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IF YOU’RE THINKING ‘THIS TIME’S NO DIFFERENT THAN EVER,’ THINK AGAIN

IF YOU’RE THINKING ‘THIS TIME’S NO DIFFERENT THAN EVER,’ THINK AGAIN

Any five-year plan worth making needs to build in a new view of which values spring eternal, and which forces will change everything else.


We may or may not have entered a cyclical shift. Evidence to date is inconclusive, although some may profess to know otherwise. Ten or so weeks into a year, and half of that time considered to be selling season, it’s too early to say how 2019 will clock in for home builders. Last year had its surprises. No doubt, this one will have its own. The one prediction it may be safe to make is that not all builders will fare the same way through the next 12 to 24 months.

Is this time different?

This question, in home building, is known for its variations, usually related to how many housing economic cycles a person in the business has weathered.

It can reflect healthy skepticism. As in, “Is this time any different?” Or, “what makes you say, ‘this time is different?’ ”

Or it can, as it often does, take a different tone altogether, that of an utter, outright dismissal of plausibility. You’ve heard this, I’m sure, from more than a few wizened veterans of multiple housing cycles.

“We’ve seen this all before. This time is no different.”

In fact, only time will tell, no?

Still, those who either contend that the current period in the history of American residential construction will not wind up being any different than prior cycles, or infer that they do not need to change fundamental aspects of their business and operations model to remain “going concerns” in the future are at risk.

This is not to say that carpentry, framing, slab-work, roofing, finishes, or any single form of well-practiced expertise in home construction will obsolesce. It is, however, to say this time is different. Perhaps, though, it may be more critical for those in home building to prepare and be open-minded–even as present-day pluses and minuses, challenges and glimpses of opportunity, headwinds and tailwinds, and the workaday necessity to focus on constant, unerring process improvement on the jobs at hand remain in the foreground of our attention and operational emphasis.

Here’s our belief as to why this time is different, and why most mortal human being builders can not expect a return-to-a-norm where their access to inexpensive labor, materials, and/or building lots will restore a wholesale advantage to their economic, financial, and operational models.

I say “most mortal human being” builders, because there are some few enterprises–the largest, deepest-pocketed, and most resilient from a financial capital standpoint–that may benefit, at some unknown point, from another correction in land prices that will give them an upper hand as others succumb to distress. Still, that’s a rare few. The rest, we believe, need to assume nothing other than “this time is different.”

National Association of Home Builders senior economist Ashok Chaluvadi yesterday reported on “builders’ biggest challenges,” looking back and looking forward to the next 12 months.

Both forward-looking and backwards, more than four out of five builders rank “cost/availability of labor” as a top signficant problem they face.

That is not suddenly the case–it has occurred in leaps and bounds during the entire post-Great Recession recovery, as its well-noted here by Chaluvadi:


Only 13% of builders reported labor as a significant problem in 2011, followed by 30% in 2012, 53% in 2013, 61% in 2014, 71% in 2015, 78% in 2016 and 82% in both 2017 and 2018.

While we’re on the topic of perceived challenges, Chaluvadi also points out that for nearly every “significant problem” on the list–9 of 11 categories–conditions for 2019 are either at least as adverse or worse than they were believed to be in 2018 at the same time of year.

Although builders responding to the survey reflect a self-awareness that conditions in the business environment have gotten tougher, what’s striking to me about the ranking–all in all–is what’s conspicuous in its absence. There are two categories of concern, “negative media reports making buyers cautious,” and “gridlock/uncertainty in Washington making buyers cautious,” that point to customer behavior here.

Nowhere among the list of builders’ greatest sense of problem areas is this notion. Potential customers–more and more of them, and therefore a bigger and bigger problem area–are disconnected from what new-home and community builders do in terms of providing a value worth anteing up for the most expensive and demanding–and, presumably, most valuable– purchase many of them may ever make.

The area most builders should rank as the A-Number-1 source of adversity and challenge they face is a shortage of customers willing and able to pay for what builders profitably invest in, develop, build, and bring to market. Why is that “problem” not even on the list?

Here are four ways we think the cyclical stretch between now and, say 2022, is different, and will change the rules of operational and business model success in home building investment, development, and construction forevermore.

  1. Skilled labor will never again be plentiful and cheap
  2. The blend of data, code, sensors, microprocessing, and machines will continue to become exponentially more powerful and cheaper. These are disruptive forces.
  3. Although land, at the raw lot level, may ebb and flow in price due to continued cycles of scarcity vs. abundance (i.e. distressed deals), regulatory and local permitting cost layers will continue to rise, negating presumed margin opportunity on finished lots unless productivity levels surge.
  4. Lastly, and perhaps most important, what people value in homes, and what they expect from them as places to prosper, is changing. The physical box and even the location are still important, but ever more important is an ongoing experience of service and value creation in three critical milestone areas of homeownership: one is the pre-ownership journey and moment of decision to buy; second is the actual experience of value in owning and living in the home; and third is the value at exit.

Whether builders want to acknowledge it or not, economics, consumer trends, technology and data, and scarcity of resources have transformed them in many consumers’ minds from durable goods manufacturers to providers of a portfolio of services on a product platform.

This is why we truly believe this time is different.

John McManusJOHN MCMANUS

John McManus is an award-winning editorial and digital content director for the Residential Group at Hanley Wood in Washington, DC. In addition to the Builder digital, print, and in-person editorial and programming portfolio, his accountability for the group includes strategic content direction for Affordable Housing FinanceAquatics InternationalBig Builder, Custom Home, the Journal of Light ConstructionMultifamily Executive, Pool & Spa News, Professional Deck Builder, ProSales, Remodeling, Replacement Contractor, and Tools of the Trade.