Leadership

Bulletin To Builders: Materials Supply Is Not The No. 1 Challenge

With due respect to the work builders do and their achievements grappling with a disrupted supply chain, the greater risk to business is a weakening pipeline to capability. Here's what that means.

Leadership

Bulletin To Builders: Materials Supply Is Not The No. 1 Challenge

With due respect to the work builders do and their achievements grappling with a disrupted supply chain, the greater risk to business is a weakening pipeline to capability. Here's what that means.

February 9th, 2022
Bulletin To Builders: Materials Supply Is Not The No. 1 Challenge
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A superpower you come to know and, if you're like me, tend to get slayed by that's quite common among homebuilders – large, medium, single-market, single subdivision, etc. – is a pretty-advanced uncanny BS detector.

It's a point of pride.

And that pride goes with the literal turf. That turf has capability range that spans from the soil subgrade modulus of a property, to a sourcing and supply workflow involving 600 SKUs and 25 separate skilled trades now commonly elongated well beyond 180 days, to investment and operating capital structures of varying type, risk, and terms, to delicate local, county, state, national jurisdictional navigation, applications and debates and demonstrations, to team member focus and performance, to omnichannel customer engagement and conversion modeling, and a million other forces and factors that occur in and among the end-to-end processes that wind up with modern miracle a household can call home.

Added up, there's a lot of BS to detect within that capability range, a lot of it intended to stall, or stop, or stifle the work at hand, which is to make and sell and service new homes and neighborhoods, from idea to planning to real-life, to viability, and to vibrancy.

Builders, in a hard day's work, hear it all, practically. That's largely because of the truth in a truism that all real estate is local. And when they hear it all, their BS detectors sharpen their ability to recognize, work around, neutralize, and ultimately hurdle resistant forces with the single, self-evident proof-case that there are always more people looking for a home, and they're the one who can solve for that need.

While it's a superpower, builders' BS detectors are just one of a raft of epic problem-and-puzzle solving gifts that accompany their shared deep-seated resolve, striving, and noble purpose. Still, it's that BS detector that may put builders and their businesses at risk.

Which brings us around to now, where five chronic tension points pose consequential challenges to builders' well time-tested capability range.

  • Affordability: yes, there's signs of sufficient customer demand for market-rate new homes even as interest rate risk and pass-along costs increase average selling prices. At the same time, the growth-rate of expansion to that potential buyer pool has flattened and is at risk of declining as more people and household get chronically price-out of new homeownership.
  • Sustainability: yes, there's no question that new homes perform better in energy and water conservation, and are, broadly, safer, healthier, higher quality, more comfortable than homes ever have been. That's a start, however, and builders are finding that their customers want them to go much farther on the embodied carbon reduction and resiliency front.
  • Entitlement risk: yes, "they're not making any more" land and its incumbent owners make all the rules as to what happens next in its zoning and use. This simple actuality – an expertise barrier to entry that's existed always – today stands squarely in the path of plans and deals that assumed the need for more homes will always trump the desire of incumbent owner-stakeholders to ensure those homes get built somewhere else.
  • Regulatory cost risk: Already known as a cost-burden on average adding nearly $94,000 to a new home buyer's sticker price – nearly 24% of the total cost, regulatory and policy impacts on builders and their businesses, their ecosystem of partners, and their customers is expected to intensify in the current year and beyond.
  • The talent cliff: the simple math problem of the work to get done versus the predictably-priced human-and-industrial means to do it is grinding – thanks to aging-out, failing to attract, and, now, having trouble retaining people as the economy broadly pivots toward a new normal future of work.

These five tension points show up in the National Association of Home Builder's recent survey-based inventory of builders' challenges.

What's more, everything to do with the Federal and local government when it comes to regulation, policy, taxation, and lending, is – among builders – is on pace to get worse before it gets better:

Image source: Eye On Housing, NAHB

As you see, every one of these issues builders faced in 2021 are expected to grow more problematic this year.

So, where do builders' BS detectors factor in here?

Affordability, sustainability, entitlement risk, regulatory cost risk, and the current and next generation workforce ... these all rank, year-in-and-year-out, in some form or fashion, as the strategic, business, economic, operational, and community landscape moving-target challenges for which most builders believe they've put together their toolbox.

What they know is this. Everybody needs shelter.

The rest of the business – they resolve – is about having the tools to deal with whatever challenges arise, and when someone or some entity suggests that those challenges can be dealt with with fewer or different tools the BS detectors start signalling wildly.

For each source of challenge and risk to the business, there are usual suspect root causes thwarting the forward progress. Usually, they're representatives of some branch of government or one of its agency extensions, local or not.

All of this may be the case.

What's true, however, if you detect all of what's BS, and filter that out, and then reckon this:  

The enormity of challenge that's still there – which is that it will take human talent, able to carry on solving the infinite complexities and variabilities that occur one home at a time using new technologies, new access to data, and timeless artisanal received wisdom in how to make a house a home – is one common denominator crisis that's unanswered but needs to be, soon.

We wrote about one year ago about how the channel and supply chain disruption, while convulsive and now drawn out in impact, will finally run its course. Then, as never before, the real biggest challenge – people and talent – will re-emerge as the No. 1 most pressing issue.

Then, as ever, the throes of new challenges will rise to take the place of this current, pervasive, budget-buster phenomenon. The crisis of the moment will be lot supply; or it will be interest rate increases squeezing out would-be customers by pushing monthly payments out of their reach; or it will be the economy and sentiment showing signs of wear and tear, or the like.
Still, all of these issues nest – in The Builder's Daily's humble view – in one granddaddy of all builders' pain-points: Capability.
Fact is, no single one of this litany of pain-points – lots, lending, materials, stress to operations, consumer care, even financial fitness through thick and thin – is unsolvable, as long as the right people are energized, engaged, and activated to chase down solutions. That calls for a cultural transformation.

What I know for sure is that terms like capability and culture set off the BS detectors of many builders, because they're abstract, and they tend to be politicized these days.

I use them here as tools that need to go into the toolbox builders draw on to keep solving the countless, ever-intensifying challenge of doing what they do so well. Making homes for more people.

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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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