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Creative Solutions to the Starter Home Problem

NAHB

Creative Solutions to the Starter Home Problem

An interview with Mike Forsum of Landsea Homes


By National Association of Home Builders June 8, 2022
Starter home kitchen by Landsea Homes
Photo: courtesy of Landsea Homes
This article first appeared in the NAHB Builder Outlook 2022 issue of Pro Builder.

Mike Forsum, president and COO, Landsea HomesMike Forsum, President and COO of Landsea Homes, has been in the industry for over 35 years, serving in various roles in development and home building.

Landsea Homes is a growing building group that is developing on both coasts and in between, with beachhead markets in Northern and Southern California. Landsea focuses on high-performance homes that are attainably priced for the modern buyer.

In the face of high materials costs, increasingly prohibitive regulations and rising interest rates, many builders are struggling to meet demand for attainable housing. Landsea seeks to bring desirable homes within reach for more American families, specifically millennial first-time home buyers.

Editor: Why do you think we’re seeing fewer and fewer companies building starter homes, and why is that something you have focused on when other companies are turning away?

Mike Forsum: Well, number one, it’s hard. It’s hard to drive your business toward consistently and predictably creating attainable homes. It’s hard because land is always going up.

Costs are always going up. When the market starts to roll, it’s very difficult to continue at the price point that you were building at before.

And so the residual changes. In order to move forward, you’re having to raise your home prices to accommodate for those adjustments in land prices and costs along the way.

"It forces you to stay focused on your brand, stay focused on what your value proposition is, and then working really, really hard in the markets that you're in."

It’s necessary to stay vigilant in terms of the pursuits of the industry segment you want to participate in, and for us that’s the first-time move-up, attainable product.

And I love it because it forces you to be creative, more so than just responding easily to the market and just kind of riding the wave. It forces you to stay focused on your brand, stay focused on what your value proposition is, and then working really, really hard in the markets that you’re in. You do have to make some changes — in your solution to affordability — usually through densification of your product type.

Editor: It sounds like you’re facing a lot of the same headwinds others are facing — land use, regulations, materials cost — but it’s interesting because you’re not moving in the direction of the exurban shift we’re seeing. And you’re building in these places, specifically California, that are heavily regulated. How is it that you have been able to continue to build at attainable price points while facing these headwinds?

Mike Forsum: At the end of the day, people would rather live close to work. So, for me, that was always the number one challenge I was faced with: How to build in a way that provides a real viable housing solution, a real livable home, something everybody would be proud to identify as their home, that is also close to their work.

So, what are the trade-offs? Well, the trade-offs are usually yard space, street width, maybe some things that would normally be called a luxury, but are just kind of fluff within a community. We learn how to tighten up. And we really have learned over the years how to exact maximum efficiency out of those communities in which we’re building to provide really approachable and attainable price points.

But we’re all over the country. And in that, one market is not the same as the other.

When you talk about “entry-level” or “first-time” or “starter,” if you’re in Sunnyvale, California, a starter home is $1.2 million, and it’s a stacked block condominium. Or it could be a $280,000 single-family detached home in Arizona or Florida. We deal with all of these really interesting situations, but our focus is always on driving our offering toward the broadest and deepest band of the marketplace, which is that first-time, entry-level home buyer.

We want to exceed their expectations. We don’t want to deliver them something that has been compromised because we’re trying to achieve a price point that is more approachable. We don’t want them to have to sacrifice for that.

Landsea Homes starter home living spaces

 

That’s why it’s important that our approach is very rigorous and diligent and focused on doing this one thing that we want to do. And we don’t let a lot of bright, shiny objects distract us, which is pretty easy to do.

This sort of idea that, “Oh, this or that now seems en vogue, let’s go chase that, let’s build over here.” We always talk about “knowing thyself,” and we try to know ourselves in everything we do. When you’re really thinking like that, you don’t let all of those other things become distractions that take you away from your mission.

Editor: I hear you saying that identity is important to you and to the business, just really leaning into what you’ve set out to do. And you’re leaning into the long term, as you said, the first-time home buyers who are looking for these attainable, entry-level homes.

Mike Forsum: We really look at this as somewhat of a pyramid, with the luxury market at the top, and then the base of the pyramid really represents, as I said, the depth and breadth of that first-time buyer, which is now the millennial cohort. The millennials who are reaching home buying age, that group is even larger than the boomer size.

And yes, they have delayed the milestones of previous generations; they’re getting married and forming families later, buying homes later. As an industry, we thought that because millennials were delaying, there were going to be a lot of things that didn’t matter anymore. Not too long ago we were saying, “This is a new cohort, they’re going to want to live in an urban environment. They’re not going to be like their moms and dads, not going to go out to the suburbs. You know, the single-family detached house with a yard is blah.”

But it’s not the truth. They want a house. They want a house to provide a lot of solutions to their life. They want a nice neighborhood that’s still close to work.

They want to be within good school districts with opportunities for good schooling situations. They want the conveniences, the amenities of a comfortable lifestyle, access to stores ... They aren’t as different as we thought.

Landsea Homes starter home interior

 

And that’s why for us, again, we have a good understanding about who our buyer profile is, what they want, what they’re seeking, and we work to provide them what they’re looking for. And just a little bit more, you know, kind of thinking ahead of what they may not even be thinking about, but just that little bit more.

When we decided that the opportunity was around the millennial cohort that was coming through, we saw the things that were important to them around sustainability, around energy efficiency, around home automation. And we were going to be all-in. We weren’t just going to provide something around energy efficiency and kind of talk about it. No, we wanted to say we’re going to do all of this, and we’re going to drive it into our DNA and it’s going to permeate everything we do.

Editor: This product you’re selling is not just the home itself, it’s truly this belief in the future and providing something really special. So, what’s next?

Mike Forsum: Well, we think we’re just scratching the surface in the markets that we’re in. We’re just getting underway.

We’re on the radar screen now, so people are seeing what we’re capable of doing. And now we’ve gone out and really punched it out in Arizona. We’ve become one of the top five home builders there 2 1/2 years after entering that marketplace.

And then recently, we acquired a couple of building groups in Florida, and we’ve become one of central Florida’s largest home builders. What’s important here is that scale does matter in our business because scale gives you opportunity. It’s not just scale for scale’s sake; scale gives you the opportunity to do a lot of the things you want to do, as opposed to sort of nickel and diming around.

Being concentrated in vibrant, long-term markets in a meaningful way allows us to extend this value proposition we’re trying to put out there. We want to really focus on particular markets — not all markets, but the ones we think are long term and can have growth for an extended period of time. It goes back to our core mission and really growing where we’re planted.

We’ve got some exciting stuff going on. We’re really pumped.

This interview has been edited for length and clarity.

 

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