Policy

Homebuilders Need This Skillset To Thrive Amidst 2020s Challenges

The chronic challenge homebuilding organizations can solve with greater skill, commitment, and investment as an operational competency: Local land-use, zoning, entitlement, permitting risk and regulation.

Policy

Homebuilders Need This Skillset To Thrive Amidst 2020s Challenges

The chronic challenge homebuilding organizations can solve with greater skill, commitment, and investment as an operational competency: Local land-use, zoning, entitlement, permitting risk and regulation.

January 4th, 2024
Homebuilders Need This Skillset To Thrive Amidst 2020s Challenges
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At least 21 years before the the term "cognitive dissonance" reportedly came into first use in 1957, F. Scott Fitzgerald laid out its meaning and how to deal in the real world with its challenge.

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.”

The business of market-rate housing's riddles in 2024 remind us of this timeless challenge. We might have to hold in mind not just two, but rather several opposing ideas at the same time and still retain the ability to find paths to solutions, especially ones that generate sustainable value and profit.

Let's consider a brief thought exercise by starting with two high-level business questions for homebuilding's leaders and their strategically aligned partners.

Both questions involve choosing just one answer from a multiple-choice list, a list some of you may recognize as similar to an annual query from the National Association of Home Builders/Wells Fargo Housing Market Index.

Please email me your responses: john@thebuildersdaily.com

Question 1

Which of the following business challenges ranks as 2024's most difficult obstacle to your organization's sustainable financial and operational performance success?

  1. Consumer Demand
  2. Building materials and products costs and timeliness
  3. Access to skilled front-line workers
  4. Access to efficient capital resources
  5. Consumer Inflation
  6. Interest Rates
  7. Local land-use, zoning, entitlement, permitting risks
  8. Access to developed vacant lots

Question 2

Which of those same eight items is the biggest challenge area to you and your operational team's competence and capability in managing what you are in control of?

Again, I'd love to hear from you on your response to both questions, along with some comments. It's easy: john@thebuildersdaily.com

Automatically out as answers to Question 2 would be at least the #5 and #6 topics They're macroeconomic forces that stand outside all players' realm of control.

Arguably, the single area we'd suggest poses the biggest chronic challenge for homebuilding organizations to solve with greater skill, commitment, and investment as an operational competency is item No. 7: Local land-use, zoning, entitlement, permitting risk and regulation.

Look at one of market-rate housing's critical trends to watch – post-pandemic domestic migration patterns shaping local economics and new home demand – to get sense of how critical that No. 7 challenge is to builders' sustainable success.

Source: Census.gov

We'd argue that the stiffest challenges around sparking demand, sourcing building materials and products, gaining access to skilled labor, tapping capital resources, and even securing finished, developed home sites draw on skills, experience, knowledge, and core capabilities that most homebuilders that have been around for awhile have evolved to a high degree of competency.

It's where they come up against challenges like this one – local land-use, zoning, entitlement, and permitting – that homebuilding organizations' talent and problem-solving competence has an opportunity to improve:

Source: Census via u/born_in_cyberspace

Noahpinion's Noah Smith writes:

I’m not going to rehash the evidence that allowing more housing supply holds down housing costs. It does. California and New York are driving people out of the state by refusing to build enough housing, while Texas and Florida are welcoming new people with new cheap houses.
In fact, blue states’ failure to allow development is a pervasive feature of their political cultures. Housing scarcity doesn’t just cause population loss — it’s also the primary cause of the wave of homelessness that has swamped California and New York. Progressives’ professed concern for the unhoused is entirely undone by their refusal to allow the creation of new homes near where they live. Nor is housing the only thing that blue states fail to build — anti-development politics is preventing blue states from adopting solar and wind, while red states power ahead. And red states’ willingness to build new factories means that progressive industrial policy is actually benefitting them more.

Erdmann Housing Tracker analyst Kevin Erdmann spells out stark consequences, not just of the housing crisis, but of the level of challenge to homebuilders' ability to generate sustainable profitability:

It might be useful to divide American cities into 3 categories:

  • Expensive, supply-constrained cities
  • Growing cities with moderate, but above-average home prices
  • Affordable cities with below-average home prices

Erdmann's conclusion amounts to a huge strategic and operational challenge for many geographically at-risk homebuilding operators:

Owner-occupied real estate has increased from 80% of GDP in the 1970s to 160% today. If the expensive cities had grown by 80% over the past 20 years, is there any doubt that the total value would be lower as a result? In supply constrained contexts, housing demand becomes inelastic. Households spend more when there is less to buy. If we added 20 million well-placed homes to the American housing stock, the total value of the American housing stock - including those 20 million extra homes - would be lower than it is today. More supply would lower housing costs, on net, and it isn’t even close. It certainly isn’t close in the cities that haven’t tried it."

Noah Smith concludes his analysis on a common ground, but with a slightly different, forward-looking view:

If blue states are going to thrive in the 21st century, they need to relearn how to build, build, build."

The "opposing idea" to hold in mind at the same time – and one that's one of the critical operational skillsets homebuilding and residential developments need to commit strategic resources and investment against is getting good at helping states – whatever the partisan color – "relearn how to build, build, build."

Otherwise, "cognitive dissonance" continues to feed housing's attainability crisis.

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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