Homebuilders shrink American dream, spark wrath

By Helen Chernikoff

NEW YORK (Reuters) - Builders desperate to put up smaller, cheaper homes are incurring extra expense and customers' wrath by redesigning communities, even when people are already living in them.

As the U.S. housing slump accelerates, homebuilders from California to New Jersey are now being forced back to the drawing board and the local planning board to downsize the American dream.

"You can end up with a lot of angry homeowners when you're midway through a project and try to change direction," said Jody Kahn of John Burns Real Estate Consulting, based in Irvine, California.

Jackie Lopez, 37 and a mother of four, is angry. She and her neighbors are fighting a move by the largest U.S. builder, D.R. Horton Inc, to build smaller homes in their neighborhood in Vacaville, California, north of San Francisco.

"I've lived here in Vacaville since 1976 and we moved from a neighborhood that was a cookie-cutter neighborhood," Lopez said. "It wasn't a bad neighborhood. But you kind of move up that ladder."

D.R. Horton declined to comment for this story.

Homebuilders deploy this strategy whenever a downturn hits, said Don Walker, also of John Burns Real Estate Consulting.

It never fails to generate tension with local governments, which favor the bigger homes and fancier facades that attract upscale buyers and their tax revenue, said Kahn.

Even in better times, builders have clashed with towns that want, say, brick on a house's four sides instead of on the front, which is cheaper, said Kahn.

Today, a record 2.6 million homes are either in foreclosure or heading that way, according to real estate data firm RealtyTrac. Those homes are actually setting prices in many markets, Kahn said, which means builders must either lower prices or build cheaper homes.

"The builders are saying they need the jurisdictions to get real," said Kahn, who says builders nationwide are struggling to secure permission to build cheaper homes than those originally approved. "This has been a long-term battle but it's really stepped up because it's a matter of survival."

The first line of attack is to pull the extras, the decorative columns and fancy faucets, because that usually does not require a permit change, Kahn said. "Now we're way beyond what you can do by pulling frills out," said Kahn.

The trade-off: angry customers like Lopez, and costs.

In its Shady Grove development in Fallbrook, California, KB Home, the No. 5 U.S. builder, is requesting permission to build smaller houses among the remaining 61 of 101 homes and has already paid at least $25,965 in fees, said Glenn Russell, a planner for San Diego County.

KB declined to comment for this story.