As the housing market continues its path to recovery, certain mistakes when using engineered wood products (EWP) are becoming more common.
Professional Builder Giant 400: Publics Diversify Products
The Supernovas are changing, as are all the public builders. One of the notable recent changes is the vigor of public builders' movement to diversifying locations and product. They say it's to meet fragmenting housing demand. There's also evidence that public builders need to find new ways to meet Wall Street's insatiable demand for growth.
It's hard to turn an aircraft carrier. You can see evidence of that challenge in the graphs on this and the following page. While all high-production builders are still producing more single-family homes in suburban subdivisions than anything else, the five Supernovas have, by far, the highest concentration in that location and product type.
"It's not just that it's hard for them to turn the ship," says Kimball Hill Homes chairman David K. Hill. "Traditional suburban subdivisions are also where they have their biggest competitive advantage. That's what their machines are set up to produce."
|The Largest Builders Still Produce Mostly Single-Family Homes, but movement into higher density housing is prounounced, driven by both affordability issues and lifestyle-related demand. Look for detached homes at much higher densities (5-10 units per acre) as the next big innovation.|
Still, the Supernovas are changing, as are all the public builders, and we can't help thinking Wall Street's appetite for growth is a big part of it. One of the notable changes of the past two years is the vigor of public builders' movement to diversifying locations and product. They say it's to meet fragmenting housing demand. While that's certainly true, there's also evidence that public builders need to find new ways to meet Wall Street's insatiable demand for growth. Just building subdivisions at four units to the acre won't get it done. "There's what I call a 'rubber band effect' evident in the market," says Hill. "You can only build off into the countryside, away from job centers, so far before the rubber band snaps, and people start looking at housing options back in the city. That's what's happening now."
Hill says within three years, Kimball Hill's production will move to more than 12 percent high-density urban infill — from less than one percent today.
In our data, the Masters of the Universe like Kimball Hill show significant movement toward urban and infill locations, but 16 of the 26 builders in that category are, unlike Kimball Hill, publicly held. Toll Brothers chairman Bob Toll denies it has anything to do with pleasing Wall Street. "Public builders don't care about product diversification," he says. "We build this stuff because there's demand for it.
"There's a lot of action now in high-density," Toll says, "from five or six units to the acre all the way up to 50 or 60 units an acre. I think it's intelligent. By clustering housing, we allow room to amenitize sites in many ways that make the lifestyle more appealing."
|View Additional 2006 Giant 400 Report Articles:|
|Topping Out or Just A Pause?|
|Publics Diversify Products|
|High-Rise Fraught with Risk|
|Public v. Private Debate Continues|
|Publics' Profits at Peak|
|Even Small Private Builders Can Compete|
|What Happens Next?|