Slow market a good time for homebuilders to focus on workforce housing
Shine of CityView examines the future of workforce housing in perspective of today’s economy.
Affordable Housing Series
Part I: A national perspective
Part II: Planning and public policy
Part III: The future of affordable housing
Home builders are facing multiple problems. They're dealing with higher home prices, overbuilding and bad borrowing. They're listening to a media free-for-all reporting on how bad the industry is. And even though some of what they're reporting is true — many of the markets are very overbuilt, which means reducing or halting production and lowering prices — the fact is the market will need time to find equilibrium. Readjusting is hard to do with such a severely affected mortgage market.
Builders should also remember housing demands will increase as populations continue to surge. By the year 2050, we will add 110 million more new Americans, all of whom will need a place to call home. The question is, are these people going to be renters or buyers? And how many of them are going to have a job with an income that allows them to buy the type of house they want and in the markets they want to live in?
As a national real estate investor, CityView, has partnered with builders and developers across the country to produce workforce housing: homes within the price range of nurses, teachers,
firefighters and police officers — the people who keep our communities moving. We have seen first-hand how vision and creativity can lead to new housing options in a community — especially during a market downturn. Urban areas are in desperate need of workforce housing; most of the workforce has to endure long commutes because they cannot afford to live in downtown areas. Many CityView projects with partners such as John Laing Homes and Watt Companies began as properties with potential but were overlooked for years by other builders. CityView's Inglewood, Calif., project, for example, brought desperately needed product into an area that had once been used for oil drilling, and with 157 newly-built detached single-family homes, became the largest master-planned community Inglewood had seen in 15 years. Seeing a piece of land beyond its current state can revitalize a community, breathe new life into a city and help builders grow their bottom line. Home builders should learn to tailor community and partner needs to the market. This article can help guide you. What Can Builders do Now?
Builders first need to recognize who the buyers are and separate the investors and speculators from people who are actually looking for a place to live.
By doing this, builders can refocus their efforts on the people who are looking for a home and can learn what it is they are truly looking for in terms of design, location, etc. Every market has projects that are selling and that seem to have found a pace with the buyers because the projects are tailored to their needs.
The trap we need to avoid, however, is the ongoing concession game. While the idea of throwing concessions at the last five units in a large housing tract clearly is one that will work, a policy of having concessions on long projects over long periods of time will, in most instances, simply precipitate some short-term activity into long-term problems.
A return to basics is necessary. In a market where it is difficult to sell a home, buyers are going to closely scrutinize the design of the house and the layout of the community.
Buyers are also more likely to be affected by the quality of the builder's entire staff, such as the superintendent who meets with the buyer — not just the salespeople.
The reputation of the builder from a customer service standpoint is equally important during any market; however, it requires attention especially during a time like the present.
There also needs to be a renewed dialogue between the builders and the brokerage community. In many markets, brokers have become less significant, as builders could sell everything on their own and opt not to work as closely with brokers. But today, many brokers are more important from the home buyer's perspective and from our own because there are so many benefits from being your neighborhood broker's best friend.
Succeeding in this market is going to be a function of building the right product in the right market at the right price. It will also be essential to do this with a capital partner who understands what needs to go on in these markets. Partnering with a lender that understands what needs to be done and is willing to work with builders is key to developing a mortgage product that will allow the buyers to purchase a home.
Builders also shouldn't forget to take care of their constituencies. Most projects, unless they are being done by the large publics, have both a bank as a construction lender and some form of outside equity either in the form of true equity, or in the form of subordinated (mezzanine) debt.
It's important to understand in this cycle that every one of those banks, mezzanine lenders, and equity investors has issues of its own. Each of lenders has shareholders, investment committees, or boards of directors who are now taking a much more critical look at their portfolios. That makes it important for the builders to manage their capital sources carefully.
The ability to drive down construction costs and land prices may actually turn this downturn into a real opportunity for a new workforce housing project. Builders need to manage their overhead carefully. It's very difficult to be thinking a year or two ahead when daily problems are so extreme.
However, the long-term winners in this cycle will be the builders who can bring their house in order most quickly — "right size" their company. Note that I say "right size," not necessarily downsize, because it isn't just about workforce reduction; it's about looking throughout your company and finding who are the best and brightest that you want to keep. Who are the people who have been skating by? You can now upgrade the quality of your personnel.
While clearly this downturn will be a painful one, it will be painful in an uneven way. The builders who are better capitalized; who have been more nimble about how they have structured their projects; and who have the best floor plans, designs, pricing, and sales and marketing will come out of this substantially stronger in the long run.
The housing industry goes through a rough period like this every seven to 10 years, and as certainly as these downturns come, they always end. With a return of sales price increases and with a return of consumer confidence. The American population will grow from 300 million to 410 million by 2050.
Our country depends on its workforce to grow the economy and strengthen cities. The expansion of our workforce means more families for builders to help reach the American dream. Builders who prepare now to meet the demands of working families will be positioned to take advantage of the return of the housing market and endure its cyclic pattern.
|Joel Shine is the president of CityView, a real-estate investment firm that focuses on workforce housing. Shine is a third-generation home builder with more than 20 years of industry experience.|