World trade discord, and its threat to prices of goods needed to build already spec’ed and sold and forecast homes, has clawed its way to the top of a wall of worry for builders these days, even as other supply capacity concerns–smooth access to skilled trades, among them–remain a high risk.
Less gaudy and headline-grabbing, but more materially impactful than even a tariff rout on materials prices or a chronic headache over predictable skilled labor costs, is the 25% to 30% or more many builders need to pay–mostly far out ahead of any returns–for land.
Land, and a builder’s ability to secure it at any given moment for any given price, is what distinguishes builders from one another. Identical lots, even the same lot, might outwardly manifest a half dozen or more distinctly different business and operational models. The price one builder pays for a tract of lots might not pencil for 10 other builders who considered bidding on the same parcel. One builder’s white elephant might be another’s windfall.
Some builders’ customers, design, community development, product lines, and construction processes set up to expand value margins on expensive, rarefied lot positions, for example, in coastal markets.
Other builders thrive on applying an operational excellence factor to land strategy, which creates geographical elasticity that, in turn, allows builders to focus on land deals that run counter to the land acquisition programs of the majority of other builders in the market arena. They can pay C or D lot prices, and thanks to a sales, construction, and operations process engineered around speed in matching buyers to units, and speed in assembly and completion, reap B lot gross margins.
Land, how much one pays for it, and how much one pays for the money to pay for it, and, ultimately, whether it matches up well to an operator’s business model, is the “tomorrow” that commands at least 50% of most builders’ “today.”
In light of that, looking at domestic migration and mobility data points, especially among bellwether Millennials, can be a helpful tool for builders making tough land portfolio management decisions in a “doing more with less” business environment.
Here’s a soft but fun analysis of Census Bureau in- and out-migration data by Smart Asset analyst Derek Miller, whose focus, “Where Are Millennials Moving – 2018 Edition,” covers 217 metro areas.
Seattle, Columbia, S.C., Sacramento, Minneapolis, and Jacksonville, Fla., took the top 5 spots among Millennial metro magnets, and Miller’s snapshots offer a bit of perspective that land acq pros might at least want to check out as they put portolio priorities together for the next few years.
More importantly, early migration patterns among college and grad school program graduates suggest not merely an impact on which markets are attracting more young adults, but a multiplier economic effect that implies a metro area is on an upward trajectory compared with others.
Enrico Moretti’s “The New Geography of Jobs,” suggests, “Attracting a new scientist, software engineer, or mathematician to a city increases the demand for local services … Apple, for example. It employs 12,000 workers in Cupertino. Through the multiplier effect, however, the company generates more than 60,000 additional service jobs in the entire metropolitan area, of which 36,000 are unskilled and 24,000 are skilled. Incredibly, this means that the main effect of Apple on the region’s employment is on jobs outside of high tech.”
So, you also might want to check out a recent interactive analysis from the Wall Street Journal’s Danny Dougherty, Brian McGill, Dante Chinni, and Aaron Zitner, who partnered with EMSI, a labor-market research firm on “Where Graduates Move After College.”
Here’s an observation that could impact urban infill strategies in some of the hotter, higher-cost markets, which for some builders still represent opportunity.
More than one-quarter of graduates from Ivy League schools, such as Cornell, live in New York City, San Francisco or Washington, D.C., data covering the past 10 years show. Those cities’ already-robust economies gain further by drawing from some of the nation’s leading schools.
