The Home Building Industry Is Screaming For An Overhaul

During the pandemic, we witnessed companies and people alike quickly mobilizing to adapt against unpredicted shifting in consumer behavior during the pandemic. The stay at home environment augmented patterns and preferences, in some cases, permanently. Example, dry cleaning services has shrunk tremendously given the remote work environment. On the other side, a new pursuit for stay at home hobbies jumped during the lockdown. This caused an uptick in interest for guitars which led to explosive sales in this musical instrument. Changes in economic behavior, despite how rare this may seem, is a process that is part of economic progression and technology; that will ever be ongoing. Just like the saying: water always finds a way. War time scenarios typically usher in new technology and creates a solution or bridges a gap in product innovation. The government builds necessary new technology to fight a war and then that technology makes its way to the consumer sector. Duct tape, cell phones, aerosol bug spray, Jeeps, and frozen orange juice concentrate are all examples of consumer products ceded from military research. The positive externality of government funded research has made its way through every sector of the economy. We’ve seen the outcome bleed its way into everyday American life from inventions by most government institutions, including NASA. This is achievable because of the huge budgets the government will throw at supplying a need that the private sector cannot justify to build and make a profit from. (Note: if you remember Economics 101, this is known a “market failure”)

Times of crisis and war have historically been catalysts for innovation and technological advancements. The COVID-19 pandemic is no exception, as it has accelerated the adoption of remote work technologies, Telehealth services, and online shopping platforms. It remains to be seen what new technologies will emerge as a result of this crisis and how they will impact the economy and consumer behavior in the long term. We have seen new technologies upend industries and change choice around consumption.

Electric cars, streaming services, smart phones, you get it. One particular industry that seems to resist to scale, efficiency, and change is the housing industry. I’m not talking about realtors and mortgage brokers, I’m talking about home building. For years homes have been built the same way: General contractor oversee the project. You have contractors performing wood framing, insulation, plumbing, electrical, concrete. All done on site where the home will lay. Why is this still the case? We have so many resources to easily transition into a home building to a production scale work flow. We need a visionary type individual, heavy pocketed (or with easy access to capital) to disrupt this age old method of home building. There needs to be a leap frog product on the aggregate, to descend in this sector. The use of abundant composite materials, lean manufacturing that can pump out homes quicker, a line manufacturing process that consolidates effort and and implements scale to lower input and labor costs. Not to mention, efforts that insulate materials costs by removing reliance on hard commodities that are vulnerable to supply shocks and volatile price increases. Control of materials and cost would protect against broader market headwinds, in addition, make it a simpler path to have production scale driving towards a vertical integration of operations. A highly integrated and streamlined process. Take Tesla for example, they have made highly efficient car product. Shifted the buying behavior from the consumer. They have simple options: A, B, or C. They do this because it lowers the cost to manufacture, makes the supply chain simpler, less inventory of materials means less cash tied up in multiple areas.

Imagine a production plant pumping out 3 different homes. Small, medium, or large. Different option packages. Think of a plug and play home. Shipped straight to you in parts and be assembled by you and your friends (Although I’m sure the company would add an extra revenue generating service by hiring their in house assembly team in localized areas to do this for you).

There are a myriad of reasons why this idea could come to fruition.

In recent years, there has been a growing trend among homebuyers towards purchasing smaller homes for efficiency. This trend has been driven by a number of factors, including economic, environmental, and lifestyle considerations. One of the main drivers of this trend is economic. With housing prices continuing to rise in many parts of the US, many people are finding that smaller homes are a more affordable option. In addition, smaller homes often have lower energy and maintenance costs, making them a more cost-effective choice over the long-term.

Another factor driving the trend towards smaller homes is environmental considerations. Many people are becoming more aware of the impact that their homes have on the environment, and are seeking to reduce their carbon footprint by living in smaller, more efficient spaces. Smaller homes use less energy for heating and cooling, require fewer resources to build, and generate less waste than larger homes. Lifestyle considerations are also driving the trend towards smaller homes. Many people are looking for simpler, more streamlined lifestyles, and are finding that smaller homes allow them to focus on what really matters to them. Smaller homes require less time and effort to clean and maintain, leaving more time for leisure and family activities.

Think about a home that is amenity driven. However these amenities aren’t just for leisure, however strategically placed to for convenience and to boost productivity in your life. Two simple add ons could drastically impact the aggregate economy if carried by homeowners. Smaller homes could be outfitted with water harvesting systems and a small greenhouse to plant a garden. This would have a huge impact on discretionary income and resource allocation. Combating supply challenges for highly valued commodities of food and water while setting a precedent for homeowners. Every organism, in one respect, is a ecosystem engineer. This includes humans too. We have the ability to negatively or positively modify our environment. Just like bears in Alaska. 24% of the salmon bears forage out of the rivers never make it into their stomachs. The fish scattered about positively impacts the plant life and surroundings. In addition, for the fish that the bear does consume, after the bear has digested it, their feces then also contain marine-derived nitrogen from the salmon, which through the ground reenters the streams and helps aquatic plants flourish. Just one example of organism driven ecosystem engineering.

The trend towards smaller homes for efficiency is likely to continue in the coming years. As people become more aware of the economic, environmental, and lifestyle benefits of living in smaller spaces, we can expect to see more and more people choosing to downsize their homes and simplify their lives.

Building homes on a production scale is a process that involves constructing a large number of identical or nearly identical homes in a short period of time. This approach to homebuilding has become increasingly popular in recent years, as it offers a number of benefits over traditional construction methods. We are at a time in technology where this process can be achievable at scale and reduce the overall cost of construction when compared to traditional methods.

One of the main advantages of building homes on a production scale is efficiency. By constructing multiple homes simultaneously, builders can take advantage of economies of scale, reducing costs and speeding up the construction process. This can lead to lower prices for homebuyers and a faster time to market for developers.

Another advantage of production homebuilding is consistency. Because the homes are built using standardized plans and materials, they tend to have a more uniform appearance and quality than homes built using traditional methods. This can be particularly appealing to homebuyers who value a consistent aesthetic or want to ensure that their home is built to a certain standard of quality. In addition to these benefits, building homes on a production scale also allows for greater innovation and experimentation in home design. By standardizing certain elements of the construction process, builders can focus their efforts on developing new and innovative building materials, technologies, and design elements that can be incorporated into the homes. As with anything, there would be some challenges associated with building homes on a production scale. One of the biggest challenges is maintaining quality control, as builders must ensure that each home is built to the same high standards. In addition, there may be some resistance from homebuyers who prefer more unique or custom-built homes. Which is ok, because like any product on the market, its not for everyone. I believe there would be a huge segment of the market that could be captured through this process. Building homes on a production scale is a promising approach to homebuilding that offers a number of benefits over traditional construction methods. As technology and construction techniques continue to evolve, we can expect to see more and more homes built using this approach.

With the ability to work remote, land could be purchased, and communities could be built based on this model. This would drastically improve first time home buyer’s (or longtime home owners who want to downsize) disposal income and boost their quality of life. A developer could build a 50 home project for a fraction of the price and able achieve the same outcome under traditional construction methods. For example, an acre of land in a quasi rural area of Montana would cost $40,000. The same acre of land in California would be about $150,000. If production scale homes cost a buyer $125,000, a new prospect could turn key their dreams of owning a home for $165,000. They would have a $750 mortgage payment assuming they put $0 down. That’s incredible. This would put pressure on landlords to lower rents and be a huge boost to the American economy.

I see this being the future. The signs are all there. It will have huge risk in tempering the gravity within a costly barrier to entry. We just need a guy like Elon Musk in the home building industry, minus his tweets.