Leadership

10 What-Could-Happens And What It Takes To Make Them So

Here's a Top 10 checklist of economy-boosting, opportunities builders could achieve, not by going-it-alone as competitors, but as a business community.

Leadership

10 What-Could-Happens And What It Takes To Make Them So

Here's a Top 10 checklist of economy-boosting, opportunities builders could achieve, not by going-it-alone as competitors, but as a business community.

May 9th, 2022
10 What-Could-Happens And What It Takes To Make Them So
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Some [people] see things as they are and ask, 'Why?' I dream of things that never were and ask, 'Why not?' – Robert F. Kennedy

Ok, so this is one of the most meaningful and moving lines spoken by anyone in my lifetime, and for some unknown reason, its timeless relevance shone particularly bright amid a barrage of shocks and stresses people in homebuilding and associated livelihoods have encountered in recent months.

So, at this very moment so many eyes focus on what has – and what may still – gone wrong for market rate housing at the very moment the "invisible hand" of the market should be powering it along like a locomotive for the next decade plus, it's a moment to concentrate on what can, and must, go right.

For instance, for context, here's a cascade of scenarios financial and business experts foresee in a spectrum from plausible to likely as a consequence of reactive central banks – in the U.S. and globally – shrinking their balance sheets a collective $410 billion during the balance of 2022. Bloomberg staffers Jack Pitcher, Alexandra Harris, and Alex McIntyre write:

It all comes at one of the most precarious times in recent memory for the global economy. Russia’s war in Ukraine, and the bevy of sanctions that followed, have upended business. Supply chains that were disrupted by the pandemic have grown even tighter, causing chaos for companies lashed by soaring prices for everything from labor to commodities. The worry now is whether central banks can accomplish the high-wire act of weaning Wall Street off unprecedented stimulus, without disrupting the flow of capital and tipping economies into recession.

Pitcher, Harris, and McIntyre – and an increasing number of investment players, economists, and observers in sync with their analysis – paint a bleak picture of the forces at work intensifying the likelihood of sweeping, multifactorial turbulence ahead.

It's difficult to predict today whether housing will ratchet down from torrid and unsustainable to normal, sustainable, and healthy, or whether the trajectory will tumble farther to a somehow more destructive and painful level. Who knows? What is knowable is that underpinnings of the market are changing fast, and where they settle is open to question.

Calculated Risk's Bill McBride writes today:

The size of the declines in new and existing home sales, and housing starts, will depend on how much inflation is embedded, and therefore how much the Fed will have to raise rates (and reduce their balance sheet) to control inflation. I don’t expect 50% declines (like in the ‘78 to ‘82 period), but a 20% decline in the annualized sales and starts rates seems possible later this year depending on inflation and mortgage rates.
For house prices, it is possible we will see price declines in some areas, but with solid lending I don’t expect national nominal price declines. And we definitely will not see cascading price declines like during the housing bust, since there will be few distressed sales (most homeowners have significant equity).

So, briefly, without exaggeration nor hype, we're taking a bit of a contrarian view here today. It's not to deny the substance or severity of matters challenging business, consumers, the financial markets, policymakers, the economy, society, and the environment right now, but to claim the plausibility of 10 essential "what could go right" over the next 12 months to eight years for the housing sector and the people it serves.

These 10 scenarios may range in your minds from the glaringly obvious to gagaland farfetched fantasizing. They mark, almost invariably, a current status challenge that would evolve – through solutions-seeking – to a game-changing opportunity. The reason for belief in "why not?" is simple and its simplicity is as plain as anytime you look around a room full of people whose livelihood is homebuilding, development, community planning, design, investment, construction technology, management, marketing and sales, data analysis, materials science, environmental science, engineering, psychology, or any other field related to making new homes and new neighborhoods.

You look around that room and you can see a different philosophy, a diametrically opposite political belief, a starkly opposing business sense, a contrasting management approach, etc. – and at the same time, a profound common characteristic bristles palpably in any such gathering.

It's the reason "why not?" is always a reasonable, rational, almost predictable likely scenario rather than an impossibility. It's a cross between brilliance, relentless resolve, fierce independence, clever resourcefulness, repetitious experience, and non-stop learning. It's those embedded human raw materials that make every single one of the 10 "what could go right" assertions not only achievable but expected.

Here they are, and mind-you, they reflect would could go right – and in some cases, what has to go right – not overnight, but in response to the macro forces playing out generationally, in the present-and-future of livelihoods, in technology, in economic policy, and in real estate planning and development evolution:

  1. Affordability expanded: Even as fiscal and monetary policy tighten, the "invisible hand" of the markets will push builder operators to further value engineer, resize, and streamline SKU variations, floorplans to produce less spacious and less costly versions of homes as part of an ongoing plot line that reaffirms new-home builders' ongoing role in access to homeownership as a core dimension of the American Dream.
  2. Demographic destiny: A now awoken giant of millennial households surging into homeownership and family-formation may – as a collective source of impact – keep momentum on track, and influence sectors that have been weakened by the pandemic, supply chain snags, housing financial obstacles, and rising inflation to recover quickly and get carried up in the magnitude of the millennial force field.
  3. Land entitlement de-risked: More residential developers and builders crack the code of balance between the interests of current municipal stakeholders – owners, voters, officials, etc. – and would-be new residents crucial to the ongoing economic and social health of the place, but who can't and shouldn't shoulder the entire burden of a place's operational and infrastructural budget needs. New iterative models for cooperation, commitment, and co-investment – tieing municipalities and developers interests together – are emerging.
  4. Regulation made-over: An evidence-based swap-out of old, outmoded, unnecessary and dynamism-constraining rules and regulations, in favor of more precisely-aimed and demonstrably impactful measures to ensure personal safety and environmental health, to free companies to compete in a market environment standing for producing value and choice at a wide variety of price ranges.
  5. Workforce recharged: Linkages between builders' and trade contractors' need for skilled and semi-skilled team members, recruitment and training 3rd party organizations, and young people who seek fulfilling and rewarding career opportunities activate a next-generation cohort of competent, engaged, and committed associates across the end-to-end build-cycle spectrum.
  6. Modern manufacturing applied: A transformation from Rube Goldberg-like community of practice systems, practices, expectations, and standard protocols to high-performance assembly, systems integration, sourcing, logistics, design, engineering, productization, shipping, and finishing processes that introduce true mass personalization to homebuilding without freighting homebuilding enterprises with new fixed costs.
  7. Carbon positive communities piloted: From the end-to-end, bill-of-materials level build cycle construction stream, through the whole-lifetime performance of each vertical structure, to the community-level emission of climate-impacting greenhouse gases, science, technology, engineering, and investment will explore and prove-out carbon neutral and carbon positive residential neighborhoods.
  8. Natural hazard resilience improved: Building science and engineering, community planning and community- and house-level resilience systems will improve outcomes for people and properties in light of more frequent and more severe natural hazards such as hurricanes, tornados, flooding, earthquakes, wildfires, and drought. Homes and residential neighborhoods may one-day be looked at as contributive to human efforts to come into balance with the planet's changing climate.
  9. Health and well-being hubs evolved: Materials science, air purity and comfort, water purity and safety, noise reduction, and protections from intrusion of health issues, privacy invasion, or security disturbances will continue to elevate and amplify new-home valuation and returns on ownership.
  10. Customer care 2.0: Having made technology and process strides to de-friction home shopping and purchase maps and journeys, builders now double-down on the learning from all that new data to design and deliver homebuyers exactly and only what they value, taking cost and time out of designing and delivering what customers do not value.

No single one of these "what could go right" scenarios is an outright impossibility. Many would look at the history and behavior and attitudes of the respective companies and their leaders and managers and conclude, however, that they all at least border on the unlikely.

As a matter of fact, the only way many of these challenges move across into the opportunity zone will a cultural reset around the notion of private sector competition. What this means is that, most likely, none of the "what could happen" scenarios will happen if they're left to either government fiat, or individual company commitment. Government can force compliance, but that will not – as we have all seen and experienced – result in homebuilding transformation. Too, even the biggest, single committed organization can not by itself catalyze this change.

Only a mindset change about competition that sees epic collaboration on some shared interests – people and capability, development and local municipalities, technology and the environment, etc. – can trigger "what could happen."

Given the predicament – go it alone and play the odds that competitors won't make it through this next period of turbulence, or find some ground to work together to make "what could happen" happen – how do you choose to move forward?

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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