCTION COSTS

At this writing, respondents to last week’s Feedback Poll were split evenly, with half of our readers saying that the housing slump and subprime issue could reduce commercial construction costs, while the other 50% were not so optimistic. Commentator David Scholl, senior vice president of development of the Santa Monica, CA-based Macerich Co., is in the prior group. An expert in the Phoenix area, where he is based, Scholl sees opportunities and a slowdown in construction-cost increases that he wasn’t witnessing a few years ago. Here is his take on the situation.

“The way to measure it is to contrast today with 12 to 24 months ago. When Phoenix was banging out over 60,000 single-family starts, it was sometimes hard to get more than just one or two subcontractors to submit bids to the general contractor on some of the different trade work, whether it was concrete, block, steel or whatever.”

“We were also seeing pretty steady materials-pricing inflation for several years. Now, we have seen much more activity at the subcontractor level. We’re certainly seeing a leveling off on some of our materials pricing.”

“Because we’ve seen the first step, which is a little relaxing of labor costs and a little more interest from the subcontractors in various trades, I would hope that we may even see some reduction in pricing over the next 12 months. But just the cooling period and leveling off of some of our construction pricing has been great. It’s a great change compared to the 2005 time frame when we were seeing everything rapidly escalating.”

“And Phoenix has still got 125,000 people a year moving to this town. The problem is that the home builders built an extra year of supply of homes over two years. The only way you can chew up that extra year of supply is that everybody’s got to back off for the next few years. We just have to take a breath and let the housing stock get absorbed. I would be much more concerned about he future of our projects if we stopped seeing the moving vans coming to town. We still have 2,500 a week coming to this town. They just have a lot more houses to choose from than they need at the moment.”

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