Trying to rebuild the construction industry

In what has become a daily act of optimism, Craig Krueger arrives at his subleased office in Kirkland by 8 a.m., wearing a crisp shirt and pressed chinos.

A professional planner who has worked for some of the region's biggest developers and homebuilders, Krueger is now trying to make ends meet as an independent consultant after losing his full-time job last November. His annual income has fallen two-thirds from the nearly $150,000 a year he made at the height of the construction boom three years ago. He's spending down his 401(k) to support his family of six and watching the date of his retirement recede into the future.

At age 60, he tells himself that the housing industry has always gone through cycles and that his 35-year career will return.

"I'm hoping that after Labor Day a switch will turn on, but it may be into next year. This downturn has hit the builders so hard," Krueger said.

The prolonged slowdown in the housing industry has left many builders and professionals in related fields in "survival mode," said Mike Pattison, director of government affairs for the Master Builders Association of King and Snohomish Counties.

The construction industry has lost more jobs — 80,704 since August 2007 — than any other part of the state's economy. An additional 2,100 architects and civil engineers have seen their work vanish. And banks and financial services that once funded land acquisition, development and new-home construction have shed 22,000 jobs, according to Dave Wallace, acting chief economist for the state Employment Security Department.

Plummeting numbers

In counties throughout the Puget Sound region, permits for new homes are down dramatically and the staffs of county planning and development departments have been slashed. Revenues from permitting and impact fees have plummeted, deepening the deficits in many local governments' budgets.

"Since July 1, our permitting volume is half what it was for the same period last year and that was abysmal," said John Starbard, director of Development and Environmental Services for King County.

Permits for new single-family houses in King County fell from 1,374 in 2007 to 429 last year. The county's development staff has been cut over the same period from 244 to 132. Those who remain are working a 36-hour week, Starbard said.

The numbers are similar in Snohomish County, where single-family-housing permits have dropped from almost 2,500 in 2007 to 1,168 in 2009. The staff of the Planning and Development Services Department has been cut from 245 to 98, according to county figures.

The federal tax credit for first-time homeowners provided a boost in home sales in the first quarter of the year, but sales have dropped back to their previous sluggish level, according to analysts.

Bill Hurme, president of TeamBuilder John L. Scott, which markets new homes, said he recently surveyed 22 residential projects in Snohomish County.

"Home sales were less than one per month, which is a disaster," Hurme said. "After a strong first quarter, with the ending of the tax credit, the market has just gone in the tank."

Hurme said a surplus of developed lots — that is, raw land to which utilities, sidewalks and gutters have been added — has contributed to the slump in construction activity.

Homebuilders can't get bank loans to build houses, few buyers exist for the houses that are built, and the market remains stuck.

But by spring, he said, those surplus lots may be built out and new land development and construction starting up again.

"I think the mood is, 'Let's just get through this year,' " he said.

Laid off twice

Krueger remembers home sales beginning to slow in 2006. He was chief planning officer for the McNaughton Group, an Edmonds-based developer, providing site planning for a 350-acre development near Mill Creek called Tambark Village.

The company bought raw land, obtained permits, added utilities and sold the lots to homebuilders. For the first time in memory, he said, there were fewer prospective buyers for home sites. At an end-of-the-year builders' meeting, talk about problem mortgages was just beginning to circulate.

"I remember going back to (owner) Mark McNaughton and telling him that I thought business would pick up come spring of '07. We thought it was just a minor dip," Krueger said.

McNaughton said the company at one point had 2,500 developed lots for sale in south Snohomish County. In 2006, it sold 500. In 2007, 40. In 2008 and 2009, he said, "virtually none."

Krueger survived the first round of company layoffs that included other senior staff, but lost his job in mid-2008.

He went to work for ESM Consulting Engineers, which was trying to expand from its Federal Way base north into Snohomish County. It declared Chapter 11 bankruptcy in October 2009 and Krueger was laid off again in November.

For the past nine months, he's worked out of leased space at a Kirkland consulting firm that has laid off many of its own employees. He's trying to build an independent consulting practice in the worst economic downturn since the Great Depression.

Krueger hopes his low overhead will make him attractive to builders and developers who may not be able to add staff, but can use his extensive land-use and design experience on specific projects. And he's had some success with national builders who are able to finance their own developments and not rely on loans from local banks. He also volunteers for a half-dozen professional and nonprofit organizations in the land-use and building fields to stay engaged and network with other professionals.

Last week, Krueger was at Issaquah City Hall, scouting a potential housing project adjacent to the Issaquah Highlands, a development he worked on from 2000 to 2005.

He keeps in his briefcase copies of a glossy, full-color résumé that includes conceptual drawings from some of his previous high-end housing projects and former clients, including Polygon NW and CamWest Development.

Krueger says the long-range prospects for land development in the region remain strong. It's a beautiful place to live. It boasts strong employers such as Boeing and Microsoft. It's on the edge of the Pacific Rim and open to trade with Asia.

"I'm staying optimistic. I'm staying as patient as I can," he said. "I'm having faith that things will turn around."

Lynn Thompson: 206-464-8305 or lthompson@seattletimes.com