Home Builders’ Challenge to Change: Part II
For years, it sounded so Harvard Business, so empowering. “Reinvent Yourself.” An imperative case, transitive verb with the pronoun, it gave armies of consultants big, rich engagements, all a luxury of the days when the apparent purpose of budgets was to blow through them, to the good and the bad.
A friend was talking with us about reinvention. Let’s assume reinvention is necessary. Picture the business world with its financial system, government structures, households as three spinning platters, rods balanced on the nose and two outstretched hands–sort of Ed Sullivan meets Charles Darwin. It’s all deleveraging, but without the benefit of growth or money.
So we’ve got wonder, “how much will reinvention be by choice and design, and how much will it take place as a result of intelligence that doesn’t obey human intentions or control?” How much evolution has ever been intended?
We’re averse to change. We only do it when it’s change we design, and even then it’s tedious and uncertain. We know home building’s business must change.
HMI–the National Association of Home Builders’ sentiment index among its home builder universe– is out today, and up from 15 to 17. Simplistically, it means that in July–a k a now–2 more builders per 100 in the NAHB sample are optimistic about prospects for selling homes than were at the same time this past June. This puts us roughly even with the figure for last September, before the financial system imploded and then-Treasury Secretary Henry Paulson started going on TV on Sunday evenings to ruin what was left of the weekend.
Headwinds everyone still talks about are these: foreclosures keep crashing against the shoreline, bringing down home prices; companies and governments keep on reducing the count of who they’re paying and how much they’re paying them; banks don’t want to lend money to make money because they know it’ll lead to losing money. The government, meanwhile, has a mimimum of one and often as many as four programs designed to mitigate each of these issues, but the programs aren’t working exactly as designed. Some say they’re too big, some too small; some say they shouldn’t be there at all.
Meanwhile, we’ve got mini firestorms over who should “appraise” the value of a house so that buyers, sellers, and lenders each have the right collateral for their money, and the right money for their collateral. Many builders are flummoxed that appraisers are counting too many compromised foreclosure properties and their price in the comp mix to fix a fair value on a new home in the market. To the plaint, “we can’t cover our hard costs with the amount the appraiser’s putting on the property,” the unsympathetic–and dammit, correct–response is, “Then don’t build there.”
A wide perception is that the appraisal firestorm is Realtors and home builders against, well, you and me, if we’re not Realtors or home builders. Why is that the case? Well, many people look at the NAR and the NAHB as villains who were part of perpetrating a conspiratorial run-up in home prices that got them rich to the detriment of society.
This is hogwash. But, hey, we’re prone to believing hogwash. (Look at what we believed during the past 10 years).
Point is, yes, you’re going to have to change to survive. The question is how much the change will be of your design and choice, and how much of it will naturally select, or worse, deselect you.
Think of issues–beyond making the bills that will keep you open or shut you down–that are bigger than Stimulus, bigger than Capitol Hill, bigger than appraisals, bigger even–although its proponents will object the most–than green.
The issues are where and for how much. Too much of home building’s business — right now especially, and for all of the time it will take volume sales to stabilize — involves guessing at where and not controlling how much. It’s inherently speculative, and it’s expensive, and it’s subject to people in droves waiting for you to expire just so that prices can come down a few more dollars. They’ll do it that way even at the risk of eventually losing their job because the economy can’t support enough activity to make their company profitable.
There are not one but two essential Vs for value that are in question. One is the dollars paid for workers, and one is dollars paid for property. They’re like unidentical twins, connected but different.
For home builders, reinvention most likely needs to be more than streamlining sourcing, flattening organizations, sucking out inefficiencies, improving up-and-down-and-across communication, introducing trust, and sharpening best practices.
That’s the reinvention home builders would design for themselves. But even that means waiting for the market to come around and for the pulse of demand to reemerge.
But we think it might be more profound. Reinvention may mean dramatic differences in “where” and for “how much.” Where people want to live as opposed to where they have to go because that’s where you can get land for less may reinvent you. How much it costs to be there, to own there, to build there, to permit there, and to make a community there may reinvent you.
There is a place where appraisers won’t appear to make arbitrary subtractions from the Value of a home, because there will be a volume of comps.
- There might be scattered urban
- There might be adaptive reuse
- There might be brownfield
- There might be public-private partnership with longtime faith-based landholders
It might be less grandiose, more painstaking, less autonomous, more political. It may change your DNA, which might be the reinvention we’re talking about.
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