Recently gathered at an industry conference, a group of executives from some of home building's largest companies shared an early-morning infusion of caffeine. It wasn't long before the group's common interest overcame them and conversation quickly turned to the business of building houses. In attendance were players from a variety of markets, anxious to get down to the nitty-gritty, and once the tides turned, each took his turn peppering the others with questions.
Among them sat Kevin Campbell of Habitat for Humanity, the Americus, Ga.-based non-profit organization that, despite ranking as the nation's third largest private home builder, holds a unique position among the balance sheet-focused bunch. That distinction aside, as national director for the 2006 Home Builders Blitz program set to build 500 homes in conjunction with builder partners across the United States the week of June 5th through 9th, Campbell is certainly no stranger to challenges of the industry.
Like his for-profit brethren, he's personally felt the effects of the competitive land game, even scaling back the Blitz's original goal from 1,000 homes, mostly because of Habitat's inability to tie up land in the competitive urban markets. Because the organization is 100 percent dedicated to subsidized product, perhaps better than anyone, Camp-bell and his colleagues understand that, for profit-driven builders, the term affordability oftentimes translates into an inability.
But as intuitive as Campbell is about the challenges of the affordability component, even he was stunned at a candid revelation from a production builder during the morning coffee-clutch. As the group shared insights about their individual markets, the conversation eventually turned to Florida, and the buzz around the state's inclusionary zoning initiatives. “You hear a lot of talk about it,” remarked one builder who operates solely in the state, “but it's pretty much talk at this point.” And, to underscore the point, another builder shared his own experience.
Planning a 200-plus unit project in Palm Beach, the builder shared that his company was required to offer 10 percent of the approved total units, for sale at a predetermined price—$100,000 off the $350,000 price-point. “I went in to find out how to structure the arrangement and find out what qualifications to apply to the buyers,” he says. “I really wanted to honor the spirit of the agreement.”
But what he encountered was a loosely crafted mandate, unsupported by any parameters. “It was a joke,” he says of the policy designed to create affordable housing. “At the end of the day, I just ended up doing what was best for my business.” For him, that translated into selling the prerequisite units off to friends and family. “The politicians in the area are working to address the issue now,” he notes. “We just happened to get caught up in it.”
“Wow,” remarks Campbell. “I've never heard anyone be quite that honest about it before.” But, it's by recognizing these frustrations and financial complications that affront production builders struggling to comply with affordability mandates, which Habitat has identified an opportunity to parlay its expertise into a win-win situation.
IF YOU CAN'T BEAT ‘EM, PARTNER UP Although Habitat's mission to provide housing to families living on wages somewhere between 30 to 60 percent of the median income is well known, its hand in creating communities with production builders is not. By focusing on relationships with civic groups and small, custom builders, Habitat has historically thrived on available land in blighted urban areas that was readily available. But in the last few years, the diversifying business models of production home builders has brought development interest back into the cities and created a new dichotomy for Habitat. “It used to be that in the central city areas ... people just weren't building there. They were happy to let Habitat have that land and to actually see something get done. More and more, that's shifted, and it's made us competitors in a sense for that land,” Campbell says.
At the same time, local governments have continued to add new caveats for affordable housing into their contingency for approvals, creating more margin pressure for builders and developers. But fresh off of a successful initiative with Centex Homes in Minnesota's Twin Cities, Campbell is more confident than ever that Habitat's business model and experience may well provide the architecture to bridge the gap.
In order to receive approval on its Bailey's Arbor community of 600 homes in Woodbury, Minn., Centex was required to provide 30 units deemed as “affordable.” But instead of approaching that component of the development in a traditional sense, Centex explored some alternatives to meet the criteria. Because of strong local relationships, Centex turned to Habitat for ideas. “We started with a blank piece of paper and, at the time, no one really anticipated that it would evolve into the project that it did.” says Campbell.