Audience: Builder

Tight Lots? Offer Custom Design at Commodity Prices

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“Lots with tight setbacks raise many design issues including aesthetics, privacy, light, views, and parking. Then there are zoning ordinances and building and fire codes to consider. Suburban infill locations, too, are subject to restrictions on the amount of front-, rear-, and side-yard space as well as the height of the structure. It takes design creativity, fortitude, and flexibility to cope with these situations.” – Professional Builder magazine

 

Today, when designing houses (to use a sports analogy), builders are not necessarily working in a “soccer field”-type space.  It’s more like we are playing tennis and have to craft our game within contained lines.

 

With these tighter requirements, there’s even more reason to optimize the home and squeeze what you can into its design, whether that’s using built-ins, or doing something as simple as varying ceiling heights to achieve room variation.

 

But that sounds like custom work, doesn’t it? And custom work means architectural and engineering fees, right?

 

Not exactly. If you use structural components for the roof, floors, and walls, your truss manufacturer (a.k.a. component manufacturer) can bring an enormous amount of architectural and engineering services to you for the cost of the components… just because you ordered your components from him.

In fact, MiTek has found in case study after case study, that trusses and wall panels can deliver a custom home (on any lot with any convenient or setback restrictions) for around the same cost as a stock home.  When you count in labor savings, the cost can drop below that of a stock home.  And when you count in the lowered exposure to new OSHA fall protection laws, the cost drops even further.

 

By working with your CM to frame homes in 3D software, you can build homes on a wider variety of lots, including tight or infill lots. That’s the value of components pre-framed in 3D design software.

 

(Pictured: Momentum by KTGY Group.)

The Role of Training in the Skilled Labor Shortage

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It may surprise US builders to learn that the labor shortage that so impacts their businesses and eats into their margins is in fact a global phenomenon. Whether it’s due to workers reaching retirement (as in the UK) or a general shortage of skill trades, builders everywhere are searching for solutions to this problem.  Fortunately, some solutions are finally taking shape.

 

Almost three-quarters of the respondents in an Associated General Contractors of America survey stated they believed there was a skilled-labor shortage. It is perhaps most acute in specialty trades like carpenters, masons, equipment operators and pipefitters, but demand exists for all laborers.

 

It’s About Age

In the US, the labor market is segmented by age, and the age gap between the older “traditionalists” and the Millennials entering the trades creates its own set of problems.

 

Why? Aside from Baby Boomer workers (born 1946 to 1964) approaching their retirement years, the blame lies with the oil and gas industry, which drew former construction workers during and after the Recession. Tough economic conditions in general led the construction industry to hemorrhage 30% of its workers, a sizable chunk. Now that demand is returning for construction labor, that 30% gap is much more evident and impactful.

 

It’s Also About Growth

Today, an astounding 32% of firms surveyed have reported that the need for skilled labor will eat into their prospects for growth. Many builders, however, are looking for ways to accommodate the stretched labor market and meet their budgets. 24% of firms will incorporate prefabrication and even modularization into their game plan to reduce their dependence on skilled labor.

 

Other workarounds? These include increased apprenticeships and training, of course. Some suggest boosting trade schools; others insist that training must begin at the high school level, in order to identify talent at a younger age.

 

On-the-job training may serve as a stopgap measure while the industry reacts to the seismic shock of the post-Recession market. 42% of firms surveyed have vowed to invest more deeply in their talent, especially in terms of increased training and rewards, including promotions from within for supervisors and foremen. Reporting firms also say they’re spending up to $750 per person, annually, on training for their top contractors.

How to Find Money: Implement Lean Principles

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In today’s market of cash-strapped buyers and builders, negotiating new home prices has become a complicated, multivariable equation with one question at its center: how slim can your margin go?

 

Builders hate even being asked that question. Labor has never been more expensive, and although buyers are slowly re-entering the market, their needs are more specialized than they were before the Recession, and it can be a balancing act to provide a product buyers want, at prices you can afford.

 

As Scott Sedam writes for Pro Builder, builders might benefit from changing the way they do business to give them more control over every step of the construction cycle. Other industries can provide a model. As he says, the construction industry simply “hasn’t been subject to the same level of scrutiny as other industries over the years for the application of lean principles and effort to reduce waste in product and process.”

 

It’s time for that to change. According to Sedam, there are five or six “buckets” you can clean up in your budgets to make your margins a little rounder.

  • Bucket #1: Land. One-third of your total land costs stem from development (the remaining two-thirds, of course, come from entitlements and the land itself). Experienced builders know how to work with land to minimize the cost of development. To this end, thinking about utilities early in construction can save you money down the line as well as headaches.
  • Bucket #2. Waste. You probably already know how much waste you produce, and it makes you wince, whether in board feet and dollars. It’s an easy fix to learn how to reduce waste on a jobsite. Learn how here.
  • Bucket #3. Sales process. This is where lean management techniques come in. Decide what you’re building, down to options and selections, and stick to it. Standardize your product and communicate it clearly to customers and you winnow your future stack of VPOs.
  • Bucket #4. Cycle time. A better building process is all about reducing cycle time. Learn how to tighten up your cycle time here; you’ll thank us later.
  • Bucket #5. Work with your supplier.

 

Your supplier is your secret weapon when it comes to managing your budget, and the more open lines of communication remain between your business and theirs, the more problems can be avoided down the line, resulting in a smoother transaction on both sides—and a lean competitive advantage for you.

Build for Your Buyers: Gen X-ers

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Room to Grow

As an older age group, Gen X’ers are often ready to buy in response to a growing family or changing needs–  who have often outgrown smaller-size homes. They want to “trade up” which for them means to prioritize larger yards and flexible floor plans over other factors. They may also have more money to spend as we recover from the downturn.

 

Quality – and Value

Many bought homes during the boom and lost as much as 45% of their net worth from the decline. As a result, value buying is important to them. Home buying can be a fraught experience for Xers who are only too aware of financial risks, and want the best for their money—meaning high resale values and of course, sturdy quality. Despite the ups and downs of the financial market, Gen Xers are often better-educated and better-paid than either retirees or first-time buyers. Builders targeting this market will face the biggest competition from existing homes.

 

The Right Market

Builders might have a harder time isolating the markets where this group is most likely to look for their next home. A healthy or growing local economy goes a long way towards identifying places Gen X’ers flock to. Think Atlanta, Charlotte, Denver, St. Louis, and Columbus.

This cohort has the lowest level of belief in home ownership as part of the American Dream (just 64% vs. 73% of Boomers) but in some ways, they exhibit the highest demand as well. Don’t underestimate Generation X in your plans for 2016.

Modular Homes: Behind the Hype

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Modular homes are a Rorschach blot test for professionals in residential construction. Whatever your signature issue—green building, low-income housing, rebuilding areas affected by environmental disaster or urban blight—modular homes have been packaged as the answer by someone, somewhere.

 

They also carry a certain caché. If you’ve picked up a copy of Dwell magazine in the last ten years, you know there is a cool factor attached to the style.

 

With the housing market picking up, and especially as the labor market stumbles, the current economic climate seems to favor a resurgence of modular homes. As a result, many builders are looking to branch out and incorporate modular approaches in their process. Many more are beginning to incorporate modular components into their designs.

 

 Is it worth it?

There are definitely advantages. The market is sounding the alarm on a skilled-labor shortage in the industry—you may be feeling the pinch yourself. In circumstances where the number of jobs is outpacing the number of people available to do them, a process where a structure arrives onsite already 70-90% complete is worth further investigation.

Modular building is not a cure-all, however. As with any type of home, much depends on the plan itself. Modular construction—often associated with Modernist simplicity—can be used in more complicated plans. However, it’s best to keep it simple and play to the natural strengths of the format. Otherwise, the costs of the more complicated prefab structure may induce sticker shock.

Though modular homes can often be less costly than other types of housing, the price gap is not as great as it’s often made out to be. Builders should be wary of any manufacturer who makes grand claims of affordability—the same materials have to be assembled, after all, even if you are saving on onsite labor.

Also, there are some manufacturers that are more effective than others. Most firms that specialize in modular construction make high-quality products, and are focused on the advantages and disadvantages of their craft. A select few, however, may be responsible for the lingering distrust of modular homes in the residential marketplace. Before staking your own reputation on a project, it always pays to do a little research on your new partners first.

 

Prefabricated components?

In many situations, it’s better to stick to building a home with certain prefabricated components, rather than going full-on modular. Why? One prerequisite for a modular home is a square foundation. Factory-built homes are built to factory specifications. Out in the “real world,” factory conditions can be difficult to match. Problems arise when a perfectly modular home meets an imperfect foundation.

Another reason to consider components: it’s not easy to make modifications to a fully modular home after the order has been placed. Prefabricated components also allow for greater flexibility in the construction process.

Finally, while prefabricated homes are in vogue with design pros, the trend has been slow to capture the imaginations of homebuyers. If you’re drawn to the concept but not sold on the execution—or don’t think your buyers will be—precision-framed components allow you the benefits of prefab without many of the limitations. Plus, it’s all designed under prescriptive residential building code.

 

Prefab is Here to Stay

One thing is clear. Whether in the guise of modular homes or panelization or prefabricated components, more twenty-first century homes than ever will be predesigned and built in a controlled environment. But as many in the industry will tell you… perhaps that’s not a bad thing.

Pre-Fab is Dead. Long Live the Precision-Manufactured Home

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This morning at work, I opened my precision manufactured computer, which was sitting on precision manufactured desk. I checked my precision manufactured phone, and I planned to drive my precision-manufactured car to my precision manufactured home at the end of the day.

Except for the manufactured home, you probably wouldn’t hesitate to purchase the items listed above, because you know they are made in a controlled manufacturing environment.

In fact, you are probably more likely to buy precision manufactured products, because their quality and consistency are assured.

 

The reason for your aversion to the manufactured home is simple:

It’s an association with the past. When someone says they live in a manufactured house, you may think of poor-quality H.U.D. homes, or the homes in trailer parks, or FEMA trailers: Sub-standard products, built with flimsy materials, and even flimsier designs and workmanship.

You may be surprised to learn that much of the structural framing in America’s highest-quality homes has been pre-fabricated, a.k.a. precision-manufactured. Indeed, the structural requirements and tight tolerances required for today’s high-quality homes are really difficult to achieve if you are building on home on site, piecing it together from stacks of lumber.

 

Why? Well, for starters, you can’t control the conditions on site, and labor quality is likely to be inconsistent from jobsite to jobsite. Additionally, you can’t control the quality of the product. A blue print is offered as guidance for the structure, but there’s a wide chasm to cross before a blue print is actually built. You also can’t control the weather, either, which can interrupt important processes mid-stream. You can’t even control what gets to the jobsite. Lumber and connectors could be missing, leaving crews to improvise in the field.

 

The ideal solution for home building would be to build only the items on site that have to be built on site, such as the foundation. The rest of the house could be built in the controlled setting of a factory. If you manufacturer the components in controlled factory settings, then you get the same consistency and high quality in your home that you get from other factory processes. In factory settings, the components are always built under controlled conditions, by a well-trained factory-based workforce that isn’t scrambling around in the dirt, looking for missing parts or improvising when things don’t seem to fit.

 

Today, 75% of homes built in North America contain at least one type of factory-built component. These components are typically used in the roof (roof trusses) the floors (floor trusses) and the walls (wall panels). Modern CAD software even allows for highly customized components to be used, so even high-end custom homes usually contain precision manufactured components. As these truss and wall components are created, they are numbered and arranged in a sequence for shipping. The components arrive onsite, where the house is not so much built or framed but assembled. In fact, the workers on site just need to know how to work through assembly sequences, because the house – highly engineered by structural CAD software and digitally pre-built in the factory – fits perfectly together, with no part of pieces left over.

 

So, the next time you hear the term pre-fabricated used to describe a component in a think precision-manufactured instead. The term precision manufactured truly indicates a high level of attention to detail and craftsmanship, as well as the controlled settings of modern factory floors, driven by the advanced CAD software that drives precision saws and assembly equipment. There’s no waste, no guesswork by the framers, and no rain or snow to muck up the works.

 

(Image: a view inside a Component Manufacturer’s Shop)

Every Builder is a Custom Builder These Days, No Matter The Start Volume.

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But Only the Really Profitable Ones Use Panelization.

 

Home buyers now demand quality and customization details often associated with custom designs, and sometimes, they’re willing to pay for it. The thing is, how can you build custom projects at production speeds, to ensure your margins? And how can you lower the learning curve for your trades on house designs you may not have built before?

 

Components like roof trusses and floor trusses are widely recognized as leading solutions, but now wall panels are all the rage too.

Professional Builder  published a series of interviews with builders who’ve made the switch to panelization—including several whose specialty lies in custom homes.

 

Steve Crandall, a high-end custom builder who switched to panels, says that many customers are surprised to discover the quality of today’s structural components, and many more cite the design flexibility of using components as the biggest surprise. “There are absolutely no design limitations with panelization,” says Jason Blenker, founder of Blenker Building Systems, who runs a remarkably successful component shop.

 

For starters, scheduling is easier and more predictable with panelized construction. The “domino effect” of scheduling problems, where a delay in one area of construction leads to costly delays in the rest of the project, is much less prevalent on a jobsite with a panelized and componentized home.

 

Components also pair extremely well with BIM technology, which can digitally pre-build the home and allow builders the extraordinary insight to prevent issues that otherwise would arise down the road. The wood frame is essentially a “kit” delivered to the site, and not bunks of lumber that have to be figured out by the framers onsite, cut, and nailed together.

 

Even post and beam houses can be benefit from panelization. Bob Lindal, president of Cedar Homes, an outfit that manufactures post-and-beam homes, says of using wall panels, “Because we engineer all the components, there’s good quality control and very little waste.”

 

Need control? Predictability? Predictable margins? Lower on-site labor costs? Safer job sites? Panelization and componentization can contribute all of these to your homes.

Build for Your Buyers: First-Time Buyers

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Forget what you heard last year about missing first-time buyers – in 2016 they’re going to be back in action after an increased showing in 2015. Last year 28% of buyers were between the ages of 25 and 34. So far in 2016

This is due to a combination of factors, most of which you’ve probably seen in your own markets: rising rents, more jobs, and improved credit access, to name a few. Here are a few other keys:

 

Emerging Markets

Areas of the US with strong growth potential for builders have all of those buyer-friendly features that make owning a home possible for a larger share of the market. Affordable cities like Providence, St. Louis, Sacramento, New Orleans, Memphis, Charlotte, and Virginia Beach.

Cities located in areas with strong educational institutions and local economies, such as Atlanta, Boston, and San Diego, are also among the top markets with growth potential. Jonathan Smoke’s report at IBS also listed Denver, Houston, Austin, Jacksonville, the DC area, and Minneapolis-St. Paul, among others, as markets likely to emerge in 2016.

 

The Right Neighborhoods

The key to taking advantage of favorable conditions in a specific market lies in understanding your local buyers – what they’re looking for, and what their obstacles are. First-time buyers value safety above all—and will be taking “location, location, location” to heart. A home close to work wins points. They want good quality construction and more space, especially as they move from renting to buying.

 

Reputation Matters

One challenge for builders in 2016 is that first-time buyers don’t see the appeal of new homes as other age groups do. Almost half, 46%, of polled first-time buyers (ages 25-34) prefer existing homes.

However, reputation is a strong influencer. If you emphasize (and live up to!) your promise of quality, you will have a strong shot at this group in 2016.

Builders who can build in safe neighborhoods in emerging growth cities, with a strong promise of quality, stand a much better chance of capturing first-timers in 2016. Choosing Better Technology in your homes can help. These days, precision framing is stronger, safer, and more code-compliant than “sticks,” which can help you build better homes—and your reputation.

What’s Your Construction Cycle Time? It Depends on Where You Live.

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Some projects just take longer than others. If you’re building a home on an owner’s land, for instance, you can expect 1-4 additional months between taking out the permit and handing the new residents their keys. Ditto if you’re building a home for rent. Nationwide, the average is about 7 months for all types of projects.

 

How long is the construction cycle in your region? How does your business measure up to your peers, and is there room for improvement?

 

Your cycle time is about more than just the time it takes to put a house on a lot. It’s also critical for your bottom line—every extra month in the construction process adds additional costs in jobsite maintenance, VPOs, and labor.

 

So what can you do if you live in one of the “red zones”? We sympathize—in some states the delays may be due to circumstances outside your control, such as tight regulations. But there’s one way to mitigate that: collaborate closely with your component manufacturer or lumber supplier and a use prePrefabrication or other pre-assembled items in your project.

 

Taking that step will help you compete more effectively in your market. It will also be easier to meet codes, and trim days or weeks off your construction process, and most importantly, you can stop watching your money evaporate due to long cycle times.