| |
HOW HIGH DENSITY CAN STILL BEAT THE ODDS
Arizona Homebuilder Magazine – Information by Timothy P. Sullivan
DESPITE HIGH PRICED MATERIALS, SOME HOMEBUILDERS FACE CONSTRUCTION COSTS HEAD ON
ARIZONA - November/December, 2006 Issue - Although the classic solution for building reasonably priced homes has been to increase density, today’s construction costs have turned the economics of this once affordable building strategy upside down.
In fact, steep construction cost increases – in particular, the higher price of concrete – has left some building companies unable to compete. But then there are those who are weathering the storm. And these homebuilders, with savvy and creativity, have one goal in mind: to mitigate high construction costs.
So if you’re in the market for cost cutting, take a look at what these California and Nevada builders are doing to sharpen their economic position.
THE MODULAR WAY
Because time is money, San Mateo-based The Castle Group has cut down the time it takes to build a home by six months – not only improving their cost structure but also fine-tuning the quality of their homes. Referred to as modular construction, entire components of each home are engineered in Guerdon Enterprises’ manufacturing plant, shipped back to the job site and assembled on-site.
“It takes us six days to construct the homes in Boise, Idaho, two days to truck them to the job site, a day to crane them into place and 30 to 45 days to finish them on site to get them ready for the customers,” says Chris Kober, president of The Castle Group. With Cahill Park, their first project that was entirely manufactured (they had manufactured components of their homes before, but not the whole lot), total elapsed time was around three months, compared to the nine to 10 months it conventionally takes.
So it’s no wonder that at the heart of The Castle Group’s cost-cutting strategy is efficiency: “Anytime you do something more efficiently and in a logically coherent way, it’s going to be less expensive,” says Kober. What the group eliminates from the building process is the inefficiency of subcontractors traveling back and forth.
In many conventional “on-site” construction efforts, something as simple as a kitchen counter requires the sub-contractor to go out to the site, measure several times and make multiple cuts, in addition to having a schedule subject to everybody else’s timelines. “All of that creates tremendous cost, none of which has a sense of worth to the customer,” Kober adds, “but ultimately the customer does have to pay for it in the form of higher housing costs.”
What’s more is that Kober believes they will compress the three months it took them to build the homes in Cahill Park down to one and a half months. So as fast as buyers can get their loan squared away and the moving trucks in tow, The Castle Group can produce a new home for them. And while there are the obvious advantages to delivering a home within a 30 to 45 day window, such as the minimal exposure to the marketplace’s ebbs and flows, the secondary benefits are many.
For one, you eliminate shaky buyers. When a home isn’t ready for 12 months or longer, it’s really easy for buyers to plunk down a deposit, albeit not being entirely certain if the home is right for them. After all, they can pull out at any time, with the worst-case scenario being that they lose their earnest money. Compare this to those who are much more vested in their decision – as they have to move in one month. And, Kober says, much like Dell changed the way computers were delivered to consumers in a custom built manner, The Castle Group, once they compress their building time down to 30 to 45 days, will also be able to take custom orders for each home.
OPTIMAL YIELLD
When the ratio between maximum density and minimum cost per unit floated around 25 to 45 units per acre, builders thought they had found that happy medium. But then the prices of concrete shot up and required the product to sell at over $300 a square foot, making the 25 to 45 units per acre equation prohibitively expensive for the homebuyer.
That’s why some homebuilders and developers are starting to scrap concrete altogether. “A lot of companies are rethinking the use of wood,” says Russ Haley, vice president of CityMark Development, developers of mixed-use residential projects in San Diego County.
"The use of wood is a construction method that we will be looking at moreheavily in our business model.” For example, where CityMark may have considered going with cement construction before, the company might consider wood frame construction instead. “There is a dramatic leap in costs from wood frame construction to concrete construction,” Haley adds.
What appears to be the optimal density yield – where revenues are maximized, construction costs are minimized and, therefore, home prices are reasonable – are two-story, stick built attached houses generally between 15 to 20 units per acre. Allowing for higher densities while keeping prices at bay, the 15 to 20 units per acre format still enables developers to reap the benefits of density, where land values are justified, yet they can build and sell these units at $200 to $250 a square foot – capturing a larger percentage of the home buying market.
And in Las Vegas, The Warmington Group’s new community, Esplanade, has done just that. At 20 units to the acre, prices start from the high $100,000s for condominiums to the low $200,000s for single-family homes.
DRIVING QUALITY
Of course, for those planning more than 20 units per acre, the concept of building an urban product in a modular way leaves much to be considered.
Just ask The Castle Group’s Kober. Not only does the modular construction concept save the company where it counts – in the pocket book – but the product that Guerdon Enterprises develops is also of superior quality.
“When you make something in a climate controlled, well lit environment with steel jigs, laser alignment tools and all the equipment by your side, you get a better product,” says Kober. “And that’s been proven in every other consumer product that we touch.”
He likens the process of buying a home to buying a car: “Would you rather buy a Lexus that was built in a state of the art factory with climate controlled conditions and cutting edge machinery or would you rather buy one that was built in a muddy field, and done haphazardly over a long period of time with parts sitting in unpredictable weather?”
Not surprisingly, people across the board would rather buy the Lexus built in a factory. So, Kober poses, “Why are we choosing the other way for homes.”
Indeed, he adds that most of our consumer goods, from coffee mugs to computers, are done in very sophisticated factory environments, which is why we get good quality and great pricing. So if it’s affordability we’re after in the homebuilding industry, then, in order to maximize efficiency and minimize costs, our industry’s challenge is to learn from the processes and technology from other industries and apply them to the urban proposition.
|
|
