Home builders know they should listen to the housing market. However, when they open their ears, they don't all hear the same music.
For example, when the market began surging back, many builders heard a rush of buyers gravitating toward the luxury home market. So they flocked to the remaining scraps of undeveloped land in the best neighborhoods to build large, relatively expensive homes. In fact, most of the homes being built today are 74 percent larger than the ones that were built in the 1910s.
Meanwhile, a much smaller group of builders heard the market screaming for affordable new construction. Yes, smaller houses do mean less forgiving margins — but as companies like Allen Edwin Homes in Michigan, D.R. Horton Express in many markets, and Kerley Family Homes in Atlanta are proving, it's certainly possible to drive the necessary amount of volume in this realm.
These builders know that many buyers cannot afford half-million-dollar houses; they're looking to spend between $150,000 and $250,000 on modest new homes that allow them to upgrade their living situations. This may mean becoming a first-time homeowner, escaping the high taxes of city life, or finally moving out of an outdated home they're tired of living in.
In a neighborhood just outside of the C+ market of Ypsilanti, Mich.— a working-class town outside of Ann Arbor—sits a shining example of how builders can drive volume with affordable housing. One development sold more than 100 homes in less than a year because it featured simple, straightforward homes at a $150,000 price point. A mere eight miles away in Ann Arbor, similar-sized new homes cost closer to $400,000. Even people from Detroit—a 40-minute drive—flocked to this development, willing to face a longer commute if it meant living in a brand-new, affordable home.
D.R. Horton Express saw similar results after building its Covington at Lake Norman development 40 minutes outside of Charlotte, North Carolina, as did Kerley Family Homes when it built its Cottages at Stillwood Farms development in suburban Atlanta.
It might seem safer to build and sell just a few high-dollar homes, but America's increasing demand for inexpensive housing should not be ignored. In fact, it may be safer to do what others are not and build for the masses. Here are a few steps that will help builders crank up the volume on affordable new construction:
1. Exercise your line of credit. Your target consumers will likely want to move in tomorrow. You're going to need immediate inventory in order to attract attention and make some quick sales. So break out your line of credit, and build five to 10 spec homes that are move-in ready on day one. Then, use that early momentum to gradually expand as the capital rolls in.
2. Help overcome common hurdles. Be prepared to help customers address two common issues that often derail the sales process: securing financing and solving the home-to-sell conundrum.
Make sure your sales staff knows the ins and outs of FHA loans, VA loans, rural housing loans, and any state-specific programs. Secondly, seek out partnerships with entities that can help your customers quickly sell their current homes. For example, Marketplace Homes (my brokerage specializing in guaranteed solutions for new-construction clients) partners with more than 20 builders, happily purchasing properties off of their clients so they can swiftly and smoothly move into new homes.
3. Value trumps luxury. Your customers won't be looking for premium appliances and amenities; they just want something new and clean. So instead of focusing on whisper-quiet dishwashers and granite-topped everything, focus on properly installed basic amenities that are blemish-free.
High-quality workmanship is key. Your customers are comparing your home to their current living situation, so remember that new carpet is better than old carpet — even if it isn’t the best carpet ever made.
4. Keep it simple. Save your customers from decision fatigue (and control your costs) by limiting your offering to one or two floor plans and one or two option packages.
The differences between these plans and packages don't need to be drastic. Maybe the upgraded option package has hardwood floors, higher-grade appliances, and a modest $5,000 price bump. This is the route Express took in many markets.
5. All-inclusive sells. Put everything (including the kitchen sink) into your price. Include several appliances like washers, dryers, refrigerators, stoves, and even garage door openers. Buyers will see each of these items as $500 they don’t need to spend.
Try to arrange the deal so that buyers could legitimately walk in, set their couch down, and feel like they're at home.
There are countless Americans clamoring for affordable housing, and they're willing to drive long distances to find it. While other builders are fighting tooth-and-nail in the luxury market, you should follow the above tips, form strategic partnerships, and be the builder that listens to the large demand for smaller homes.
