Choice and necessity, constant as the blood pumping our veins, flow through the heart of economics. We may forget--because the business of developing, investing in, designing, building, and marketing homes and communities is so demanding of our focus--housing and the opportunity to thrive building it spring from a common stream.
People making choices based on the alternatives available to them.
This comes to mind now, as the noise-level of varying, countervailing, shifting, volatile forces that interweave with today's housing basic measures of supply and demand intensifies.
Amid all this noise, perhaps home builders' less important goal is a specific recognition and characterization of the signal, and the more important one is a framework and open-mindedness to finding out what the signal is saying.
For instance, how do we listen? How else can we propose to understand the important interplay we see going on that impacts essentially how smart builders are about their own future, the interplay between choice and necessity?
Some fair number of builders consider recent acknowledgment that Millennials are every bit the force in home buying and new home buying they might have been expected to be--albeit on a slightly delayed time-release pace--as vindication.
Adults need homes, and young adults need new homes, the thinking has been reaffirmed, therefore an adult generational cohort of 77 million or so represents a tide of necessity that builders can bank on.
In a simpler world that might be so, and today's world is anything but simple.
Instead, convergences and hybrids of necessity and choice are at work, circulating through housing's business bloodstream, pumping through the heart of its economics, and becoming the pulse of supply and demand.
In such an economic circulatory system, longstanding correlations between age demographics, job formations, household formations, and homeownership rates lose some of their helpfulness as meaningful predictive business benchmarks.
Let's look at a few more concrete, real-world phenomena to get at this.
- Rent-by-choice is a thing, and today, we see examples of rent-by-choice evolving toward meeting a human need well beyond shelter and protection, a need for social connection to other humans.
- Remodeling-by-choice is a thing, and today, we see examples of remodeling-by-choice taking the form of an array of human experience and well-being services.
- Smaller-by-choice is a thing, and today, we're seeing examples of how features and benefits that lie outside the physical confines of a floorplan, elevation, and property line grow as material measures of real estate value.
On the surface of things, the structural, and most-likely permanent rise of these three phenomena, may look like threats--temporary ones--to classic single-family for-sale investment, development, design, construction, and marketing business models.
That viewpoint, which we'd guess would be widely held among market-rate single-family home builders, may obscure both reality and opportunity.
Viewed through a lens where choice and necessity go together rather than oppose one another, builders and their ecosystem of stakeholders may have an array of business model opportunities for which they're already fairly highly skilled.
- They relate everyday and have deep knowledge bases of data from people expressing themselves on what they value second only to their family members and loved ones, their homes.
- They also operate off rich, longstanding networks of resources to assemble capital, land, talent, materials, products, retailing capability, and skilled labor to bring homes to market.
- They do business in a realm where social capital may be playing a far larger "sleeper" role than one might attribute to it, where people galvanize, find purpose, and gain benefit from doing things for other people. This column from New York Times op-ed writer David Brooks speaks to people motivations--people in heartland America we'd regard as a sweetspot customer base for new home builders and developers--we too rarely bring up in considering single-family, for-sale new home supply and demand:
"The word I heard most was “intentionality” — especially about community. Many people try not to use Amazon so they can support local businesses. They don’t use the self-checkout lanes in the drugstore so they can support local workers. They’re almost fanatical in their support of local arts programs.
"Constantly they are thinking: Does this help my town or hurt it? And when you tell them that this pervasive civic mind-set is an unusual way to be, they look at you blankly because they can’t fathom any other."
Renting, remodeling, and smaller-sized dwellings may be show-stoppers for single-family, for-sale builders who're only able to make money on 3,000-square-foot homes on quarter acres. But for builders who are able to listen, process, and respond to ways that choice and necessity are neither of them intrinsically good or bad, positive or negative, but are always related and dynamic together, opportunity to grow and prosper lies ahead.
Is the single-family, for-sale, new development and construction business model adaptive enough to navigate housing's evolving economics of choice and necessity? Single-family players' ever-more-prominent role in multifamily development, single-family for-rent, tiny homes, pre-fabricated homes, and "intentional communities" all accrue as evidence of nimbleness and resilience we may never have assumed a decade ago. Capital investment, finance, and policy regulators tend to fix operations models in self-perpetuating comfort zones, but exponential data and technology have begun to offset at least some of that sclerotic effect. So have people and what they choose based on the alternatives available to them.
Choice and necessity, their co-equal action, one upon the other, put firms in business, present them a line-up of opportunities and risks, and, either keep them thriving or make them go away. Firms, like people and households, deal with choice and necessity as well.