Ivy Zelman, CEO at Zelman & Associates, took on a big task at HIVE. Her presentation, which addressed labor, lots, and lending, guided the audience to discover new ways to approach these issues. Zelman delivered the data, the trends, and the analysis.
The audience members responded, and some of their questions and Zelman’s responses are below. A strong theme was how modular construction may solve for the issues facing labor, lots, and lending. Modular can be more affordable both in construction and for the consumer. One efficiency from modular is a reduced construction schedule. According to Daniel Skolski, principal of DMS Design, it can be up to 30% faster. This also contributes to the benefit of reduced carry costs because the duration of the construction loans is shorter. Plus, it means that units are delivered to the market faster, which also equates to savings. With the design process for modular, more costs are verified up front, so there is less change-order risk.
Seasonality also becomes less of an issue because the building is less vulnerable to weather during construction. Modular is already installed with windows, doors, and temporary roofs prior to landing on the jobsite.
And with lots, modular offers the ability to land in smaller locations that may be tight. There isn’t the same need for laydown space during construction.
Some modular builders would even say that there is the capability to build better quality homes because the construction process is isolated in a factory-controlled environment. Plus, modular builds are subject to stricter third-party inspections. And, now, and certainly more in the future, modular construction is not limited in design capabilities. The palette of choices is becoming larger to fit any preference.
Modular also has its downsides, including the increased planning time, its risk with consumer acceptance, the increased coordination required, and a different permit process. These are things that JB Straubel, CTO of Tesla, would call the “unfun” part of innovation.
Watch the panel session here now and read some of the Q&A portion of Zelman’s session below and become an active part of the dialogue at HIVEforhousing.com.
Q: Part of the issue with the labor force is the fact that production is not consistent year-round. There’s a large swing of starts seasonally, and trades no longer want to layoff a percentage of their labor force. How do we even out the seasonality of sales?
A: Start units at a staggered pace and educate the buyers that the cycle times will be longer, and give them a better deal for waiting longer.
Q: Appraisers do not value energy efficiency upgrades because banks don’t add in utility costs to a mortgage (ergo value the reduced risk of lower energy costs). How do we reward builders for building better with superior HVAC, net zero?
A: Lower the cost to the consumer in a way they can measure. Provide transparency.
Q: Should guest rooms with a separate exterior door be built in a new house to allow BnB to supplant their mortgage payments?
A: Good idea.
Q: If millennials don’t want to be on a roof pounding nails in 120 degrees why don’t you build homes in a Tesla-like factory where they would like to work?
A: Another good idea. I have always wondered why more components aren’t built in factories. But builders don’t want to invest the capital and have fixed costs with employees as all subcontractors are outsourced.
Q: What will it take for you to embrace factory-built modular and panelized component construction and assembly? When will it pencil out?
A: Need to see the numbers. It’s not that I don’t embrace it, but, more important, will consumers?
Q: If C locations are what is affordable for entry-level homes, how do you reconcile what may result in longer commutes to employment and millennial desire for convenience, walkability, and how they will prioritize quality of life?
A: It’s how they prioritize the importance of space over walkability. Children really change the discussion. Transportation challenges are real and problematic. Cities/municipalities need to improve how they use taxpayer dollars and transform transportation into easier commuting access.
Q: How might this industry innovate within the constraints created by regulations?
A: Sacrifice near-term results by using cash flow to invest in innovation for the future.
Q: What part does a diverse employee base, across departments and executives, play in creating an innovative culture and spurring innovative advantage?
A: It’s all about leadership and how leadership prioritizes innovation throughout the organization. “What you can measure, you can change” is Lennar’s mantra, for example.
