Skilled labor, oversight stretched thin
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By Catherine Reagor, Craig Harris and Chris Fiscus
The Arizona Republic
Nov. 18, 2001
A decade ago, they finished 38 a day.
The construction boom has made the Valley second only to the Atlanta area as the fastest-growing housing market in America over the past 10 years. But the rapid pace of growth hasn't come without problems.
Skilled labor and government oversight have not kept up with the record demand for new homes. And buyers frustrated by cracked foundations, shoddy stucco and leaky roofs are filing a rising number of complaints and lawsuits against builders.
Few homes are ever built without minor defects. But in the past seven years, complaints on all types of construction in metro Phoenix have jumped 50 percent. Most complaints are over residential building, which has gone up 28 percent in the same time period. Lawsuits alleging defects in more than 3,300 homes are moving through Maricopa County Superior Court.
Though many builders and subcontractors are upgrading their quality checks, worker training and customer service programs, the quality of work continues to vary widely.
"Consumers are simply frustrated," said Jay Butler, director of Arizona State University's Real Estate Center, who has studied the market for 30 years.
"There is no regulation," he said. "No one seems to be in charge of the quality of new-home construction in Arizona."
Longtime Valley home builder Greg Hancock estimated that although 35,000 new houses went up in the Phoenix area during 1999, there was the labor to build only 30,000.Many of the complaints and lawsuits builders face are tied to work done in the mid- to late 1990s. In today's tougher market, builders and buyers are increasingly focused on quality issues.
Overall, builders say new houses are constructed more soundly than those of a decade ago. Mass-production techniques, computer-assisted design and better materials have raised standards quality and consistency. And some of the difficulties in finding skilled workers have eased in the past year, Hancock and others say.
But problems have struck $100,000 starter houses and $500,000 custom homes, from Gilbert to Goodyear and from north Phoenix to the Ahwatukee Foothills.
Now, Butler said, "entire new neighborhoods are falling apart."
He pointed to lack of oversight as a major concern.
Builders acknowledge past problems, but say the market is so competitive that poor-performing companies have been pushed out and overall quality has improved.
"The home-building industry has made great moves in customer satisfaction during the past decade," said Valley builder Mark Upton, president of the Home Builders Association of Central Arizona.
The increase in lawsuits, builders say, can be attributed to overzealous construction defect attorneys moving in from California to tap a new market.
Terry Sipe, who in 1999 bought a new home in Surprise, has a different view. He said he tried for 10 months to get his builder to fix things on his initial punch list. It included a missing window, wavy walls from poorly installed sheet rock and improperly installed plumbing. He then started to find cracks in his foundation and walls.
"Our house is falling down around us," he said. "I hate going home every day and seeing this terrible house that we saved every dime to buy."
Sipe and as many as 200 other homeowners are suing builder Dietz-Crane over cracking foundations, unstable frames and slanted walls.
Karl Spangler, an executive with Dietz-Crane, said his company doesn't comment on the specifics of lawsuits, but did say the builder is "confident" about the suit's outcome.
• Many builders struggle with overwhelmed subcontractors and unskilled workers. Construction complaints, which reached 5,959 in the Valley and 9,151 in Arizona during the past year, have cost some builders millions of dollars in court settlements and many contractors their licenses.
Last year, the state revoked a record 486 building licenses and suspended 358.
• A growing number of lawsuits, several as class actions, have been filed against builders. Four of the biggest builders - Del Webb, Lennar, Trend and Regal - bought back parts of entire neighborhoods after complaints or lawsuits over problem homes.
"Unfortunately, Phoenix is going to be a minefield for construction-defect attorneys," said Stanley Paul Cook, a real estate analyst with Landiscor Aerial Information. "I can't see how builders could have built 35,000 homes a year with a taxed labor force and strained city systems without jeopardizing quality."
Attorneys who have built their practices on construction-defect suits in California are now in Arizona stirring up problems with buyers, home builders say.
"It's sick. We are builders, not litigators," Upton said.
• In the past three years, a "poor work" complaint was filed with the Registrar of Contractors on one out of every 17 new metro Phoenix homes, according to records analyzed by The Republic. Complaints included some cosmetic issues such as peeling paint, but most alleged more serious defects.
The majority of complaints are filed against subcontractors working for home builders, according to the registrar. Registrar officials say that major builders have become sophisticated in requesting that buyers file complaints against the subcontractors; that way, the builders' records stay cleaner.
Byron Van Buskirk, president of Mesa Verde Concrete, said that's not surprising because subcontractors do the work on a house. His firm built 9,000 new-home foundations for several major Valley builders during the past year.
• New-home quality issues don't only occur in metro Phoenix. Home buyers in other fast-growing Sun Belt cities, notably Las Vegas, are filing more lawsuits. States such as California and Georgia are trying to limit lawsuits by pushing for arbitration.
The Home Builders Association of Central Arizona may try to get the Legislature to pass a law to require buyers to give a builder a chance to fix problems before filing a lawsuit.
And many builders are putting more resources into customer service and responsiveness after closing.
"All builders have problems," said Paula Sonkin, director for the Power survey. "Those who solve them quickly and efficiently have better ratings with buyers."
Buddy Satterfield, president of Shea Homes of Arizona, said: "We are constantly working to improve our building process and eliminate defects. "We take customer satisfaction very seriously."
Although some buyers may have problems, most are happy, builders say.
"We build good homes in Arizona," said Connie Wilhelm, executive director of the Builders Association. "If there are problems, we want to fix them."
Regulators say there's room for improvement.
"We are certainly not satisfied with the quality of construction in Arizona," said Phil Pettice, chief of inspections at the registrar.
Pettice said that there is no exact science to tracking the type of problems or overall quality, but he thinks the building boom, coupled with the lack of qualified labor, has put stress on homeowners and home builders alike.
For some it can mean a punch list of largely cosmetic problems such as chipped paint. Others deal with major structural defects as severe as inch-wide cracks in foundations, or leaky roofs and windows that trigger mold.
"Many Valley builders need to work on the quality of the product they're delivering," said David Thikoll, a housing market analyst with Builder Management Technology.
"Buyers shouldn't have to settle for houses that are badly built or even ones delivered with a bunch of nagging little problems," he said. "That's not what they ordered when they gave their builder a down payment. "
Marty Harper, a Valley construction-defect attorney, said, "Builders rely on home buyers not doing anything about problems they won't fix."
Deborah Theuerl, who bought a new house in the north Valley community of Anthem less than two years ago, said, "It seems like every day I find a new crack in our house."
Theuerl dates each new rupture in her walls; now they look almost graffiti-scrawled.
"This is our first home," she said. "We were so excited to buy a new one but never imagined it would be so badly built."
It's difficult to track the overall quality of construction in metro Phoenix because no one keeps long-term records.
The registrar takes complaints and has the power to revoke licenses. But the registrar keeps complaints on a builder's license for only two years before erasing them from its database and Web site.
Complaints resolved immediately after the registrar gets involved are never logged. Others are mislabeled and difficult to track.
In addition, builders can have more than one license, so they can keep building if one is suspended.
Too much or too little water in the mix can lead to weak foundations and cracking stucco. Improperly installed tile roofs and windows leave gaps, which let in water to erode walls and ceilings and sometimes spawn mold.
"Many problems in dry desert climates go undetected for a while because of the lack of water," said construction-defect expert Stan Luhr, president of San Diego-based Pacific Property Consultants. "But when the rain comes, it comes hard, and the leaks and damage start."
Builders have another issue to contend with: the many pockets of expansive soil. If the land isn't compacted properly before the foundation goes in or if steps aren't taken to deal with expansive soil, the dirt can shift - and the house starts cracking from the ground up, construction experts say.
Ed Blanchard has made checking the cracks in his Gilbert home a daily routine.
"The first thing I do when I get up is look in here (family room) to see if there is new growth on a crack," said Blanchard, who started noticing problems in his UDC home two years ago and filed suit in July. "I kind of feel hopeless."
Some cracks snake more than a dozen feet along the walls, and beneath the carpet there are long, wide openings in the foundation.
Shea, which bought UDC, declined comment on the suit.
Many home builders say they are trying to better control construction schedules and eliminate problems by not rushing to make a closing date.
Steve Davis, president of the Phoenix division of KB Home, said that his company staggers closings so there aren't too many jammed into one month.
"Otherwise everything is helter-skelter," he said. "If you try to build too many houses at once, not only do you build a bad home, but you make buyers very unhappy."
Home buyers in Arizona, where builders are regulated, should have more protection, housing analysts say. But some don't even know that the Registrar of Contractors exists and can end up suing because they believe it's their only recourse.
"We don't know of any other way to get our house fixed," said Theuerl, who is one of a group of Anthem residents suing Del Webb over cracks and leaks. She had never heard of the registrar.
Del Webb President Anne Mariucci said she couldn't comment specifically on the Anthem suit. But she added that the builder encourages buyers who can't reach an agreement with Webb to contact the registrar.
One buyer with problems, Susan Cox of Avondale, said that the state agency should require builders to explain the registrar's role.
"I almost missed the two-year deadline to file a complaint," she said. "There were more than 150 things wrong with my house, and no one ever mentioned the registrar."
Michael Goldwater, registrar director, said some contractors don't want buyers to know the agency exists.
The other state agency with a hand in protecting home buyers, the Department of Real Estate, was criticized in a report by the state auditor general in August. The agency, which is charged with licensing real estate agents and regulating home builders' public reports on land conditions, was chastised for discouraging consumers from filing complaints and not properly investigating others.
Despite hefty building fees collected by government during this building boom, many regulators appear to be understaffed, including city inspection departments.
"Inspectors have been pointed to as a weak link in the home-building process," said Mark Duda, a national housing analyst with Harvard's Joint Housing Commission. "They don't have enough time to properly go through a new house. But then the buyer has no leverage with the city if there is a problem."
"It's easy to cop out on quality by blaming it on a labor shortage or bad subcontractor," said Mike Sivage, president of home builder Sivage Thomas. But that's not fair to home buyers, he said, because builders know what to expect in a competitive market.
Builders compete with other builders not only for buyers but also for the labor to construct houses. That, coupled with the pressure to bring in high returns for shareholders or other investors, has resulted in a pace of construction that may not leave time to fix mistakes, housing analysts say.
"Superintendents should be rewarded financially for quality, not for speed," Luhr said.
Legal costs are driving up housing prices because insurance premiums for builders have doubled and tripled in the past few years, while some builders are just dropping their coverage because it costs too much, Wilhelm said.
"Construction-defect attorneys aren't worried about what the suits do to a community," said Garth Wieger, president of Scottsdale-based Journey Homes. "Class-action suits can destroy home values in a neighborhood."
