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Business Observer Sunday, Sep. 23, 2018 2 years ago

Area builder discontinues popular line of homes, cites Trump tariffs

Neal Communities has sold at least 700 of the entry-level homes since 2008.

Little has slowed Neal Communities in the past 45 years or so. Founder Pat Neal likes to say he’s seen the recession movie at least five times in his career, and despite that, the company is a regional leader in its industry, with 90 communities throughout Southwest Florida and some 13,000 homes built.  

More recently, as the Lakewood Ranch-based builder shifted to market trends and reaped the benefits of shrewd land deals, the company has become one of the biggest in the region. Revenue in 2017 surpassed $450 million for the first time ever — and at $453.4 million, the figure is up 225% in the past five years, from $139.4 million in 2012. The company has 225 employees.

But now, after all that, Neal Communities has finally come up against its kryptonite: Trump’s tariffs.  

“Recent economic policies adopted by the current administration prevent us from continuing to provide an affordable housing solution,” Neal says in a statement. “When Trump decided to meddle in the lumber industry, then enact retaliatory tariffs, the people he hurt are right here in Southwest Florida.”

The first victim, say company officials, is the builder’s popular Rose Cottage. Neal Communities has sold at least 700 of the entry-level homes since introducing the model at the onset of the recession in 2008, according to the statement. The top price of the cottage home is $250,000, with many in the mid-$100,000 range.

But the tariffs, combined with rising costs in land, labor and regulatory fees, have made the cottage home virtually impossible to build and sell, Neal contends. He conservatively estimates that increases in steel, aluminum and lumber bring at least $10,000 in additional production costs per home.

Going back 18 months, Neal cites the following levies as dents in the company’s model:

• April 2017: Timber tariff on Canadian softwood lumber.

• June 2017: Additional tariffs applied as “anti-dumping duties” to prevent companies from exporting products cheaper than what’s sold in their homeland.

• June 2018: Imports of steel and aluminum products from all countries except South Korea, Argentina, Brazil, Australia and the European Union. Also, Canadian prices on steel and aluminum skyrocket.

• July 2018: Imports of industrial products, such as parts, from China.

Facing those obstacles, the company decided in September to discontinue the cottage home line. The last one sold came at a price of $244,638.

Neal, in the statement, recognizes some companies pass tariff costs on to consumers. But he also recognizes if the price climbs much higher than $250,000, or reaches $300,000, than it’s no longer an entry-level home and defeats the purpose of being in that market.

While this is a setback, Neal adds he’s not totally discouraged, yet, and is “currently working on designs and plans that may be able to circumvent the rise in production costs while also providing affordable housing solutions.”

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