Tag Archives: builders

Could you build a hurricane, tornado, flooding, blizzard resistant McMansion?

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With the number of single-family homes damaged by Hurricane Harvey in Texas, could you design a McMansion that could stand up to natural disasters? Here are a few factors that might affect whether this is possible:

  1. One of the advantages of McMansions for builders is that they are often constructed on a mass scale. Any changes to construction could slow down the process.
  2. Related to #1, an increase in the materials needed or a slow down in the process would likely lead to an increased price. Compared to true mansions, McMansions are aimed at a broader segment of the housing market.
  3. Different disasters likely require different approaches. If the problem is tornados, say in Tornado Alley, you are trying to protect against winds whereas if the home is constructed in a flood plain or on a coast, the home could be built on stilts or piers to allow floodwaters to pass underneath.
  4. Many McMansions are constructed in suburban areas. No matter what you do to each house, it could be very difficult to protect against everything. For example, flooding is less an issue of each home being poorly constructed but rather a problem connected to land development on a broader scale.

Many McMansion builders or owners would not have to worry too much about major disasters. But imagine that someone develops “the Resilient McMansion.” Could this be worth pursuing in certain areas?

NAR economist: “major housing shortage” in the US

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The chief economist for the National Association of Realtors suggests there is a major housing shortage:

“A major housing shortage exists in this country,” Yun said in a statement. “It is therefore disappointing to witness in March the continued lackluster performance in new-home building, which was the second lowest activity over the past six months. Home prices have risen by 41 percent and rents have climbed 17 percent over the past five years at a time when the typical worker wage has grown by only 11 percent. To relieve housing costs, there simply needs to be more homes built.”

My first thought on this reading this: builders and developers are still skittish from the 2000s housing bubble. Instead of risking overextending themselves, compared to the past they are now focusing on more expensive homes or rental properties. Oddly though, I have seen little media coverage regarding builders and developers. They may be a secretive bunch generally but why isn’t there more scrutiny of their actions and motivations?

My second thought: if there is indeed a housing shortage, what does this say about the state of the economy? A booming construction sector is often related to a good economy. It doesn’t necessarily have to be this way in the future, particularly if there is a shift away from sprawl and homeownership of detached single-family homes, even if it was true in the post-World War II era.

Finally, who might be held responsible if there is indeed a housing shortage? It is hard to rally potential homebuyers into a cohesive group. Is there a way to prod politicians and business leaders to act and if so, could their actions even effect much change?

Builders turning from McMansions to smaller housing units?

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Alongside recent news of reduced price premium for McMansions, data from the second quarter suggests builders are constructing more townhouses and smaller units:

Reversing years of ballooning home sizes aimed at upper-bracket buyers, builders have begun refocusing their efforts on entry-level and more modest-sized homes. According to new data from the National Association of Home Builders, the median floor area in new-home starts dropped during the second quarter of this year by about 3 percent.

Meanwhile, townhouse construction has been increasing fast — up 25 percent over the past year as of the second quarter. New townhouses, which typically are smaller and cost less than detached single-family homes, now account for 13 percent of all single-family starts, the highest it’s been since 2008.

NAHB chief economist Rob Dietz told me the quarterly decline is no fluke and the trend is likely to persist. “What you’re seeing is the beginning of builders trying to expand the market” and pull in first-time and other buyers who are frustrated by the lack of affordable alternatives in the resale arena, he said. Many shoppers, especially those with or planning on children, now find growing opportunities in townhouse and entry-level detached-home communities in the suburbs and exurbs compared with closer-in, higher-cost homes.

Critics of McMansions as well as advocates for affordable housing have been asking for years why builders have been focusing so much of their efforts on larger homes. The short answer: such homes can generate a lot of profit while building smaller homes lead to less profit per unit. Yet, this article also suggests that demand has increased for smaller homes as entry-level buyers haven’t been able to find much thus far.

One point to note: even as builders and buyers are looking for smaller spaces, I suspect builders will do what they can to raise the values/prices of these units. Smaller doesn’t necessarily mean that much cheaper once numerous features are added and locations are considered. This doesn’t necessarily mean that builders are going to be constructing bare bones, cheap units – unless they are significantly farther away from city centers and job centers.

Profile of a smaller post-World War II builder

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The efforts of Levitt & Sons are well known but here is a quick overview of a smaller “merchant builder” from the Boston area:

The Campanelli Brothers of Braintree, Massachusetts, were one of these typical merchant builders. When Michael, Joseph, Nicholas, and Alfred Campanelli created a construction company in the late 1940s, they were young and inexperienced. Their parents, Francesco Campanelli and Lisa Marie Colondono Campanelli, arrived in the U.S. in 1915 from a tiny and ancient mountain village in the Italian Apennines; they settled in an immigrant neighborhood in the small city of Brockton. The boys were used to hard work, quitting school after their father died to help support the family by working at the Quincy shipyards near Weymouth. Joseph also worked on some house construction sites before World War II. The three younger brothers served short stints in the Navy during the war.

After they came home, the brothers used an army surplus truck to move gravel to big construction sites, including Logan Airport. Soon they began pouring concrete footings for new buildings. As their assets increased, they built two new houses in Brockton, one for their mother and one for their sister Ann, whose husband, Salvatore De Marco, now joined the brothers’ team. They branched out to small developments near Braintree, Massachusetts, and Warwick, Rhode Island. Success there led them to develop more ambitious subdivisions in Natick, Framingham, Peabody, and other areas near Boston. In the process, they assembled a sizable group of foremen and loyal subcontractors, many drawn from their old neighborhood and earlier shipbuilding work. Their firm rapidly grew into the leading home building enterprise in the Boston area, and later built extensively in Florida and Illinois as well.

The typical Campanelli house was attractive because, as one buyer explained it, it was “a new kind of house” for “a new time.” It discarded the old-fashioned, larger, more monumental look. It had a low-pitched roof, like contemporary ranch houses in California, but still kept shutters or an occasional bow window for a faintly “colonial” flavor. Campanelli houses usually had two or three bedrooms, a living room, a kitchen large enough to eat in, and a garage. The three-bedroom version was about 1,000 square feet of living space. In the mid-’50s, the firm extended the kitchens to form a “living kitchen” or a kind of a “family room.”

The last brother died just a few years ago and the company the brothers started did a lot of work:

Campanelli Companies built more than 30,000 single-family homes in eight states during the post-war period.

Here is the company – Campanelli – today and how they describe themselves:

Campanelli is a vertically integrated commercial real estate, construction, development and acquisitions company with over six decades of successful experience having developed, built and acquired over 20 million square feet of property. Campanelli has a trustworthy, successful and experienced team that maximizes value, consistently executes on target objectives and provides operational excellence for your company.

I would love to see a study that compares the (1) home styles (2) buyers (3) interactions with local governments and (4) organizational operations of a number of post-World War II builders. Campanelli started small and became a commercial property developer. Though there are differences, it kind of reminds me of the Harold Moser story in Naperville where a former newspaper owner turned lumber store operator started by building a few homes and then ended up constructing a sizable amount of the large city’s homes.

Additionally, are such family business stories like this still possible today or did the combination of unusual housing needs plus innovations in building create a uniquely open market?

Builders to construct “jewel box homes”?

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Builders have ways to sell small but high-end homes:

Stumped on what to do about buyers who are looking for a home that comes with a tiny price but a McMansion look and feel? Enter stage right: the jewel box home.

Ranging between 650-2,500 square feet, these are a win for buyers who want something custom but affordable, but they’re also an ideal product for builders looking to diversify and sell a higher-end product across multiple demographics…

It’s just a smaller-than-average single-family home — not a starter home or a tiny house — built with high-quality materials, exquisite detailing and custom finishes with an emphasis on tailoring the home to the owners’ way of life for maximum elegance, harmony and function…

Another key advantage to building jewel box homes: They’re ideal for high-density areas. In some of Weremeichik’s planned communities, he has reached densities up to 9-11 dwelling units per acre.

I suspect this may be a way for builders to avoid the ignominy of constructing oversized single-family homes: they can build (1) homes with all sorts of nice touches that still command high prices and (2) fit even more of these smaller homes onto parcels of land. Of course, there is also the matter of providing the sorts of homes that at least some in the housing market desire. However, are the profits to be made in these smaller homes enough to outweigh what could be made in larger homes or other development projects?

Paying for Austin’s permitting backlog which may be partly due to its McMansion ordinance

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Several years ago, Austin enacted an ordinance intended to reign in McMansions. But, that ordinance may have contributed to a backlog of permits which the city is now trying to tackle:

The directors of the city’s planning and permitting departments estimate it would take $400,000 to hire temporary workers and pay for overtime to eliminate the current backlog in the next 90 days…

Next year the department plans to ask for $1.6 million in additional money to fund 11 new positions. This memo comes as the city is just launching its annual budget process. Over the next few weeks, every department is going to be compiling a budget wish list, which eventually is sent to the City Council…

Some of the blame for the three-week delay in residential planning and permitting was placed on the “complexity” of the city’s McMansion ordinance, which limits housing sizes in certain neighborhoods. “As such the department will recommend changes to the (land development code) that will simplify the McMansion provisions and will extend turnaround times for those types of reviews to ensure that there is sufficient time to perform a thorough review,” the memo states.

The planning and permitting departments, which used to be one department called Planning and Development Review, are responsible for approving all real estate development in the city, from housing remodels to new subdivisions.

It can take some time to see how ordinances actually play out and perhaps the initial ordinance can be “smoothed out” for this sort of process. Communities can also run into this problem if they have high rates of growth. Austin is a desirable place for construction so it may make sense that it has a lot of permits to deal with.

I wonder how much these decisions to speed up the permitting process are driven by builders and developers who generally want to move as quickly as possible. If there is a bit of a delay in the process, would these builders actually cancel their projects or go elsewhere? Builders and developers are often powerful and are viewed as important harbingers of economic growth. Yet, isn’t Austin so desirable that a delay won’t harm things much? Granted, lots of people might want more efficient government but that also may just require more government employees.

Developers give reasons why they won’t construct starter homes

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Here are some of the reasons given by developers regarding their lack of interest in starter homes:

The market for new “starter homes” is drying up, mostly on the supply side. As credit markets recover, there are more and more people who could be buying their first homes … if only builders could build them. But for a host of reasons, they can’t:

  • Materials costs have risen.
  • They lost a lot of their labor force during the economic downturn.
  • Communities entitled large lots during the boom, and now they won’t zone them for smaller parcels.
  • Cash-strapped local governments have raised permitting and other fees.
  • Building codes and other requirements make it harder to build cheap.

This makes it extremely difficult to build a house for less than $200,000 in many places, which is a hefty multiple of local median incomes.

Three quick responses:

1. I know this doesn’t get much discussion in many industries but when they say it is difficult to build for less than $200k, what exactly does this mean? A home at that price won’t meet their profit goals? What kinds of profits do developers and builders make at the lower end of the housing market as opposed to the higher end? Builders can’t make any money off new started homes or they can’t make enough money for them to see it as worth their time?

2. As noted, communities have some influence on this process. How many are really willing to zone for starter homes and/or have different guidelines for starter homes?

3. Isn’t this an opportunity to construct homes more efficiently? It sounds like there is some turmoil in costs – material, more uncertain labor, higher fees and requirements – but this is where the housing industry could find some new solutions.

Trends in the slowly improving housing market in the Chicago suburbs

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The Daily Herald reports on the slow growth in real estate transactions and construction in the Chicago suburbs:

Sales of existing homes were on the upswing in February, climbing 1.2 percent from January and 4.7 percent from a year ago, according to the National Association of Realtors.

The tactics of builders and developers have changed:

The result is that buyers are seeing new houses of smaller square footage loaded with amenities such as wood floors, high-end appliances, specialty cabinets, spa-quality bathrooms, upscale windows and trims, and the latest wireless communication and entertainment technology.

Two groups of buyers are driving this trend: older millennials tired of paying rising rents and ready to raise a family, and baby boomers at or near retirement and looking to downsize…

Like other developers, Pulte is focusing on building in closer-in suburbs rather than massive subdivisions on the fringes…

Toll Brothers also has a limit on how far out it will develop, said Keith Anderson, Midwest group president.

“Elgin is as far as we will go. We’d rather pay more for the land and build closer,” Anderson said.

Or, put differently, there are not enough buyers and sellers putting pressure on builders and developers to construct homes further in the hinterlands in the Chicago region. In contrast, those buying homes have different expectations as well as the means to purchase more in-fill properties. This provides more evidence – from the higher economic end of suburban homeowners – that the bifurcated housing market continues.

Architects on how they save money when building their own homes

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Here are three money-saving tips architects use when constructing their own homes:

1. Prioritize—Duh.

“We worked really hard to get to the essence of what was important to us,” Jeff Stern, from Portland-based firm In Situ Architecture, tells WSJ, “rather than starting the process wanting it all and having to compromise.” For Stern, splurging on super energy-efficient triple-glazed windows meant incorporating a mix of budget-friendly solutions like concrete floors, fir cabinetry, and plastic laminate countertops.

Thomas Gluck of NYC-based firm Gluck + Architecture gave the exterior of his Tower House a tinted-glass treatment usually only used for commercial projects. “Even though the glass itself is inexpensive, the technique of applying the tint can be costly,” WSJ’s Nancy Keates writes. Still, this was a calculated risk that’s central to the design of the home; the dark glass exterior allows the structure to blend in with its woodsy surroundings. Inside the home, he kept the design and finishings simple…

2. Find off-price steals—it’s like bargain-hunting at T.J.Maxx but for building supplies.

According to David Wagner of Minneapolis-based firm Sala Architects, considerable savings can come from purchasing materials that are discounted for negligible imperfections. For example, the white-oak flooring he used for an 1,000-square-foot addition to his house was a few grades lower than what most clients demand, but he knew that “the flaws were just some ‘character knots’ in the wood.”

3. Think ahead—anticipate how design decisions will affect labor cost.

For his ultra-modern T-shaped home, architect Marc Manack from Silo AR+D in Fayetteville, Arkansas “made the infrastructure as easy as possible for contractors” by grouping utility hookups and connections together in an easily-accessible location. And because Manack did not plan for any “ornate millwork” or “high-end finishes” in his design, he was also able to reduce labor costs by hiring rough-in carpenters instead of more expensive, highly-skilled carpenters.

This helps get at two questions I’ve had about architects, builders, designers, and others that help people build and design homes:

1. Do they give their clients all the options like the cheaper ones they might use themselves? Or, do they look at the money available and present fewer options at each design decision point? Presumably, some clients only want the nicer/perfect items or labor but others might not. I suppose this might be something to negotiate or know in the beginning. Plus, we probably have different expectations: a builder, especially one who constructs large numbers of housing might have lower levels of quality compared to an architect.

2. Do the professional’s tastes actually align with what they design or recommend for clients? On one hand, authenticity is a big deal in the creative arts. On the other hand, the professional needs to have some flexibility in designing things that aren’t exactly what they would choose themselves. Again, this might be clear in the hiring and design process in the beginning.

Is smart growth inevitable?

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A piece titled “Why Are Developers Still Building Sprawl?” explores the fate of smart growth in American urban areas:

It may be surprising to hear that so little has changed in the homebuilding industry since the recession, especially in Las Vegas, one of the epicenters of the housing bust. After all, low gas prices aside, surveys suggest that both Boomers and younger generations are interested in living in more urban places where they don’t have to spend so much time in the car getting to and from work. They also don’t mind smaller homes, especially if they’re close to public transit or retail or restaurants. And studies have shown that sprawl has negative health impacts: People who live in far-out suburbs walk less, eat more, and exercise less than those who live in urban environments.

Urban planners and “smart growth” advocates argue that builders should eschew the practice of buying empty land further and further out and building on it, and should instead build more compact, walkable communities near public transit, rehabbing existing land to fit new projects. Doing so is important for the environment, they say, and will save valuable resources and money in the long run…

“Exposing” sustainable development might seem laughable, but it points to a growing divide about how different people think Americans want to live in the future. Do they want to continue to live in spread-out, single-family homes with lawns and garages and spare bedrooms? Or do they want smaller, compact houses where they can easily hop on a train or walk to the coffee shop, without even needing a garage, or a car to park in it?…

Other areas may continue to eschew ‘smart growth,’ and just as America is divided politically, it could become a more divided country in the way its residents live. People in cities such as Washington D.C., Boston, and Seattle, will want more walkable developments, while consumers in what Leinberger calls “the laggards,” including Phoenix, Dallas, and Las Vegas, will continue to live in sprawling suburbs.

But it’s also possible that Boomers and Millennials in the laggard cities will come around. After all, even in Las Vegas and Atlanta, some builders are starting to shift their mentality. Zappos founder Tony Hsieh has poured $350 million into downtown Las Vegas, creating a shopping center built from shipping containers, mixed-use residential development, and a host of walkable amenities like a donut shop and a bookstore. And in Atlanta, a developer is in the midst of converting a former Sears building near downtown to a mixed-use community of apartments, restaurants, and retail.

Three major sets of actors are involved here and it is not clear to me that they all will want smart growth:

1. Politicians. All sorts of zoning policies, tax structures, and other things would have to change to adjust to smart growth. If politicians did want more smart growth, they could adjust policies accordingly. However, they do answer (at least nominally) to voters. While some may talk about this as a free market issue, municipal policies always help dictate housing options.

2. Builders/developers. The short answer is that building larger homes right now offers more profit. Denser projects invite headaches like opposition to redevelopment, bureaucratic red tape, and possible selling smaller units or spaces.

3. Consumers. Would they buy denser, smaller housing if this is what builders provided? Maybe but don’t discount the long-standing American commitments to the single-family home in the suburbs. Many Americans like their private spaces and may not be terribly interested in public spaces or sacrificing for the community. Tastes don’t change overnight though new policies and housing choices could steer people in particular directions.

All together, it would take time, coordinated efforts, and decisions from key actors to truly push smart growth policies. Even then, it is not inevitable that Americans would accept this as the desired outcome, even if it has certain positive outcomes.