For a 12-year-old in 1967 who had very little idea of just about anything, "Happy Together" was, inevitably, an anthem. The melody, the refrain, the "bah, bah, bah, bah, bah-bah-bah-bah" coursed through the veins in perfect hormonal harmony with all that was late-1960s adolescence. On scouts camp-outs, off-key, top-of-the-lungs crooning of the song went on until Mister Day, the scoutmaster, told us finally to "cut it."

"Happy Together" is the name of a piece in the New Yorker magazine's issue dated today, May 16, 2016, just two weeks ahead of the latest Flo and Eddie tour stop in Biloxi.

The New Yorker article by this name is a well-reported, well-told story by Lizzie Widdicombe on a topic--co-living--that single-family home builders may be apt to dismiss as a fringe-y, faddish matter of mild interest.

After all, the narrow focus of the story is on a downtown urban population of young adults of a generational cohort we shall choose to leave unmentioned, as it has become one of the English language's tiredest, most grossly overused terms.

Still, it would be a mistake for home builders and residential neighborhood developers to ignore or otherwise take-lightly the co-living phenomenon, even if it hasn't quite struck upon a viable, sustainable business model.

At its base, co-living level-sets where people are--physically, financially, and in their life-continuum--with how they want to live, and this is why the albeit primitive versions we see cropping up in places like San Francisco's Bay Area, and in Washington, D.C., and, as illustrated in Widdicombe's article, New York and Brooklyn, contain critical information points for any business trying to be profitable in making homes and communities.

Co-living, simply, takes parts of home-life conventionally embedded within a house or apartment, and makes them part of a "shared amenity," somewhat as dorms do in student campus living. Common is the name of a co-living start-up with three locations in Brooklyn. Widdicombe writes:

"Common, which is based in midtown and has twenty employees, recently raised more than seven million dollars from investors, including Maveron, a venture-capital firm started by Dan Levitan and Howard Schultz, the chairman of Starbucks. Jason Stoffer, a partner at Maveron, anticipates that companies like Common will transform residential housing by creating a brand that is 'emotionally and culturally resonant with millennials' who aren’t served by some aspects of apartment living. (Instead of landlord-ese, Common uses startup argot, advertising its 'core values.' In his application, Kennedy wrote that he most appreciated the value 'Be Present.') Stoffer brought up AirBnb, the vacation-rental business valued at twenty-five billion dollars: 'People sleeping on couches in someone else’s apartment for thirty dollars a night felt absolutely crazy ten years ago! But now it’s normal.'”

This is what home builders and residential developers need to hear and know. And this, about a Common competitor, WeLive, whose forays into co-living are in Manhattan.

"WeWork started as a co-working company, leasing office space and converting it into a trendy zone for startups and itinerant laptop workers, complete with arcade games and beer on tap. It is now used by organizations ranging from General Electric to Lululemon. The company has an app, which its more than fifty thousand members can use to network; it hosts events like 'mixology labs' and offers accounting services. WeWork has raised more than a billion dollars from Fidelity and other investment banks, part of which it plans to use to branch out into co-living. Within three years, WeLive expects to have 10.3 million square feet of real estate, housing thirty-four thousand people."

Fad or trend?

The fad may be the infrastructure and the packaging of these hybrids of student housing and multifamily. The sustainability of the cash-flow model is unproven. What's not faddish at all though--and you can hear it in the ethnographic "you-are-there" style reporting in Widdicombe's article--is what young adults are saying about how they want to live, even as they reach new lifestage events, such as "hooking up" with a potential spouse. This is the important information in the piece, and the fact that, among other things, young adults--be it because of their economic and financial situations, their generally higher levels of educational attainment, or their reference to their parents' and grandparents' lives as examples of what they value or don't value--want agency in their housing choices. They don't feel constrained to merely inherit what everybody else did before them.

Home builders need to ask this question--fad or trend--all the time. Over the next three days, at our 30th annual Housing Leadership Summit event, we've put a focus on "Leading Change," suggesting that strategic agility needs to be part of that ever-elusive business model that enables such important organizations as home building and development companies to weather and thrive in adverse business cycles as well as to ride every boom.

Here are a few select insights from some trusted, and well-regarded advisors on "leading change" in home building and residential development right now, and no doubt, will be central to the conversations we'll have here in Southern California, "Happy Together:"

  • It seems difficult to get people focused on anything but the task and worries square in front of them. I have always had a theme of 80/20--we must spend 20% in saw-sharpening and future based thinking.
  • Operational expertise; I am beginning to see a wider and wider disparity between pretax net profits between some builders who operate with similar land strategies or in the same markets. Presumably, builders with longer land positions or more "develop your own lots" should have a higher margin than those that mostly develop lots (in order to mitigate the risk of developing your own, and in order to have a 'land profit' + a home builder profit); that said, some do and some do not
  • Amongst builders with similar land positions, how are some more efficient than others (i.e., larger margins)? Is it more about s,g&a efficiency, or more about an efficient building process, lower hard costs, more simple plans, or what? Where do builders focus in this area and what changes have they made?
  • Evaluating and planning their business through the lens of these three different industries, how they can choose to "arrange" their activities in these industries into a business model and the analysis of likely shifts, changes and challenges in each can give the builder a unique and more clear understanding of what they should be changing their business "toward". For example: if a builder decides to embrace BIM as a product development, purchasing/sourcing, marketing/sales and construction strategy, the choices they make on what capabilities to retain/develop inside the company and what to find outside the company have huge implications for how the organization is designed, how flexible the company is and what changes are needed and would be part of a Change Management process.
  • Builders who have a very clear understanding of how they should participate in each of these three industries and who strategically align their companies with the best outsource partners for the activities that they don't self-perform will be able to create significant competitive advantage.
  • While the big builders are looking for standardization across markets, the market is demanding smaller niche developments for varied targeted consumer groups. In some instances, the depth of market is demanding that a single small community appeal to a broader range of targeted consumer groups to achieve an economic sales pace and generate an acceptable rate of return. In response to this downsized market, the big builders need more sites which have a shorter shelf life and therefore need to be replaced with new stores in the same submarket more frequently. This business reality suggests that more and better process management tools are needed to track the progress of these new stores in greater detail and with more local market focus than ever before.
  • Without looking too far into the future, such as 2020, I see 2016 as a critical year for the homebuilding sector. We are now finishing the third year of a housing recovery for infill/coastal/move-up/etc markets with robust appreciation generated and densities pursued while the entry level buyer (not accounting for USDA or other programs) or inland move-up has sputtered along. Events such as reducing FHA limits have hampered sales, starts and pricing power which has then impacted the flow of capital to those markets and kept overall permit numbers both modest as well as well below true demand. I was surprised to see 2016 FHA limits stay relatively flat and curious what the catalyst will be for entry level homeownership as the inventory exists and is available for would-be buyers to occupy - as single-family rentals. The key is financing and that remains elusive.
  • When you think about a builder who has weak operational systems, weak processes, weak capital structure, weak people, weak product strategy, they would need a significant amount of "change management" to reach operational excellence. The question that comes out is: If this builder has been in business and is still "weak" in these critical areas, then leadership has not demonstrated they can effectively handle change management. It is highly likely that they are so consumed with just keeping up with the day to day operations that they cannot devote the money, time and people resources to cause significant change management.
  • On the other hand there are those builders who are highly proficient in these operational areas. They by default need very little change. Their leadership has the time to focus on the future trends and target key areas for improvement and strategic change. These leaders develop a plan of how the organization will appropriately respond. Having the time, money and people to look out past the day to day operations, allows these companies to "stay in front".