Collaboration comes up often in conversation these days in the home building business, just like many other businesses. It's easy to say, and hard to do.
Fact is, though, collaboration will very likely remain a phenomenon builders talk about a lot but rarely try if it can't pass one of this business sector's basic sniff tests:
- Does it save money?
- Does it increase revenue?
- Does it protect against risk?
Clearly, there are very few initiatives, new or not, that home builders will try or keep doing in their businesses if at least one of those three outcomes doesn't happen predictably.
At the same time, as Heidi K. Gardner and Herminia Ibarra write in this Harvard Business Review essay, "Many of us recognize intellectually that we need others’ knowledge to solve big problems, yet we still lack the motivation to collaborate."
So, in many parts of the home building work-stream collaboration tends to fall into a strategic, cultural, and management limbo. From the top down, it's an imperative, and it's conspicuous in its absence as a problem-solving core skill-set. From the ground up, however, in operations, many of us instinctively think it wastes time, doesn't add value, and that we can do better without it.
Let's dig in a moment on one of residential development, home building, and investment's "big problems" right now, and explore where collaboration, which Gardner and Ibarra define as "a way of working that attracts and involves people outside one’s formal control, organization, and expertise to accomplish common goals," might play a role that passes one or more of those sniff tests above.
As is the case with so many big problems, a huge opportunity lies underneath.
Let's start with the opportunity. While the millennial new-home marketplace is a work in progress that will take capital investment, time, more geographically spread out land purchases, and a heavy front-loaded operational ramp up to fully activate, the 55+ market is in full flower as we speak.
Here, National Association of Home Builders senior economist Paul Emrath notes that 55+ American households earn $1 out of every $2 of household wages in the United States, despite the fact that, combined, households headed by Millennial and Generation Xers eclipse Baby Boom-headed households by 63 million to 43 million.
Moreover, Baby Boom, 55+ and Silent Generation households command $7 of every $10 of household wealth. Here's how the NAHB's Emrath quantifies this staggering opportunity:
Older households have naturally had more time to accumulate wealth, so it should not be surprising that they hold an even larger share of the country’s net worth. In 2016, the SCF shows that households age 55+ accounted for $62.1 trillion, or 71 percent, of the total $86.9 trillion in net worth held by all U.S. households.
To get to that opportunity, however, builders have to overcome a problem. Some might call it a big one. That's the fact that overall, more Americans are staying put longer than they used to, and older Americans are a big part of that trend, as tenure in homes people own has been on a steady post-Great Recession rise since Q1 2009, according to statistics from ATTOM Data Solutions. What's more, Tax Cuts may dampen enthusiasm among 55+ers from moving into new homes, especially if their property and local tax exposure goes up and their mortgage interest deductability cap goes down.
"As we thought about the challenge we had in starting a 55+ brand this year, we realized from our research that we'd need to create a product design and a value proposition that would set us apart in people's minds from anything they could already get in the active adult spectrum--that large, extensively programmed age-restricted community, but that was only for starters," says Char Kurihara, corporate VP of Branding & Sales for Dan Ryan Builders, which is now part of the Sumitomo Forestry Products home building operator portfolio in the U.S. "Importantly, almost three out of five (57%) of our potential buyer universe chooses to remodel today rather than to buy and move into a new home community."
Here we have it, the opportunity and the problem, particularly in 2018, when home builders need the kind of profitable volume 55+ homes and communities can produce to help create a longer, more patient runway for younger adult buyers to shed college debt, build up their savings and credit ratings, form families, and, ultimately, tire of skyrocketing rents.
In 55+ buyers, and ones who are turning that at a rate of one every seven to 10 seconds or so, builders can tap a universe of potential buyers who in a peak earnings moment, have established credit, tend to have built equity in their homes, and, generally, are financially more prepare for a home whose value proposition is both exciting and calming.
Now, culturally, the Dan Ryan Builders counter-punch position in all of its market arenas has been as a lower-cost-per-square-foot, high-value builder for entry-level and, to some degree, first- and second-time move-up families.
Its foray into a 55+ new brand--Elevate--starts in earnest this Spring, as it completes models by the end of March for a May grand opening of a 150-home community in a Raleigh-area master plan called Forge Creek at Flowers Plantation. The strategy calls for rolling the Elevate community brand out among Dan Ryan Builders' 10 markets and six states by the end of 2019.
So, the question is, where does collaboration fit in as Dan Ryan Builders goes to market with its new Elevate line?
To listen to Dan Ryan Builders' Kurihara and the two architects--Deryl Patterson of Housing Design Matters and Scott Gardner of GMD Architects--brought into a late-2016 four-part charette to develop the floorplans and elevations, the collaboration came down to sharing knowledge for a common goal: Excite 55+ adults to buy rather than to remodel their current homes.
"We were really pushed on the elevations," Patterson says. "Often with production builders, the exteriors get formulaic, but we found ourselves challenged to get at this from less of a cookie-cutter approach. Getting at the natural indoor lighting with windows, and being able to adapt the single-story into an iterative model that could add a second floor without creating an entirely different elevation was a fun challenge. Every decision was challenged from the lens of 'what can we do that will really appeal to this buyer profile and will compel them to move?'”
According to Kurihara, homes will be built with 2'' by 6" exterior walls, a multitude of included windows for streaming natural light, 10’ ceilings and 8’ doors, along with trendy trim and finishes. Each home has a 2-car garage, 2 baths, 2 bedrooms and a flex room for versatility, and all offer bonus rooms with additional beds, baths and wet bars, some markets may offer basements as well.
The kicker--where Kurihara and the Dan Ryan Builders strategists, Housing Design Matters, GMD, and Builders Design principal Joe Duffus and team believe they'll get 55+ home shoppers' pulses to quicken--is a space in each home--the Elevate room--that each owner can personalize. Also, age-targeted--not age-restricted--neighborhoods, connected to all-age communities within MPCs will distinguish Elevate's "new age" 55+ approach, vs. the active adult village approaches that worked well up until now.
"This is what I call our 'last hurrah' house," says architect Patterson. "We've lived in other houses and we want to get this one right, and it has to have that twist of personalization to make it just right."
"This micro-space can be customized into a wine cave, a pet room, a pocket office or hobby space, or a powder room," says Kurihara. "It's where each owner can make it his or her or their home, different from the rest."
Now, for the sniff test. Can Elevate generate revenue, greater profitability, and mitigate the company's current exposure to greater competition in lower-margin, lower-priced tiers of the housing market?
This is where collaboration--among design, development, construction, land acquisition, and trades--comes down off its pedestal as a term you hear from all the consulting companies and shows how it can work in the real make-or-break world of the job site and community level.
Our Housing Leadership Summit, scheduled for May 14-16, will take a deep dive into successful, value-generating collaborations that will help home building organizations future-proof themselves for the challenges and opportunities that lie ahead. The theme, appropriately, is Collaborate to Accelerate: Strategies to unlock and sustain growth into the 2020s. Make plans to join us in May in California's Dana Point at the Ritz Carlton Laguna Niguel by registering here today.
