If the housing industry, like many sports teams, had an animal as a mascot, I think it would be a lone wolf. You know, the wolf that leaves the relative safety and security of the pack and fights alone for its survival.
When I first got involved with the housing industry in the mid-1970s, the lone wolf survival-of-the-fittest mentality was commonplace, and I thought that it was, well, kind of cool. The competitive rough and tumble appealed to me more than the gray suit (back then businessmen—and they were all men—did wear gray suits) corporate tug of war. I figured the difference had a lot to do with the fact that housing was the country’s last major industry dominated by small players. Tough guys all. Housing had no General Motors. In fact, it was the rare builder who built more than 25 houses a year. So the lone wolf builder could not only survive, he could also thrive.
But today it looks to me that the lone wolf small builder in most of the major housing markets is at risk of becoming an endangered species. The threat comes, as you probably know, from big builders. While the home building industry still doesn’t have a General Motors, it does have 10 large builders who collectively control some 50% of housing activity, which almost matches GM’s share of the automobile market in its 1960s’ heyday.
Lennar, the biggest of the big builders, is no General Motors, but it is active in the majority of the top 50 metro housing markets and will have revenues of almost $20 billion this year. And it only figures to get bigger.
Interestingly, the big builders, as strong as they are individually, are not acting like lone wolves. They’ve formed their own “pack,” if you will, a mini-association called the Leading Builders of America. The top executives of the firms meet regularly and compare notes and best practices. They’re making a special effort to assess how technology will affect the housing industry and their businesses. They have their own lobbyist in Washington, D.C., and work together to deal with hot-potato political issues like California’s energy legislation.
Of course when the meetings end, the big builders compete ferociously in many markets. But competitors though they are, they have decided to collaborate, apparently believing in the old adage that there is strength in numbers.
It’s not that small builders never join forces. Many belong to the NAHB and regularly attend meetings of the associations’ local chapters. Some go to the annual International Builders’ Show and sit in on panel discussions involving other small builders, gleaning tips on how to succeed. Others belong to NAHB’s 20 Clubs. These groups, usually composed of non-competitive peers, meet and discuss how to solve problems and seize opportunities.
That’s all good, but I’m afraid it’s not enough to guarantee the survival of most small home-building firms. Smaller home-building companies need to be more open to more ideas. They need to think more like collaborators than predators. And they should look at how small players have survived in other markets that consolidated.
As to that last point, consider the corner drug store, threatened by the ubiquitous CVS, Walgreens, and Rite-Aid stores, or the neighborhood hardware store, hounded by Home Depot and Lowe’s. Some of the mom and pop stores shut down, but others joined buyers’ groups that allowed them to lower costs and stay alive. Any number of businesspeople have come to me with plans for starting a buyers’ group for builders; most failed and none achieved scale because small builders were reluctant to join forces with one another and in effect level the playing field, at least in terms of building materials costs.
As for being more collaborative and less predatory, isn’t it time for small builders to stop thinking that with every land deal and any deal—whether with a sub or a dealer or an architect or a local planning commissioner or home buyer—that there has to be a clear winner and a clear loser? Maybe the goal instead should be a good deal that works to everybody’s favor, a deal that isn’t about arm wrestling but instead about a handshake.
This isn’t to suggest I think a little lamb should become the industry’s new mascot, but we should be able to do better than a big, bad wolf.
