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Builders Abandon Business as Usual to Weather Downturn
 A new study by the NAHB Research Center identifies how home builders have been changing their operations to deal with the current downturn in the housing industry and suggests ways that building product manufacturers can help them bolster sales and work down unsold inventories.
Presented on July 13 at the Southeast Building Conference in Orlando, the survey-based study found home builders doing whatever they can to weather a slowdown that because of problems with subprime mortgages began to noticeably worsen early this year just as the market was beginning to show some positive signs.
“Anything manufacturers can do to help builders sell homes is most welcome,” said Ed Hudson, director of the Research Center’s Marketing Research Division.
The custom builders who were among the 320 companies participating in the study were more likely to be looking to manufacturers for enhancing their choice of products and materials in the construction process, while help on sales was more what production builders were looking for, he said.
The results of the polling were weighted according to production volume, so that a builder building 30 homes a year would have three times as much bearing on the results as a builder building 10 homes annually.
Hudson cited Owens Corning's Builder Alliance program as an example of how manufacturers can be effective in working with builders to soften the blow of today’s buyer’s market.
The program enables builders to associate themselves with Owens Corning products and provides a promotional allowance of 2% back on purchases. It also provides additional allowances for materials used in building model homes — including roofing, siding, insulation and acoustical products — and helps prospective home buyers locate builders who are using Owens Corning products.
Owens Corning is a member of the National Council of the Housing Industry — The Supplier 100 of NAHB.
Among the findings from the Research Center:
- Seventy percent of the survey respondents said that referrals from past customers were attracting buyers to their sales office. Also important in increasing sales were making the Web site a better sales tool (cited by 69%) listening more to customers (66%) and an advertising or public relations campaign (58%).
- To help close sales, 44% of the builders polled said that they were allowing more modifications to their home plans and 19% are planning to do so. Forty-two percent of the builders said they were using more innovative materials to set themselves apart from the competition, and 28% are planning to do this. Thirty-seven percent said they were offering more incentives like free upgrades or larger decorating allowances, and 25% said they would be doing this. Although offering more home for the same price is viewed as a better strategy than lowering prices, which can create unhappiness and complications among prior customers, 35% said they had used lowering prices and 20% said they would. Only 22% said they had decreased the size of their homes and 16% said they were planning to adopt this strategy.
- The benefits most likely to persuade builders to purchase innovative products were: better value (cited by 36%), increased curb appeal (36%), lower cost (32%), a reduction in labor costs (32%), a reduction in construction cycle time (32%) and higher quality and fewer defects (29%). Better value was of greater interest to custom builders and curb appeal was more important to production builders. Custom builders were found to be more open to selecting new products and being innovative.
- Builders were likely to pursue the following in their relationships with their subcontractors: working to reduce waste and improve efficiencies (86%), negotiating for better prices (81%), improving quality and reliability (73%) and seeking better pricing (72%). The issue of improving subcontractor performance was most important to builders in the South.
- The methods that builders use to evaluate new and innovative products and materials include: independent testing from the manufacturer (60%), evaluating the materials on one house first (60%), looking for good product support capabilities from the manufacturer (59%) and visiting the job site to see the product in use (57%). Production builders were found to be more thorough in their evaluation of new materials and less likely to change what they are already doing.
- The trends most important to builders are: energy efficiency (70%), low-maintenance housing (61%), designing for aging in place (58%) and green building (51%). Lower on the list were: zero-energy homes (31%), panelized construction (30%) and modular construction (24%). Although builders are promoting the sustainable aspect of green building, lower energy-efficiency is the actual selling point, and this increases with the age of the home buyer. “The older you get, the more important energy efficiency becomes,” said Hudson, because these buyers have fixed incomes and are able to do less maintenance on their homes. Green building is in greatest demand in the Northeast and least attractive in the South, he said.
- The aspects of green building that are of most importance in builders’ purchase decisions are: lowering energy bills (84%), making homes a safer place (66%), improving indoor air quality (65%), improving the environment (57%) and reducing water usage (51%). In the first tier of green products, Hudson said, are those offering direct, measurable benefits to the occupants over a short timeframe. In the second tier, the product benefits are less easily measured and the timeframe is uncertain. Third-tier products offer indirect benefits to home buyers, such as reducing greenhouse gases, and Hudson said that these are more likely to be accepted by custom builders.
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