In 1930, to most Americans, African animals were still exotic creatures from a little-known land. When an orphaned infant gorilla named Bushman arrived at the Lincoln Park Zoo in Chicago he quickly became an international attraction. He appeared in newsreels. The nation’s zoo directors voted him “the most outstanding animal in any zoo in the world and the most valuable.” He died on New Year’s Day in 1951 and for weeks thereafter mourners filed past his cage. His mounted remains were then displayed at the Field Museum of Natural History.
I only had the opportunity to see Bushman once when he was alive but I made certain to stop by his exhibit whenever I was in the museum for several years thereafter and probably due to his influence, with assistance no doubt from the movie King Kong, gorillas have always held a special fascination for me. In my mind they are majestic animals to be admired so the phrase “the 800 pound gorilla in the room” has always seemed to me to be somewhat disturbing. They certainly deserve to be recognized for what they are but they are not necessarily, in my opinion, to be feared.
Returning to the subject of housing, my crystal ball is not perfect and I truly hope my vision is wrong but I am seeing in the near future the possible demise of the small, local production homebuilder who may well be forced into a permanent niche as an even smaller custom builder and remodeler.
When I started in this business the homebuilding industry in this country was totally localized and smaller local builders dominated. By the 1970s, the larger and more successful local builders expanded first locally, then regionally, and then, both through growth, merger and acquisition, the “big boys” came into being. You may know them better as the “Nationals”, the top of Professional Builder’s “Housing Giants” or Builder Magazine’s “Builder 100 List”, or at the very top as the component members of the several homebuilding ETFs. But regardless of your choice of reference, they are individually and collectively the “800 pound gorilla in the room”.
My uncle was one of those smaller local homebuilders in the 1950s, 1960s and 1970s, operating in the Chicago area and producing 40 to 50 new homes per year on in-fill sites. He was quite satisfied to continue with that operation as vacant lots were plentiful and construction financing readily available and he made a very comfortable living.
Certainly conditions have since changed – improved vacant homesites are scarce or non-existent in most locales with almost all of the choicest sites having been picked up by the national and large regional homebuilders with their lot inventories now in the tens if not hundreds of thousands. Prices of land suitable for development are rising almost beyond reason and A & D financing often still often remains elusive for many of the smaller builders. Competition is fierce with the “big boys” typically enjoying price advantages due to economies of scale and national contracts providing cost savings while also benefiting from yet more economies of scale in their advertising and promotional costs.
Instead of just rolling over and playing dead (one common defense to a gorilla), I believe that there still are substantial opportunities for smaller local homebuilders to prosper in every market if they will take the time and expend the energy and/or spend the money to research their markets and create an optimal strategy for success. That strategy will identify the realistic opportunities in their market and provide a step by step program for implementation.
Rather than trying to compete directly and head-to-head with the “big boys” (building in the same location with basically the same housing products and at the same price points) and accepting what will, at best, be their leftover sales, it is important for the smaller homebuilder to identify and create one or more “niches” that minimize direct competition. Depending on the local market conditions and the actual strengths and abilities of the smaller builder, a few of the many opportunities would include: Continue reading