Tag Archives: builders

Toll Brothers and “the proliferation of McMansions”

Posted on by

An obituary for Robert I. Toll connects Toll Brothers and McMansions:

Photo by Max Vakhtbovych on Pexels.com

Robert I. Toll, L’66, a former University Trustee, an emeritus member of the Carey Law School Board of Advisors, and the co-founder of transformative home construction company Toll Brothers, died on October 7 at home in Manhattan. He was 81.

Mr. Toll was born in Philadelphia suburb Elkins Park, Pennsylvania, to a father who was involved in Philadelphia real estate and who had successfully rebuilt his career after the Great Depression. Mr. Toll graduated from Cornell University in 1963 with a bachelor’s degree in political science, then graduated from Penn’s Law School three years later. He briefly worked at the Philadelphia law firm Wolf, Block, Schorr, and Solis-Cohen, but then founded Toll Brothers with his younger brother Bruce in 1967. To start out, “we built two homes,” Mr. Toll recalled. “Instead of selling them, we used them as samples for the lots we owned down the street.” These sample homes landed the brothers contracts to build 20 more homes, which each sold for $17,500. Robert, Bruce, and Alan Toll were among the first postwar housing developers to recognize how trends in highway construction would allow access to swaths of farmland for housing and shopping developments. 

Over the next five decades, under Robert Toll’s leadership of the company as chair and CEO, Toll Brothers rapidly grew to become, as the company’s slogan boasts today, “America’s luxury home builder.” The company recognized shifting demographics in the U.S. during the 1970s and targeted baby boomers looking to trade upward. The Toll Brothers blueprint included targeted land purchases, appeals for quick zoning approval, and predesigned houses that allow room for personalized changes by buyers. Boosted by the proliferation of McMansions and the implementation by zoning boards of two-acre lot sizes in many American suburbs, Toll Brothers became a force in the American housing market. Today, over 150,000 American families in 24 states live in a Toll Brothers-built home. Toll Brothers appeared on the Fortune 500 list, and Robert Toll spearheaded several philanthropic initiatives, including Seeds of Peace, a summer camp in Maine for children from global conflict. His many professional honors included recognition as one of the world’s top 30 CEOs by Barron’s magazine in 2005 and as best CEO in the Homebuilders and Building Products Industry by Institutional Investor magazine in 2008 and 2009. The Wall Street Journal once called Mr. Toll “the best CEO in the housing business.” 

Did Toll Brothers take advantage of an opportunity to sell luxury homes to a growing market or help create and establish a growing market? Would they call their luxury homes McMansions or is that a term applied by others?

No matter how these questions are answered, it is clear Toll Brothers contributed to the trend of larger and more expensive homes in the United States. Over 150,000 homes is a sizable number of dwellings. The shift to large-scale builders in the mid-twentieth century is an important factor in suburbanization and housing more broadly.

Additionally, what will happen to all of these luxury homes? Will they be updated and renovated for decades? I assume a good number are situated in neighborhoods and communities where they will not be near any cheaper or denser housing. Will some become teardowns? Will at least a few be preserved? There is still more of the Toll Brothers story to tell.

Multiple factors behind the decline in starter homes in the United States

Posted on by

The starter home has disappeared from many housing markets:

Photo by Scott Webb on Pexels.com

The affordable end of the market has been squeezed from every side. Land costs have risen steeply in booming parts of the country. Construction materials and government fees have become more expensive. And communities nationwide are far more prescriptive today than decades ago about what housing should look like and how big it must be. Some ban vinyl siding. Others require two-car garages. Nearly all make it difficult to build the kind of home that could sell for $200,000 today…

Nationwide, the small detached house has all but vanished from new construction. Only about 8 percent of new single-family homes today are 1,400 square feet or less. In the 1940s, according to CoreLogic, nearly 70 percent of new houses were that small…

But the economics of the housing market — and the local rules that shape it — have dictated today that many small homes are replaced by McMansions, or that their moderate-income residents are replaced by wealthier ones. (A little 1948 Levittown house on Long Island, the prototypical postwar suburban starter home, now goes with a few updates for $550,000.)…

The simplest way to put entry-level housing on increasingly expensive land is to build a lot of it — to put two, three, four or more units on lots that for decades have been reserved for one home.

The costs – financial, regulatory – are too high for the construction of lots of starter homes. The proposed solution is to try to reduce those costs by placing multiple residents on one lot and/or increasing density in communities and developments.

How to change all of this is difficult given the difficulties of addressing housing in the United States. The need is great, particularly when affordable housing is not aimed at a larger percentage of the population who would benefit from a cheaper residence.

I wonder if the best path forward is for certain communities to pursue starter homes successfully and show that it is possible. Of course, one danger is that even if it works well in some communities, other communities might leave the burden of such housing to a small number of communities. However, if starter homes can be constructed in such a way that they are perceived as an asset to the community and not a threat to property values, they might catch on. Are there several communities that would fit the bill?

Multifamily units construction highest since 1973 – but not for the part of the market that needs it most

Posted on by

More multifamily units are under construction than in any year since 1973 but more units are for a particular segment of the market:

Photo by SevenStorm JUHASZIMRUS on Pexels.com

Nearly 836,000 multifamily units are under construction, the most since 1973, according to Jay Parsons, chief economist at RealPage. But most new construction targets higher-income tenants and not the lower end, where supply shortages are most extreme, he said.

I have written about the dearth of starter homes and I would suspect a similar dynamic is at play here. Builders and developers can make more money on multifamily units with higher prices. If someone is going to go to all the effort for development and construction – and this can be quite a bit of effort in certain places – they would prefer to gain more financially in the end. The number of places that require the construction of affordable housing alongside market rate housing or seriously pursue cheaper housing are limited.

If these higher-income units come on line, it will add to a bifurcated housing market where those with enough resources have plenty of choices and those with fewer resources have limited and possibly unpleasant options.

“60 Minutes” on the 4+ million housing units needed in the United States

Posted on by

This past Sunday, 60 Minutes addressed the sizable need for housing throughout the United States:

Photo by Max Vakhtbovych on Pexels.com

Daryl Fairweather: We are not building enough housing for everybody who needs a place to live. We built fewer homes in the 2010s than in any decade going back to the 1960s, and at the same time millennials are the biggest generation and they’re entering into home-buying age. Millennials aren’t living in their parents’ basement any more or shacking up with roommates, they want a place of their own, and we didn’t build any housing for them in the last decade because we are still so traumatized by the last housing crisis. We didn’t put any investment into housing…

Daryl Fairweather: The government has estimated that we are short about 4 million homes in this country, and that number is likely growing, especially since the pandemic.

In my opinion, the emphasis in the rest of the segment on institutional buyers is a weird way to go given the numbers cited above. If we need over 4 million housing units, it seems like more of this falls on developers, builders, and communities to open up opportunities for new housing for millennials and others who really want it.

I wonder how much of this now works like it seems to in the auto industry. Auto makers have shifted to making trucks and SUVs because there is demand and a higher profit margin. These vehicles are not greener but there is a lot of money to be made. Is the same true of starter homes? Smaller units simply do not bring in as much money as a larger house with more amenities. And, if builders and developers have to go through a significant process to purchase land, get approval, and go through construction, wouldn’t they want more money at the end?

I think we should ask about the civic responsibility of those who can approve homes and/or build homes. Don’t we need more housing? Shouldn’t this be a shared responsibility across actors? Why are so many Americans willing to get into their particular housing unit and then shut the door to those who want a similar opportunity?

Selling homes with an image of a large pantry with basic shelves

Posted on by

A commercial from Pulte Homes touts unique features in the houses they build. For example, they have large pantries:

The pantry is large, the stuff on the shelves is well-organized, and the shelves themselves are…mediocre. Builder-grade. Why show off such a large pantry with basic shelves?

Perhaps this accurately reflects the shelves Pulte includes in its homes. This kind of shelves might be found in closets throughout many new homes in the United States. They are usable shelves, after all. If the first homeowner wants something more complicated, they have plenty of options ranging from Ikea designs to those who can custom-fit shelves and all sort of options.

Or, perhaps I am only supposed to notice the space in the pantry. The girl has so much room to move. There are so many shelves. The Costco shopper has somewhere to put all of their bulk purchases.

Even with these explanations, I find it a strange image. I see the space…and the shelves.

Explaining why there is not a flood of McMansion construction

Posted on by

Houses are in short supply, housing prices are up, there is money to be made. Why are more McMansions not under construction?

Photo by Michael Tuszynski on Pexels.com

With houses selling for so much, you’d think there would be a big incentive for developers to throw up new units, which they can do quite quickly. I still remember driving around New Jersey during the McMansion boom and being amazed at how quickly houses went up. Why aren’t the developers rushing in now?

In correspondence, my old M.I.T. classmate and economist Charles Steindel pointed me to the likely answer: It’s the supply chain, stupid.

This makes sense given current conditions: an increased cost in materials plus difficulty acquiring materials might translate into fewer profits in building McMansions.

I do wonder if there are additional factors at work. A few quick ideas:

  1. McMansions have an established reputation. There are still plenty of people who will buy one but there is also a clear connotation about the home when this specific term is used. Hence, “luxury homes” instead.
  2. How much land is available and how many communities would welcome them? It is one thing to have teardown McMansions in desirable communities and neighborhoods and another to build McMansions on the sprawling edges of suburbia.
  3. There is more money to be made in even larger houses. Why build McMansions when there are enough customers for even larger and/or more opulent homes? Perhaps the money in McMansions comes at a sizable building scale while the per lot/house profits on even more expensive homes is preferred.

McMansions are not going away as they are an established part of the American housing stock. But, it will be worth watching how many new ones are constructed, where, and by whom.

Where is the construction of cheaper homes in the United States?

Posted on by

One recent analysis suggests a major contributor to the lack of homes for sale is limited construction of new homes:

Photo by Burst on Pexels.com

Earlier this year, Realtor.com estimated the gap between the number of homes needed and the number of homes available at 5.24 million. That estimate in June represented an increase of 1.4 million above the estimated 3.84 million gap in 2019, primarily because residential construction hasn’t kept up with household formations.

From January 2012 to June 2021, 12.3 million new American households were formed, but just 7 million new single-family houses were built, according to Realtor.com.

The housing shortage is particularly acute in the more-affordable range. Newly built houses with a median sales price of $300,000 represented just 32 percent of builder sales in the first half of 2021, compared with 43 percent during the first half of 2018, according to Realtor.com. To close the gap between demand and supply, builders would need to double their pace of construction for five or six years, Realtor.com economists estimate.

I have been trying to keep track of this for several years now: where are the new cheaper homes? If home builders are interested in selling homes, why not also create products for this part of the market?

There could be lots of reasons for this present state. But, this is not just a problem of 2021; this has been going on for at least a few years. Who can or will act to address this? Is this a pressing social concern that requires attention or just something to note every so often?

Imagine a time in the near future after this trend of the last ten years or so has truly piled up. How will younger adults pursue homeownership, a goal many Americans still say is desirable? Will a lower end of the housing market simply disappear to be overshadowed by more expensive, larger homes that truly generate profits?

If this continues, I would not be surprised to see more calls for housing interventions beyond the market.

3D printed houses under construction

Posted on by

To address affordable housing in Florida, one company is trying 3D printed homes:

Photo by Fernando Arcos on Pexels.com

After purchasing a plot of land in the Griffin Heights neighborhood, the couple reached out to Printed Farms, a Florida startup that has access to the Danish manufacturer COBOD’s construction 3D printer, to head the innovative project.

Work began Thursday on a plot of land in northwest Tallahassee area and is expected to finish by Friday. The automated printer can lay up to two feet of wall a day.

Once initial construction on the three-bedroom, two-bathroom house wraps up, it still won’t be ready for its first owner until it has furnishings installed, which may take an additional eight to 10 weeks.

The house will cost between $175,000 and $200,000 depending on its appraisal and area median income affordability, Light said. 

Once there are some completed homes, this will provide opportunities for builders and possible homeowners to consider them. I wonder how much of the devil is in the details. What is the materials and labor cost compared to traditional methods? How long will these homes last? Will the appearance and experience of the home be similar to traditional construction? How much faster could such homes be constructed? How many people would want to be among the first to try them out?

Of course, if this can help address affordable housing needs, it could be a big deal. Alongside tiny homes, ADUs, and other innovations, many communities in the United States need more quality and cheaper units.

A growing shortage of starter homes

Posted on by

Those looking for smaller homes to purchase are facing a limited supply:

Photo by RODNAE Productions on Pexels.com

The first rung on the homeownership ladder has long been an affordable “starter home.” These houses, with their smaller footprints and selling prices, allowed young homeowners to build wealth and upsize as they started their families…

Supply of “entry-level housing”—which Freddie Mac defines as homes under 1,400 square feet—is at a five-decade low.

Surging prices and stiff competition mean there aren’t enough smaller, more affordable starter homes to go around in many regions. The pandemic and subsequent recession, along with the student debt crisis and delayed family formation, contributed to frustration and despair among younger house hunters…

Lately, data from the National Association of Home Builders shows new construction is again giving priority to higher square footage for single-family homes, a trend likely spurred by the widespread shift to working from home and house hunters’ need for more space.

This has been building for years now with the factors cited above (and more – and it may not be the fault of millennials). Builders prioritized larger homes as they can profit more from each units and buyers wanted more features and/or larger homes.

I wonder about the role of local governments. How many urban neighborhoods and suburban communities allow for or encourage the construction of smaller homes. It might take some extra work for a community to work with a developer who is willing to construct smaller and cheaper homes. At the same time, some of the existing members of the community might not be happy about the change as smaller homes are often interpreted as dragging down values and the character of the community. At the least, wealthier communities are unlikely to encourage such homes unless they are at a higher price point – and then it is no longer a starter home.

The article also mentions the financial ramifications of not getting into a house earlier: on average, this lowers the amount of house wealth generated decades later. Might then then shift the emphasis of recent decades away from seeing homeownership as a financial nest egg or requiring a necessary return on investment?

Investors buying about 20% of homes in the United States

Posted on by

A story about rising home prices in small town America highlights the role of investors buying property:

Photo by Lukas on Pexels.com

Local buyers bid against one another as well as against investors who now comprise about a fifth of annual home sales nationally. Online platforms such as BiggerPockets and Fundrise make it easier for out-of-town investors to buy real estate in smaller cities across the U.S., said John Burns of California-based John Burns Real Estate Consulting.

Often, Mr. Burns said, “the cash flows are better in the Tulsas and Allentowns of the world” for those seeking to rent out properties. In the fourth quarter of 2020, nearly a fifth of homes sold in the Allentown area were bought by investors, according to Mr. Burns’s data.

While much attention is directed to hot real estate markets in major metro areas – with a lot of attention for the most expensive like Manhattan, San Francisco, Los Angeles, and others – this hints at a different dynamic. In smaller town, there is not a big supply of new housing. Thus, investors can purchase homes and turn them into rental properties. Without large influxes of new residences, these rental units can bring in good money as buyers look to move up within an unchanging local supply.

If there is such demand and limited supplies of new homes in places like Bethlehem, Pennsylvania, the focus of this article, one possible future is a business opportunity for local or national builders who could come in and provide new apartments or single-family homes. While the community may not be growing much in terms of population, housing stocks do need replenishing and what people desire over time changes. Could building in Bethlehem generate the kinds of profits builders are looking or are more of them chasing even better profit opportunities in hotter markets with faster-growing populations?

If investors are making a significant number of these purchases, could communities respond in ways that help retain opportunities for local residents as opposed to far-off companies? Could they form local investment funds or cooperatives that then only sell or rent the homes at reasonable rates to local residents? This could be an affordable housing issue in many communities and even if local actors generated little profit in the transactions, they could help insure a supply of human capital.