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In a Slump, Builders Redesign Homes to Add Value
Having reduced their prices about as much as they can, home builders are focusing on making improvements to their business operations and being as resourceful as possible to increase their sales, according to a new study from the NAHB Research Center — “Implications of the Soft Housing Market for Builders, Suppliers and Manufacturers.”
Based on surveys of builders earlier this year, the Research Center report says that builders have begun to implement some dramatic changes in how they build and sell homes in order to remain competitive and profitable as the housing downturn drags on longer than originally expected.
Among the findings:
- Three-quarters of the builders polled said they have redesigned their homes to represent the best value among their competitors, and about 70% are making their homes more energy-efficient.
- The most popular home purchase incentives are free upgrades, and the most commonly offered upgrades are in the kitchen, including appliances, countertops and cabinets.
- The majority of builders are now paying closing costs and fees for new home buyers, while just under half are helping their buyers to sell their current homes.
- Home builders have increased their flexibility, allowing buyers to specify modifications to home designs and material selection.
- The market downturn has made this a great time for manufacturers to go directly to consumers to gain knowledge of their specific building product needs.
- Home trade-in programs, used only by about 15% of the home buyers surveyed, are rated as one of the most effective programs for luring buyers back into the market. This process is similar to “trade-ins” in the automobile business, where the builder purchases the old home as part of the sales contract for the new home.
- Looking to future business improvements, about 30% of the home builders said that they will adopt a green building program soon. Additionally, 18% said they will improve business performance monitoring, 17% said they will adopt a quality assurance program and 16% said they will undergo major cost cutting to improve their competitiveness.
The Research Center study also identifies changing relationships among builders, home buyers, manufacturers, suppliers and subcontractors in the new environment facing the industry.
“Waiting out” the current slowdown in sales is an unsuccessful strategy for housing businesses both in the short- and long-term, the study finds, and builders need to be positioning themselves so that they are well prepared to gain the most when the housing market eventually rebounds.
Also identified by the study are the business and technology improvements that builders are using to reduce their operating costs and increase sales performance; changes in home design and materials usage in response to the downturn; and the most popular manufacturer-sponsored programs for builders.
The complete report, including an appendix with detailed data tables, is available from the NAHB Research Center bookstore, or call 800-638-8556.
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