John McManus Photo: Katherine Lambert

Note to self if you're a leading home building company senior-management executive spying floor plans, elevations, marketing, and sales efforts at what could be an inflection point new product strategy for American new-home building in the 21st century. Among 2010 New Year's resolutions, perhaps consider this:

Don't get caught by the CEO of the company whose new homes you're snooping around in.

But if you do get nabbed—as one Top 100 home builder's vice president of sales and marketing did one December afternoon in the heart of California's Inland Empire home building war zone—you might hope that it's Shea Homes CEO Bert Selva who busts you and that it's in one of Shea's newly unveiled Spaces communities. Said perpetrator's name shall go unreported; it's not that important. Espionage of this nature is part and parcel of the high-volume home building game, and Selva knows that. He took it all in stride and let his prisoner off gently when the fellow said, “Bert, you're doing an amazing thing here. I've been here four times now. I should probably buy one of these houses.”

“In what other manufacturing business do you have the ability to walk into your competition and pick up their trade secrets in their marketing materials? If it's innovative, it doesn't stay secret for long,” says Selva.

Selva is pleased with the stir Shea's introduction of Spaces homes has created. He's had dozens of calls about Spaces, including several from public home builder CEOs. And there's a reason: sleek, simple, functional, flexible, sustainable design. You can use those same descriptives for the operational process, which makes it low in variability, high in scalability, and, therefore, affordable.

Affordable, energy efficient, cool. That's the thinking behind the Spaces homes. Take the process-engineering revolution Jeff Mezger and his team pulled off to make KB Home's Open Series the talk of 2009 and give that whole initiative a demographic and psychographic pitch toward that generation of 77 million we've long referred to as “tomorrow's home buyer.”

“What did Apple do with the iPod that made it a great product?” says architect Mike Woodley, who entered the top-secret creative development of the Spaces project in late 2008. “They made it work at several functions, and they got rid of all the knobs. That's what we've done. Spaces is flexible, clean, and it's how people live in and use a house. We got rid of all the knobs.”

Woodley notes that from the charrette process through now, when he presents Spaces to everyone from Shea division presidents to local planning commissions, not everybody likes it or gets it.

“We know we're onto something when we have the older school guys talking about how this or that doesn't line up, or this is too thin, etc.,” says Woodley. “This really is new, and it's got to appeal to buyers who don't want what we've been doing for so long now.”

In doing so, Shea captured efficiencies enough to build profitably with a price tag to customers up to 15 percent less than equivalent homes in the 2,000-square-foot range and below, whose prices are already 15 percent to 20 percent less than they were at their 2006 peak.

So Shea, which up to now could only compete by out-wowing its rivals with location, architectural panache, amenity, and quality, can compete on price. Amid estimates that foreclosures and distressed sales will remain part of the fabric of real estate like an unwelcome visitor with no plans to leave, competing on price is not an option. This is especially true for privates whose capital structure won't allow them to impair lot values and dump them on the net operating loss tax carryback market.

Home building strategy must change both product and process. For Shea, that's Spaces.