Big builders making custom houses

This might just be a trend: the Wall Street Journal reports on big builders offering custom big homes:

A number of big home builders are now getting into the custom-home game — an area that was once almost entirely the province of boutique builders. Companies such as John Laing Homes, Toll Brothers Inc. and K. Hovnanian Homes are all venturing into a field that takes more time, patience and hand-holding than production building.

The reason is simple: Custom-home building is more profitable for builders. And — in this tough market — it also carries less risk: Builders avoid the carrying costs of land, taxes and other monthly expenses that can come with speculative building. Because custom building caters to the upper end of the market, it’s doing better than production building right now, says Steve Melman, an economist with the National Association of Home Builders. Although home building of all types is stagnating, he says that the custom share of the market tends to go up during down times, while production building peaks during boom times. In 2007, the custom share of the market was 24%. In 2005, during the peak of the boom, the custom share was 19%.

The big attraction for home buyers is the price: Consumers usually pay less when they buy a home from a big builder than they do from a small one. Big builders benefit from economies of scale in buying materials and have developed efficient systems for negotiating with and scheduling contractors. So even though they charge more per square foot for a custom home than they do for a mass-produced one, big builders can usually undercut the price of their smaller competitors.

Custom homes come in two forms, though both are built on an owner’s lot rather than a builder’s. True custom homes are built to an owner’s specifications; so-called “semicustom” homes evolve from a builder’s predrawn plans. Though big builders have long built “semi-custom” homes on their own lots, most only recently began to seek out customers who want to build on lots they already own.

Three thoughts:

1. While these may be custom homes, can’t these run into the issue of still being viewed as mass-produced? Where is the line between economies of scale and something truly custom?

2. Money is a big factor here: the homeowner can get a cheaper custom house and the builder can make more money with less risk. What is there to lose (except perhaps #1)?

3. I bet architects would want in on this. Architects don’t design most new houses in the United States, but they might argue builders even at the custom level still can’t quite create interesting homes (meaning truly custom) or ones that are truly built around the interests of the homeowners.

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