In Central Florida, as in many markets around the United States, builders feel the brunt of both labor capacity constraints and lumber price hikes, playing havoc with input cost pro formas and gross margins.
Orlando's a hot market, where by far the lion's share of homes carry price tags of $300,000 or below, where margins are razor thin on a good day.
Builders there, like almost everywhere, are paying more for lumber and have a more difficult time securing their framing lumber packages, and then, have trouble lining up framing crews to fit tight start-to-completion schedules, all factors that impact their ability to deliver homes within price tolerances of home buyers that also make money.
You might think that one thing every home builder without fail would do to respond to these input cost headwinds in a business environment like this would be to go all out to eliminate waste in the use of stick-framing's basic building block, framing lumber.
You might think that, and you'd be wrong.
Estimates these days are that a framing lumber package for a typically-sized home in Central Florida runs these days at about $10,000, up $3,500 from where prices on the same package would have cost a year ago. In the judgment of some, builders incur waste of as much as 20% in a traditional stick-frame on site.
On the other hand, if a builder shifts construction of roof trusses, wall panels, and flooring off-site to a factory, that builder's headache over on-time delivery to site of the lumber package, not to mention savings of up to 20% on the added cost of lumber and labor hours for each new home--around $1,000 per versus the latest price shock on lumber prices--can restore reliability to both a completion schedule and a gross margin. Add to that the precision and speed a builder gains from having software-driven CNC machines cutting, and other automated processes to fit, nail, and move completed components to a next stage of completion.
This year, Raney Construction Inc., run by bootstraps offsite innovator Buddy Raney, will serve as "vertically-integrated total solution" on 3,500 homes, on track to factory-produce 1.1 million board feet per month of roof trusses, flooring, and wall panels, a 20% increase in business activity over 2017 totals. Builders like Ashton Woods, Beazer, D.R. Horton, Jones Homes, KB Home, and Shea regard Raney Construction as a go-to source for construction operations velocity and predictability on 17 homes per day, which in times of labor volatility and cascading detrimental impacts of an escalating global trade war, can go far toward assuring builders the profits they modeled in their 2018 budgets for direct costs.
"To a degree, home builders aren't home builders," says Raney. "They're home closers--great at land speculating, positioning strategy, and investment, marketing, and sales. What we do is to provide them the whole shell, including the slab, which has to be perfect to make all the other precisely engineered and cut assemblies work on the home site."
Raney says his business--around now for the better part of two decades--has swung into overdrive as more builders awaken to the construction operations opportunities offsite. This awakening has accelerated, especially as it becomes clear that the conditions that account for residential construction's labor capacity predicament are only likely to get worse as the current stable of skilled tradesmen and women age out at a rate five times greater than the pace of new, trained entrants in the skilled trades.
Raney's plans currently call for expansion--he's currently running at a shift-and-a-half capacity at his Orlando factory facilities--with a new Florida plant coming online in the next 12 months, and a move into the Texas market within a 24-month time frame. All of this expansion momentum will draw, Raney believes, from a capital raise effort he's now in the home stretch of, thanks to the financial strategic guidance of Margaret Whelan, ceo and founder of Whelan Advisory, LLC.
"The commodities market is going to do what it's going to do, and builders can't get around having to pay for their materials and labor, so it makes sense they're trying to eliminate as much waste as they can from every unit," says Raney. "That's why more of them are looking for what we can do for them right now."
