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“When queried about innovation in the industry, new oorplans, the adoption of better CRM software,
and better demographic targeting were cited. No one even tried to approach the issue of productivity, nor the possibility that the current business model for builders might be outdated...”
A panel of Wall Street analysts and bankers, however, when questioned on why home builder stocks had
not appreciated since 2012 in any meaningful way, despite a growth in orders, closings, and revenues, hit on a root problem. They noted that the builders continually overestimated their deliveries, and their margins are continuing to be under pressure and are declining.
These are not good stories to drive stock valuations higher.
In some cases, stock prices are being buoyed by returning capital back to shareholders, rather than re-investing in the business. The stated culprit
was that labor was in short supply, which drives up production costs faster than sales pricing and inhibits any reasonable ability to fully
dictate deliveries.
Most of the home building participants in the room took this rationale as
the non-adjustable norm. Same as it always was; same as it always will be.
When queried about innovation in the industry, new oorplans, the adoption of better CRM software, and better demographic targeting were cited. No one even tried to approach the issue of productivity, nor the possibility that the current business model for builders might be outdated. Not on
anyone’s radar.
All I know is if I go into Delta’s faucet plant, Whirlpool’s stove plant, Ford’s F-150 plant, or Boeing’s airplane factory, that factories look signi cantly different than they did 40 years ago. Robotics, offsite sub-assemblies, lean manufacturing, just-in-time delivery, and other innovations have been brought into those industries in order to become more productive and pro table. The businesses look much different in
so many ways than a generation or two ago.
Yet, when I look at home building, the way the business is run and the way production is done have not changed markedly in that same 40-year period.
The house sales and production processes today are only marginally different than in 1960. Yes, the tools might be better (a pneumatic nail gun vs. the old 16 oz. “Thunderstick” hammer), but fundamental ways the business operates have not changed much.
Almost every builder uses exclusively sub-contract labor to site-build
their homes. The training and management of those trades are left to others and most builders have little or no idea who will be showing up each day to advance the production
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