It has been many years since I sat in a college classroom, usually with eyelids drooping, trying to stay awake through my philosophy courses. And for several years thereafter, except for once in a while being useful for cocktail hour conversation, I did not believe that the investment of my time and my parents’ money to learn the thinking of the classicists such as Socrates, Plato and Aristotle, the modernists such as Descartes, Locke and Kant, or the existentialists such as Kierkegaard, Nietzsche and Sartre, was worthwhile. However, in recent years I have discovered that those guys knew what they were thinking and their ideas are as valid if not more so today than when they were first brought to light.
Although I believe that education is a lifelong ongoing process, I am not suggesting that the members of the homebuilding industry return to school to take philosophy courses (although there certainly are worse ways to spend one’s free time). Instead, I will offer here a “snippet” of what I remember from school in the hope that others may profit. Although I have always been an advocate of Plato, the lesson for the day comes from Gottfried Wilhelm von Leibniz and his 1710 work Essais de Théodicée sur la bonté de Dieu, la liberté de l’homme et l’origine du mal (Essays on Theodicy, concerning the goodness of God, the freedom of man, and the origin of evil).
As I recall, the primary conclusion of that work is that “This is the best of all possible worlds that God could have created” as His actual choice of this one over all of the others that could have been created required a “sufficient reason,” which, for Leibniz, was the fact that this world was the “best” despite the existence of evident evils, for any other “possible world” would have had evils of its own sort of even greater magnitude.
And that is the lesson that I hope the homebuilding industry will learn and accept. What we have today, considering the economy, the less than enthusiastic consumer sentiment, the foreclosures and short sales, the challenges with financing of developments and housing, and all the other difficulties we face in the second half of 2009, is still better than it could be. But more importantly, that is the reality of the world in which we operate and we must adjust our thinking and our operations to maximize the opportunities that do exist.
Those builders and developers who have accepted this reality are surviving and will be poised for growth and profit as the market returns. They are liquidating unsold and undesirable inventory taking the “first loss”, when necessary, as that is better than what they would realize later realizing the actual cost of time and money. Developers are recognizing the “true” current value of their homesites and the difficulties that builders face in financing land and adjusting accordingly, keeping their communities visible, active and alive. Builders are renegotiating with their suppliers and subcontractors and redesigning their homes to offer something “special” and different from what they had before and what the competition offers, providing better value and reflecting the needs and tastes of the homebuying markets that are still viable today.
I believe that most housing markets have hit bottom and are on the road to recovery but that recovery will be gradual. It will take many years until we return to a strong homebuilding environment and the rules have changed substantially from what we enjoyed earlier in this decade. We must evolve to meet these changes.
As noted in the State of the Nation’s Housing – 2009 by the Joint Center for Housing Studies of Harvard University, the demographic drivers of housing demand have changed. “In today’s severe recession, all age groups will see at least a temporary drop in income, wealth, and homeownership rates—and perhaps in household headship rates as well. The echo-boom generation now reaching adulthood faces a scarcity of entry-level jobs (especially well-paying ones) and will therefore start off on a lower trajectory than the baby-bust generation before them. In addition, with the tight grip on credit, even sharply lower home prices may not be enough to help the echo boomers match the headship and homeownership rates of their predecessors by the time they reach their 30s and 40s.”
That report goes on to project, even in their low growth scenario, household growth averaging more than 1.25 million annually over the next decade which is comparable to the average annual household growth experienced in 1995–2005. As opposed to recent years, however, where housing benefited from strong demand from the baby-boom generation for move-up housing, the expectation now is that demand for rentals and starter homes will surge while the longer life spans and sheer numbers of households over age 65 will lift demand for retirement communities as well as services and home improvements that help seniors “age in place”.
Additionally, household growth among Hispanics and Asians is anticipated to continue to accelerate requiring adjustments in community and housing design (including product for multi-generational households which is more common within these ethnic groups as well as addressing cultural concepts such as Feng Shui). And changes in sales and marketing operations will be required such bi or tri-lingual sales staffs. Married couples without children (including empty-nesters) will be the fastest-growing household type, followed closely by single person households which will also require major adjustments to home and community design.
So let’s all get with the program and start down the path to new and even greater success.
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