During the downturn most builders, developers, suppliers, and trade partners downsized and were forced to do more with less. When our market picks up, my initial concern is that vendors along the supply chain will be reluctant to increase production and will avoid increased operating costs because they may feel that the recovery is not sustainable.
The resulting limited supply will challenge builders to keep up with newfound demand and likely push labor and material pricing upward.
The elimination of acquisition and development loans, and the mass employee exodus from the industry, are also concerns. We rely heavily on improved lots and execution at the community level; a spike in demand would significantly impact our ability to find the “next community.” The lack of qualified and seasoned employees would test builders’ ability to sell, construct, and service new homes at the level customers now expect.
The biggest challenge will be making a profit while being squeezed between pricing constraints and rising costs. Price increases are limited by restrictive appraisals, while costs are under tremendous pressure on all fronts.
Increases are already being felt in such commodities as concrete, lumber, sheetrock, roofing, and paint. Labor costs have been at 20-year lows, and while folks are glad to be working again, they want, and in some cases need, to raise prices to stay in business. Land to replace the current discounted lot inventory is being quoted at significantly higher prices.
To profit and grow will take an efficient organization, negotiated costs, and exceptional product. Bloomfield Homes is developing lots in six subdivisions for its own use this year. It increased production to 400 homes with about 30 full-time employees, and worked with contractors and suppliers to include many options as standard features.
In a word, people. Our greatest challenge is and would continue to be attracting and retaining great people to serve our customers.
With the industry lagging even the modest recovery, we find many people are reluctant to consider a career in home building. This is painfully evident when meeting with parents who are counseling their children considering construction management programs at local colleges and universities, with experienced prospects who were displaced from home building and are uncertain if it’s “safe” to return, and with trade partners who have left the business to pursue other opportunities.
We’re positioned better than most. We had little turnover since downsizing in 2006–2007, and have excess capacity in our production teams and trade base. We made a conscious choice to invest in developing our teammates during the downturn. They’re anxious for the opportunity to grow.