D.R. Horton calls them "flags," and it doesn't take a leap of the imagination to get why. Drive new neighborhoods almost anywhere in our 2017 Builder of the Year D.R. Horton's 39 operating divisions in 78 markets in 26 operating states, and you will be struck by those 21-foot by 3-and-a-half foot banners. Bold and resilient flags in American red, white, and blue, flap crisply in the breeze, beckoning one and all to a dream come true, to a new home community.
Many think the basic measurable unit of home building in the United States is the square foot. We'd argue, rather, that home building's most essential building block--what makes new residential construction vastly different from any other form of real estate--is the project, the subdivision, the neighborhood where there was none, the new community.
A new neighborhood, after all, is literally a microcosm of America's self-invention process, starting with a place that's "no where" to most people, and evolving it into what the nation is striving to become, a pulsing, dynamic, living place inhabited by people who care exactly where they are as they care for one another.
A new neighborhood, too, is a business blend. It's part ancestral practice and procedure, handed down from skilled builders through scores of years, eras, and generations, and, equally, part start-up enterprise. Each project, subdivision, and community--what D.R. Horton calls its flags, and what other builders refer to as stores--after all, is a business whose very existence starts when a land deal is done and a land plan gets its green light from a local planning board, and a bulldozer starts to move dirt.
Each new community is an entire business--beginning, middle, and end--with finance, manufacturing, marketing, sales, retailing, product design, sourcing, engineering, and politics each playing a critical role in the going concern. The fact that home builders have gotten so good at driving value from the first capital investment in the parcel through the sell-out of the last units and model homes in those new communities testifies to an encouraging future for the business community as a whole.
To excel and to thrive profitably at both challenges--the ancestral disciplines of home construction at widely varying volumes, and the new-economy disciplines of marketing, big data, automation, machine learning, technological production techniques, etc. of new entrepreneurial initiatives behind each new community--create the builders' dilemma.
In 2016, Builder 100 and Next 100 companies delivered 296,981 new homes to buyers, thanks to about 76,000 associates working at those 200 organizations. That accomplishment comes even clearer when we compare last year with our 2015 crop of top 200 companies. Year-on-year, a mere 2.7% increase in associates from 2015 to 2016 yielded an almost 17% gain in home deliveries. In absolute numbers, that means adding 2,000 employees to the top 200 companies' ranks correlated with almost 43,000 more new homes sold and settled in the 12-months from Jan. 1 to Dec. 31, 2016.
This means two things. One is that home builders--big ones as well as smaller more bespoke firms building in America--are, in fact, good at what they do. The other is that the mere fact of being good at this business right now constitutes a risk, not only of not thriving, but of oblivion in the near, three to five year future.
The dilemma is exactly this. If the people and processes in home building are producing such solid, measurably improving results right now, even with adversity, challenges, and headwinds, why question the model? Why mess with a proven, multi-cycle validated set of business principles and practices?
Two possible answers to that fair question. One is that technology is leaving builders behind, because current operational effectiveness protects the past at the expense of trying what will be best for tomorrow. The other is that builders are leaving more and more of their potential customers behind because builders can't use technology, data, automation, materials science, and capital to broaden the pool of potential home buyers at the lower end of the price spectrum, because builders are too encumbered by local land use and local code and local permitting fees to offer new home communities for close to what lower-end resales might go for in the same locality.
Does anyone think that the two trends--technology leaving builders behind and builders leaving greater and greater numbers of American households behind--are related? We do. It's what we mean when we say builders' dilemma. Today's success could fatally impact tomorrow's viability, if today's success affirms only "the way we've always done it," and not "how we ought to be trying it."
The challenge for builders right now is to to use this part of this housing recovery to get to the next one. For D.R. Horton, the answer is in those flags, those stakes in the ground where the enterprise's 7,000 associates start up new companies with each new neighborhood, and manage it with mastery, autonomy, and purpose. The answer is blowing in the wind.
