Koch Construction Overcomes New Challenges
AUSTINTOWN, Ohio – Much has changed in the construction industry in the nearly 40 years since Joe Koch Sr. founded his business. But many of the most significant ups and downs have occurred in the past 15 years.
“The market is so tough right now,” Koch says. He remains president of Joe Koch Construction in Austintown.
Koch, who runs the business with his son, vice president Joe Koch Jr., says the current market for homebuilders is busy but challenging.
A primary challenge is the cost and time required to construct new developments, further straining an already tight housing market. “There is a major shortage,” Koch Jr. says.
The father and son say several factors make it hard to build new developments, with perhaps the most significant challenge being the prevalence of wetlands in the area.
Once a piece of property is bought and prepared for development, the contractor must undergo a wetlands delineation with the Army Corps of Engineers. This body will survey the property and designate any sections as wetlands.
“The deciding factor is often the presence of a certain plant or fauna,” Koch Jr. says, as he points to a map of one of their developments.
The map displays a landlocked wetland between two lots and next to several houses already built.
“You may have 100 acres of land you’re trying to develop and they may designate 20 acres as wetlands,” he says. “There are cases where it is that much.”
Once a wetland has been designated, the builder has three options. The first is to leave the land undeveloped and absorb the cost.
The second is to work around the wetland if feasible. In a recent instance, the Kochs had to relocate a road to bypass a wetland. In the process, they lost three lots. To ensure profitability, they increased the prices of the remaining lots.
“You have to spread that cost,” Koch Sr. says.
The third option is to mitigate the wetland.
To do so, the builder buys credits from a wetlands bank, which might be miles from the site. There the Army Corps of Engineers will create a wetland to offset the one to be built upon.
Cost is typically about $12,000, Koch Sr. says. “It’s either that or you lose a $60,000 lot. So now it’s going to be a $72,000 cost so you’re better off taking the fast nickel over the long dime,” he explains.
“It didn’t use to be this way,” Koch Sr. laments. “You ran into a wetland, you filled it in.”
Joe Koch Sr. has worked in construction his entire life, opening his business in 1984.
In 1988, he bought StanJim Homes, a reputable Mahoning Valley business, that broadened his focus to home building and general contracting.
Today, Joe Koch Construction employs 10 people and primarily serves Trumbull, Mahoning and Columbiana counties, with occasional projects in Portage County.
While the company continues to develop new lots and plans to start a project off state Route 46 in Austintown soon, that aspect of the business dwindled significantly after the 2008 housing crisis, Koch Jr. says.
“We’re one of the survivors but for years we had residual lots that had either gone by the wayside or failed,” he says. “We had to become more than just a single-family home-builder. That was by necessity.”
The Kochs shifted their focus to other tasks, including additions, remodeling and light commercial work.
Around this time, Joe Koch Jr. joined the business. Although he at first had other intentions, he changed his major at Kent State University to construction management and decided to work alongside his father.
“I was divesting the company and was pretty much retired then,” Koch Sr., says. “That’s where he came in and I said, ‘If I can’t be the engine, I’ll be the caboose.’ ”
Like many businesses, Joe Koch Construction was busy during the pandemic. The lockdowns and the rise of remote work led many to remodel or add to their homes. Meanwhile, low interest rates and subdued inflation gave many young professionals an opportunity to buy a house, Koch Jr. says.
“They were able to purchase a lot of house because the interest rates were so low,” he says.
Joe Koch Sr.’s sister, Kerry Cross, serves as the office and sales manager. The years following the pandemic were “crazy,” she says, and that while the construction market has begun to slow, it remains strong.
“We had younger professionals as our main buyers and now that’s kind of switched over to people who are older and downsizing,” she says.
The Kochs say the factors really affecting the market are interest rates and inflation. “The interest rate really changed it,” Koch Sr. says. “We got locked into low sales but then the cost blasted off.”
It got so bad Koch had to put a moratorium on several houses and wait for the cost to come back down. “Otherwise I would have been writing a check to the customer,” he says.
The primary drivers of new house construction are now older homeowners looking to downsize or return to the area to be near their families, the Kochs say.
“They’re not entry-level homebuilders. They’re people who have built multiple times,” Koch Jr. says. “They don’t want the 4,000-square-foot McMansion. They want a three-bedroom, two-bath, 1,500- to 2,000-square-foot home.”
While the challenges of the industry are more than enough to keep him busy, Koch Jr. says he must remember to make time for his wife, Taylor, and his 4-month-old daughter, Kolette, just as his father was there for him, his three siblings and their mother.
“A lot of my success and any kind of future success I may have is going to be because of my wife,” he says.
In the near future, homebuilders will also have to contend with an aging labor force. Koch Jr. says this will challenge the number and quality of houses they can produce. However, he remains optimistic that there will be enough work to keep the family business thriving.
“There’s such a shortage of new houses. That is at least going to keep the demand up,” he says. “It’s going to be up to companies like ours to be able to manage and take the risks to deliver a product that people want.”
Pictured at top: Joe Koch Jr. and Joe Koch Sr. stand outside the headquarters of the business.
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Copyright 2023 The Business Journal, Youngstown, Ohio.