Your 2019 Scorecard: Here Are This Year’s Business Non-Negotiables, Believe it or Not

Will builders say of 2018--and all the hype around offsite factory construction processes we’ve been hearing for the past 12 months--“we’ve seen this movie before?”

Will promises that machine learning, 5G data, robotics, and other automated processes will empower builders to pivot—both as individual firms and as a business sector--into a long-imagined era of greater productivity and a vastly expanded potential customer universe prove to be idle?

Will the complexity of building’s crisscross clash of interests, forces, standards, and practitioners revert construction’s macro economy, practice, and processes to a low productivity mean of legacy, even after all the talk that profound change has finally begun?

Will economic and trade uncertainties, fear, and doubt that’s surfacing at a global level trigger a broad retreat among big and little building stakeholders, or will players turn the tides, and leverage new-found productivity drivers, to rekindle opportunity in the near-term future?

Priorities are critical. Few prove to be more practical and more effective than many. Still, home building is a complex array of skill-sets, business model components, and value generators, and we've created a scorecard here as a baseline you can check yourself on as we gear up our coverage, our agenda, and our content investments to serve you.

Please let me know if you see something conspicuous in its absence here. We're always learning from you about where we should focus our energies.

Home Buyer Experience and Journey Mapping: The No. 1 most-costly consumer outlay for a durable—a new home—is not the transactional model-park and sales-center deal it used to be. Builders today find themselves in a whole new digital world when it comes to finding a moment—via big data and social networking—to engage with a customer and accompany her on a journey where every step is about value, responsiveness, and personalized care and service. On a fast-track to oblivion—advertising, billboards, and even real estate broker deals—as builders redeploy more and more of these resources and institutional knowledge on picking up a consumer’s data trail and on aligning web, social, and in-person engagement processes with customer interactions on her or his journey, a greater and greater percentage of which is digital connection.
The future of team-members: What happens as technology transforms what they do, and as they transform technology to generate value for customers? Builders say there’s a skilled-labor shortage, and they’re partly right. Mostly, there’s constraint—exponentially increasing—on cheap access to manual laborers. But the real shortage is in voltage, namely talent, which is another priority, another challenge all-together. Growing a team that's capable of solving today’s challenges and reaching for tomorrow’s opportunity is within every firm’s set of “things they can control.” Do you? Tomorrow’s opportunity for home builders and developers is locked up in data, technology, artificial intelligence, policy mastery, and fi-tech wizardry, not repeated tasks that robots will one-day do perfectly, fast, and at higher volumes. Talent is job No. 1 for leaders, not trying to resurrect high-school shop class. Culture was once a rarity a few business leaders had the time to work on—now, it’s table stakes to attract people who will give your firm its future.
Tech’s tipping point 2.0: After seizing attention and attracting a major capital investment infusion in 2018, offsite home building enters a critical “validation” window, with many top 10 builders shifting to factory-based design and construction, and volumes increasing to a run-rate of 10,000 new homes by year-end. By 2020, the question will be, “why haven’t you begun your pivot to offsite?”
Housing as a service: From new homes that literally grow in square footage over time and life-stage, to componentization that switches out key home system modules to adapt to, say, aging-in-place solutions, to home technology future-proofing, more builders and their respective investment and manufacturer stakeholder partners are beginning to see the initial sale as a gateway to a seven-to-10-year relationship with buyers rather than a one-and-done deal. Business model and capital structure flexibility will matter as both consumer preference, macroeconomic cycles, and technology converge to transform how both builders and buyers value from an ongoing relationship.
The new square foot, density, size, and value: A known recovery-killer and nemesis to future housing traction is real estate’s fixation with large homes, which increasingly shows itself to inversely correspond with what many, many people can afford and want. As technology, design, engineering, and “shared amenity” redefine space and volume in the minds of would-be homeowners, density options and unit square footage requirements evolve even as per-square foot value increases. 2019 could re-boot clear, sustaining, profitable demand for “small” units. Who’ll be there to answer that demand? How’ll they win favor for those projects among local officials and community leaders?
Homes as weather systems and health habitats: Shelter, from earliest times, has been about sanctuary, protection from hostile climate and other natural and human attack. Today’s home is a micro-climate in itself, either contributing to its human householders’ health, well-being, and ability to prosper, or not. What are the new non-negotiables on homes that play nice, not only with the world inside the walls, but outside the box? Insistence, not only on pocket-book saving performance, but on earth-friendly provenance of materials and products is a thing.
Smart tech is non-negotiable: Smart technology in new homes reached critical scale in 2018, and 2019 and beyond will accelerate not only installation rates, but a series of user-friendly upgrades aimed at enhancing household routines, connecting householders to friends and resources, and doing so while protecting individual and family privacy and security. A delicate pathway between increased value and greater risk of privacy loss will continue to define the smart tech agenda, but few believe IoT technologies focused on room comfort, security, lighting, and other systems will not be ubiquitous in new construction.
What is a healthy home? Are particulates the new “lions, tigers, and bears” from which a home’s shelter provides protection? Are sensors, filtering systems, circadian human-centric lighting, monitoring devices, and other enablers of physical and emotional well-being becoming standards potential buyers and renters regard as important as bathrooms and utilities? Exponential tech is shifting its lens of focus now to health—households’ fastest rising cost—and home design and engineering must keep pace.
Starting Over: The starter home renaissance. Think of it this way. If current new home sales run-rates are around 550,000, whereas they should be—to meet household formation, job formation, old-house replacement, etc. needs—at around 1 million per 12 months, there’s a $70 billion per year business opportunity [450,000 new homes times $150,000] not being currently addressed. 2019 will begin to answer the question of who will fill that void, which is a big, profitable hole in the donut right now.
The connected community: what it means, why they matter. Connections—chosen, accessible 24/7, and friction-free—are a baseline expectation, going far to define what people mean when they think about location in their housing preferences and choices. A connected community balances simplicity, physical activity, human contact, and convenience to work, play, and domestic tasks with a basic need for sanctuary. Walkable is only, at best, a proxy for the ways people want to find balance between physical and personal well-being and prosperity. Connected communities use both physical space and community programming to fill that need.
From NIMBY to YIMBY: How to pencil projects communities want vs. ones they oppose. Communities, like firms and people, must change or die. Inflexible municipalities and local jurisdictions risk hasty obsolescence if they can’t strike a harmonious balance between protecting the interests of current residents and a future life-line of essential workers and new, young community stakeholders. Smart builders, developers, and investors will lead the way in educating, training, and motivating progressive community leaders at how to strike that balance, solve for local affordability crises, and re-spark growth and prosperity at the local level.
Future-Proof: Housing and hazards. Wild fires, hurricanes, tornadoes, earthquakes, and drought put more than half of America’s total housing stock at risk. Will building technology, materials science, planning, and other resilience tactics and strategies evolve to address the collision of residential real estate and Mother Nature? Where are the most progressive cases of strategies that work, and how can others learn from and apply the learnings?
Future-Proof: How to build shells that last and homes that evolve. Flexible floor plans? Table stakes. Homes that can evolve—real-time in an instant, and over time as residents age, progress through life-stages, etc.—must now reach a new level. Bringing the outdoors in, and the indoors out, movable walls, modules and components that swap in and out for instant remodels, and systems and technology that can upgrade, self-repair, and harness accelerated technology benefits are becoming more common as design and engineering features of new homes. Are you ready for the morph-able, engaged, iPhone-ification of new home design and construction? Make no mistake. 2019 is a toe-in-the-water year, but 2020 will mean it’s time for a plunge.
Social Impact: A new capital stream. Investors demand returns; that’s no different than ever. Increasingly, they want their returns evidenced not just in cold cash, but in benefits measurable in human impact, environmental improvement, and generative community well-being. Investors—including your next generation of talented associates—demand social impact as a baseline expectation before they’ll commit. Purpose comes in a very close second place to pay when it comes to your ability to attract the team member whose talent, commitment, and willingness to go relentlessly beyond the call of duty, to shape your firm’s future. Don’t underestimate the role of social impact among your priorities for 2019, or else.
New Laws of the Land: Can home building become a pan-cyclical business? 2019 will be the year deep local scale and land-light balance sheets draw a sharp contrast between builder haves and have-nots. Those firms who’ve been able to deploy increased amounts of capital in becoming more customer- and team-member centric, and at the same time diverted capital away from cost-laden land holdings—bearing insurances, fees, and in many cases, finance expense—will thrive in 2019 and beyond. They’ll get to ratchet down their pricing, deliver homes on an evenflow basis, and drive volume, even as broader cyclical trends introduce more challenges. 2019 will begin to clarify a new meaning and measure of “have vs. have-nots” in the home building pantheon.
The 7 deadly sins of waste: from design, to sales, to development, to construction, where builders spend resources that do not produce value. They say, “two wrongs don’t make a right.” When it comes to economic productivity in investment, development, design, and construction, two wrongs multiply exponentially into hundreds of wrongs, but, still, business stakeholders expect to end up with a “right.” 2019 will be the year for discovery, recognition, triangulation, isolation, and elimination of “wrongs” in the process of investment, development, design, and construction. New models of productivity—producing more value with fewer resources—will emerge. Which side of the waste equation will you wind up on?
The new science of building materials: will tariffs, scarcity, and building failures lead to a host of new construction materials and products? Constraints and massive challenges for some mean blue skies and vast opportunity for others. Investment in basic research and development in the home building, development, and construction sector has lagged for too many years, but, of late, a few progressives in the business have seized on ways to martial dollars, time, and talent into potentially game-changing R&D. The 12 months of 2019 will shine a sharp light of contrast on those who’ve taken recovery’s opportunity to channel resources into learning and apply that learning to making it through profitably to the next upcycle.
The future of co-living. Co-living may or may not be an economics-fueled fad. What’s permanent, and dynamic at a level almost unimaginable, however, is that people are ever adapting new ways that fulfill the assumption that “everybody’s got to have a place to live.” We’re mistaken in the belief—held by too many of home building’s incumbent business leaders—that “everybody’s got to have a place to live” means good business for builders. It has proven it doesn’t. Co-living, which changes what’s inside the box, and changes the size, shape, density, and meaning of the box itself, and at the same time puts many features and functions long considered to be essential inside-the-box elements outside into shared space, is here to stay in some form or fashion. How can we look at the phenomenon and learn what underlies it? And discover what it means to our business models?
The end of demographics. Behavior and engagement patterns redefine what it means to segment customers. Demographics—in the purest sense of household patterns—will remain valuable, again as “table stakes” information, but as measures of demand, potential demand, and hand-holds on customer segmentation, demographic characteristics are like flint rocks of yore, the most primitive of tools. Amazon, Google, Twitter, Facebook, and Zillow databases are the stores of knowledge capturing the behaviors, attitudes, values, and connection points builders will live or die on, and at no time more than the next 12 months will this become starkly clear. This may come as delightful news among those of us who feel some days as if we’d rather stick pencils in our eyes rather than to read the words Boomer, Millennial, Generation X, or, heaven forbid, Gen Z, ever again in our lives. In five years, those terms will be retired to the slag heap of marketing-speak’s past.
Builder 2050: Who are they? What do they do? What do they want to be? This goes to any builder’s highest priority question of any moment at any time, but, in 2019, it needs particular attention. Who are you? Who do you want to be? Is your answer about you? Or is it about your customers? Or is it about the team of people around you? On one hand, spread your thumb and your index finger as far apart as they can stretch. That’s how much work we each need to do to answer those questions. That’s how committed we are here at Hanley Wood, Metrostudy and Meyers Research on helping to empower you to close that gap, answer those questions, and be around for the fun of another three decades or so.