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.

Wealthy homebuyers don’t want McMansions; they want large, expensive homes with custom finishes

Wealthy homebuyers may not just want McMansions; they are also willing to pay for interior upgrades.

So long McMansion, hello lifestyle. These days buyers who can afford to pay millions of dollars for a house expect plenty of room for living, but they also expect rooms that fit the way they live…

Granite, marble and hardwoods are expected, but homes in that price range have to offer comfort and livability “beyond the finishes,” said Fridrich & Clark Realtor Richard Bryan…

The 6,500-square-foot home, created as a rustic retreat, balances livability and fine design in a way that Allen believes is becoming a requirement for luxury homes…

The house features an infinity pool, a hot tub and lush landscaping. An open floor plan is designed for entertaining, as are the two outdoor kitchens and three expansive covered porches. The home will be sold with custom furniture and drapes, lighting fixtures and potted plants.

Hidden features, out of sight or at least not readily noticeable, enhance the home’s livability.

Rain gardens that capture water for use in watering the lawn are popular in Nashville’s neighborhoods. Allen took the concept further and installed an underground cistern that collects thousands of gallons of rainwater.

When I saw the headline for the article, I thought it was about people not buying large houses but buying smaller houses with nicer features. In other words, the money that once went for more square footage would instead go for nicer features.

However, the story is about wealthy people still buying big houses but with custom finishes or new kinds of features. Does it matter much if instead of buying an 8,000 square foot home, someone purchases a 6,500 square foot home and stuffs it to the gills with add-on options? Does having a rain garden make the large and expensive house more palatable?

I suspect builders would like this quite a bit. No builder wants to be known for constructing McMansions, mass produced large houses. If they can offer plenty of custom features, they can still make a lot of profit and escape claims they are simply building cavernous homes. This echoes the techniques used by big builders like Toll Brothers; they don’t make McMansions, they make luxury homes.

Shift from buying big homes to upgrading fixtures

I’ve suspected this for quite a while: here is some evidence Americans have moved past purchasing large homes, McMansions if you will, and are instead paying more for the finer touches in their homes.

Beginning next month, Majestic Building Products, a longtime wholesale supplier to companies such as Pulte Homes and Marriott International, is opening its showroom to the public.

Owner Jeff Jenkins said he is expanding the Leesburg-based company to keep up with growing demand for more-customized fixtures — ranging from bathroom mirrors to closet shelves.

“The whole philosophy has changed,” said Jenkins, who founded the company in 1989. “Ten years ago, everybody was out buying McMansions. People don’t care about having an 8,000-square-foot house anymore. They’re more interested in upgrading the little things.”

Those little things — door hinges, towel holders and shower doors — bring in about $9 million in annual revenue for the company. Jenkins said he expects sales to rise an extra 20 percent in the next year.

This could be viewed as a positive sign by those who decry the purchase of unnecessarily large homes: more Americans are paying attention to the interiors of their homes and making them enjoyable. Instead of focusing on size and its impressiveness and functionality, customizing the fixtures allows owners to focus more on their own personal interests and develop a home that more closely reflects their own tastes. This could be viewed as a shift away from mass-production to owners taking more responsibility and interest in their own settings.

On the other hand, focusing on the fixtures simply transfers the consumption from the larger issue of the home to the innumerable upgrades that could be made within a home. Think granite countertops, stainless steel appliances, hundreds of floor options, faucets, paint colors, and on and on. Plenty of money is still being spent on housing but instead of it going for new homes, it goes into new furnishings. As the article suggests later, the company is opening their showroom in part to help counter the fluctuations of the housing market and ensure a steady revenue stream. Can’t purchase the bigger or newer home you dream about? Instead, put that money into your current setting.

If this is all the case – and there is plenty of evidence that the new housing market is still sluggish – this hints at a possible large shift in American housing. Rather than being driven by housing starts and new development, perhaps the future in a tighter economic market is in premium fixtures and more customization of existing homes to the tastes of their current owners.