Some years ago, a small production builder told me that he didn’t want his company to get too big. Smaller companies were nimble, he explained, and large ones were just too cumbersome to respond quickly to changing market conditions and consumer preferences. In his words, big builders “just couldn’t get the ship turned around fast enough.”
Advantage, Housing Giants
May 12, 2014
If that was true 10 years ago, it certainly doesn’t seem to be now. The biggest builders, our Housing Giants, have not only been able to adapt and weather economic reversals, they are also leading the industry with innovations in design, marketing strategy, and construction technology.
Access to money when banks clamp down on lending is, without a doubt, the huge differentiating factor. (Help from the government in the form of a look-back on losses in 2009 for the biggest builders didn’t hurt, either.) It was cash on-hand that allowed big builders to hold onto at least some of their stockpiles of land as well as to start buying it again when prices were at their lowest.
With credit still constrained, more builders are jumping on the public bandwagon. At the end of 2013, there were 22 publicly traded home building companies, with more declaring they were moving in that direction. Even private builders that want to stay that way are dipping their toes in the public money pool, finding alternate ways of attracting cash without changing their status.
During the downturn, the Giants didn’t hoard their cash, though. They invested it in their own companies and the results of that reinvestment are changing the industry for the better. Lennar’s NextGen multigenerational homes and Shea’s Spaces, contemporary homes designed for Millennials but attracting Boomers as well, are just two examples of leading-edge design by big companies.
Housing Giants have taken some big chances on the energy-efficiency front, too. KB Home joined the Energy Star program in 2000 and never looked back. Net-zero energy homes, for many years the bailiwick of pioneering small builders, have become a major focus for KB, starting with their GreenHouse idea home at the 2011 International Builders’ Show.
Meritage Homes, in 2009, committed their entire building program to creating energy-efficient homes. But the biggest part of their gamble may have been their marketing strategy; they included cutaways in their models of the technology they were using behind the walls. Some observers thought this made the homes less attractive and would cost them buyers. Now, most companies are offering energy-efficiency education in their models.
Small builders still have plenty of advantages in their favor. But as far as thinking about big builders as lumbering megabusinesses resistant to change? It’s probably time to let that perception go. It appears that ship has sailed.