Going Above Current Standards

Innovative thinking and growth provide ongoing success for homebuilders

By C.R. HERRO

Homebuilders utilize similar materials from similar supply chains. We share among a common pool of labor and industry experts. Our investing community bets on known paradigms, and our customers pursue the safety and sentimentality of what is familiar. The result is a recipe for herd mentality and reiteration within our industry.

Herd mentality is characterized by people being influenced by their peers to adopt certain behaviors on a largely emotional, rather than rational, basis. Due to the fact that our buyers, investors, and municipalities pursue the habitual, it can be easy for homebuilders to do the same.

Maximizing opportunities through the building cycle within a repetitive, collective business structure can become strategies relegated to economies of scale and avoiding mistakes. Keeping the common course is often a conservative short-term strategy to protect market share if nothing is broken. At least Nokia, Kodak, and Blockbuster thought so. Customers most often choose the best available option. The risk of repeating successes is in the potential for external business disruption from innovation that shifts consumers’ expectations to something more.

Achieving significant economic growth, as demonstrated by Samsung, Amazon, or SpaceX, demonstrates the tremendous opportunity to innovate and create new value for customers, and the economic opportunities for those businesses that provide it. There are only a few ways to generate true economic growth: develop new resources, improve the productivity of the labor force, create superior capital goods, or increase specialization. Within those four categories lies the blueprint for success for every industry, including homebuilding.

The obstacles and opportunities to create new growth opportunities are idiosyncratic to homebuilders. One opportunity to develop new resources has been exemplified in the movement towards energy efficiency. The national loss of GDP due to waste, and therefore the average loss of American standard of living, is staggering. Buildings consume the most energy and, through their approximate 50 percent of inefficiencies, contribute to the largest waste of disposable income. The move toward efficient homes represents tens of thousands of dollars in positive contribution to the individual’s disposable income that live in a zero-energy home. Nationally, it could create trillions in additional GDP and increased standard of living. In our industry, realtors, appraisers, and underwriting standards all need to innovate to capture and compete in this new ‘total value’ paradigm.

Most industry members have been focused on the efficiency of our labor force. Meeting both our growth opportunities and addressing the market demand for our products require us to develop a manufacturing mentality around constructing homes. Manufacturing experts like Berkshire Hathaway and Sekisui House have entered the US housing market and will undoubtedly put pressure on us all to innovate to compete in the future standards of homebuilding they will contribute to. Panelization, Modularization, and more consistent synthetic materials will all change the nature, and improve the efficiency of, homebuilding.

The last two growth mechanisms of increasing specialization and creating superior capital goods have been exemplified in the early adopters of housing innovation. The growth of tiny house architecture, home automation, health-based technologies, and even robotic printing initiatives all demonstrate a better, lower total cost, and more consistent approach to deliver better homes to buyers. The only obstacles to these emergent technologies are achieving economies of scale and consumer awareness. Once buyers know they can get more and have better options, new minimum expectations will be set for any company wishing to compete in homebuilding. In innovation, as much work needs to be done to inspire a buyer to choose better as to develop the internal change necessary to execute it.

In summary, not fixing what isn’t broken will keep most homebuilding professionals out of hot water with their bosses and investors. But those processes will not enable a homebuilding company to be relevant in the industry a mere 10 years from now. The opportunity for success is to take the four metrics of economic growth to create and execute opportunities for success. In a couple years, they will likely only keep your position in the heard.

C.R. Herro is the Vice President of Innovation for Meritage Homes. He joined Meritage Homes as the Vice President of Innovation in 2009, and leads initiatives for performance, materials, and process for High Production Residential Building. To learn more please visit www.meritagehomes.com.

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