Homebuilders shrink American dream, spark wrath

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.

Horton has paid about $5,400 in fees to modify its original plans for its Vacaville community, said Scott Sexton, the community development director.

And those administrative fees come in addition to the expenses incurred by hiring an architect and engineer to develop new floorplans: $20,000 to $50,000 per plan, Walker said. Producing a new set of model homes can range from $100,000 to $300,000 per model, and the re-approval process can take up to a year.

The costs in company time could rise for KB at Shady Grove, Russell said, because either side could appeal the planning committee's decision, scheduled for December 5.

Requests for permit changes tend to generate fewer hassles and less expense when the builder has not yet started work on the community, Kahn said.

KB, for example, must also submit new designs to the southern California desert town of La Quinta as part of its request to build its first 55-or-older "active adult" community instead of the originally approved single-family community, said David Sawyer, planning manager.

Because the company has not begun building, however, its application will proceed more smoothly, Sawyer said.

Toll Brothers Inc, the biggest luxury builder, is in a similar situation. It is approved to build a community in East Brunswick, New Jersey, and wants to change the plan, but has also not started work.

The project would combine 168,000 square feet of retail space with 402 residential units, said East Brunswick Councilman Donald Klemp.

"Now like everybody else they are telling us that they're hurting, so they want to make changes," Klemp said.

Toll Brothers declined to comment for this story.

(Editing by Dave Zimmerman)