By Tony Mon. There are many challenges facing the building industry as a whole today, particularly in the areas of regulation, mold, land use, and labor. These issues are certainly not isolated to just a few home builders, and Technical Olympic USA Inc. (TOUSA) is addressing them.
Our overall strategy is two-pronged. First, we bring together local expertise from throughout the company to examine industry best practices and distribute them to all divisions. Our Process Improvement Plan (PIP) has returned results in the areas of building technology, purchasing, process efficiency, and markups and lot premiums. Second, we push control down to the local divisions in handling those issues in their individual markets. Many issues can best be resolved through local connections and relationships. Here are some examples that TOUSA deals with.
One problem facing the industry right now is the constant stream of local regulations, especially code changes, that add cost and time to building a home without adding any real value for the home buyer. One example would be a code change that requires hurricane-level windows in areas that are not susceptible to hurricanes.
Another example is a requirement to use brick siding around an entire home, where brick facing in just the front of the home would suffice. Brick is certainly nice to look at, but it adds so much to the cost that people cannot afford the home. These types of requirements add to the cost of building a house, and thus to the price of homes. Yet as the price of homes is increasing, affordability becomes a big issue.
To help offset the additional costs associated with new regulations, TOUSA is working on finding ways to lower costs at the design stage -- before we get to the build stage when it's too late to implement most lower-cost alternatives. We have created a product-development program consisting of a team of people who examine efficient ways to build homes. Also, we've created commodity teams that explore ways to manage our supply chain from a total cost of ownership perspective. These commodity teams would compare, for instance, the total cost of a cheaper siding -- including additional layers of paint or added warranty costs -- with the cost of a more expensive siding.
One way to build more affordable homes is to reduce the cost of the materials, while maintaining the home's structural integrity. Reducing the quantity of lumber used in a home by 5 percent, for instance, gives you a much bigger bang for the buck than simply buying lumber at a discounted rate. We are able to replace natural materials with newer materials that are stronger, cheaper, and easier to install -- such as synthetic wood flooring in place of raw lumber, or engineered stone in place of granite.
Another area of the home building industry that we're all dealing with is mold. Most likely, every house that's five years or older will have mold in the bathroom. That's just the way of the world. There is no clear way to prevent mold growth. The problem is that there is also no way to measure what is an acceptable level of mold. Regulations vary from state to state. Additional research needs to be done, and climate-driven standards need to be established so we can all build to them.
Most builders have developed their own building techniques to try to guard against mold. One approach is to create a very tight house, from an insulation point of view. This helps with energy efficiency, but at the same time, the elimination of air movement promotes the growth of mold. It's a difficult balancing act.
TOUSA's decentralized structure allows each division to deal with issues appropriately -- according to the local market. We have a designated mold expert in every geographic region who is responsible for staying up to date on the latest issues and handling mold questions. In addition, we have an organized technology-transfer system for sharing best practices on mold across all divisions.
Another issue that we're all dealing with is development regulations on land use, which can be a highly charged political issue. In some parts of the United States, there is a strong anti-sprawl sentiment. Local governments try to force development into areas that are already developed and where infrastructure already exists. That's not necessarily where people want to live. Governments can't force people to live where the bureaucrats decide they want them to live. That just doesn't work.
We try to balance the needs of the towns and communities with the wishes of the home buyers. We place an experienced and politically networked professional in each of our divisions who deals with both the local governments and developers to strike the right balance. The important thing is understanding locally what's going on.
In the future, I see a new problem: labor. We're going to face a shortage of skilled craftsmen. Currently, most training is done by trade unions. They take young kids and teach them the skills required to be a plumber, framer, etc. The problem is that a lot of these programs are thinning out as unions move from residential to commercial building. On top of that, as our country gets older, fewer people are joining the building trades. The interest just isn't there, and that's scary.
TOUSA is preparing for this shift in skill level by using more pre-manufactured components and investing in internal training programs. We have a comprehensive, regional, in-house development program for everything from sales training to construction management and scheduling to framing and foundation-laying techniques. On top of that, many of our divisions work with local universities and trade schools to provide a work environment in which students can gain experience.
Meeting these industry challenges requires having the right people in place at the local level. By taking an active approach to these and other industry challenges, TOUSA is on the forefront of developing new best practices for the industry.
Tony Mon, president and CEO, Technical Olympic USA.