HAVE WE SEEN THE DEATH OF COMMON SENSE IN THE HOMEBUILDING INDUSTRY?

“Common Sense” was an influential revolutionary pamphlet by Thomas Paine, published in January, 1776 in Philadelphia. “Common Sense” avoided abstract philosophy, favoring instead the ordinary language of the day and utilized biblical examples to support Paine’s arguments of independence from England. 

A 1726 definition of common sense is:  “sound and prudent judgment based on a simple perception of the situation or facts”.  Certainly that was valid in Thomas Paine’s time but it appears to me that common sense may have now died throughout the world.  Every day I encounter events and situations that should not occur and certainly would not have occurred years ago.  And although most evident to me within the United States, I believe that this condition, a lack of sound and prudent judgment, has grown into a worldwide pandemic impacting events both minor and major in every aspect of our lives. 

This morning when leaving the house I noticed that a local swimming pool service company had left a “hanger” on my door knob.  Apparently this was their new major advertising push.  Although I have never heard of the company and have no serious complaints with my current pool service company, I am always interested in new marketing campaigns so instead of immediately trashing the door hanger I took the time to read it.  I will leave it to you to make your own evaluation of the quality of the piece, the image of the company that it conveys and the apparent common sense of the individual that had it prepared.  I was certainly not impressed with the hanger or with the implied professionalism of the company and will not be calling them to service my pool and I wonder what the reaction was of other potential customers. 

This past week I thought that I had converted my phone and internet service to AT&T’s “U-verse”. I use the term “thought” as I had completed a phone call with their sales department on Monday.  Tuesday morning a technician first called and then came by my home to perform the necessary outside work.  However on Wednesday I received a call from AT&T’s technical department.  This service is conveniently located off-shore so that I had great difficulty in understanding the three people with whom I spoke but, from what I did understand of the conversations, the billing for my two phone lines had not been “merged” which apparently is a requirement for conversion of service. The technical department could not implement this merge and I was told that I again had to contact sales.  However, after three hours on several phone calls with numerous people which first took me around the world and finally ended up in Florida after that office was closed, and then continued for several hours the afternoon of the second day as AT&T’s phone lines were out all morning, I have no idea what is going on.  Is it any wonder that Comcast is growing at the expense of AT&T? 

BP has managed over the past few weeks to amaze the world with their total ineptitude, first in operating what was apparently an unsafe off-shore drilling facility and then being unable to stop or clean up the worst oil spill in our nation’s history.  By several estimates, the damages now exceed the total value of their company. 

Turning our attention to the homebuilding industry, I believe that the disastrous collapse of the housing market was caused primarily by a widespread lack of common sense.  Homebuilders continued to build when there was no demand; Lenders issued mortgages that had little likelihood of repayment; Wall Street issued mortgage-backed securities without underlying valid assets and FHLMC and FNMA eagerly joined in the party.  Meanwhile our government stood by doing nothing to stop the disaster apparently assuming that common sense would emerge and save the day.  As we all know, that did not happen and even the logical goal of self-preservation of the corporations that were involved and the employees whose livelihood depended on the survival of their companies failed to occur. 

One would think that today, now that reality has supposedly set in, the residential development and homebuilding industries would have returned to the utilization of common sense.  But that is not what I am seeing. 

I sat in a meeting last week with a major developer and reviewed for the twelfth time over the past five years the realities of the marketplace, the property specifics and the need to price their homesites to the market.  Mind you, I am not complaining as I get paid for my time regardless of the results but it bothers my conscience that my time and my client’s money are being wasted as nothing seems to be accomplished.  

My original recommendations regarding homesite pricing were ignored and my client found one homebuilder who purchased a large tract of land at a price far higher than I had suggested it was worth.  The developer was ecstatic then but the builder has since gone out of business after building homes on less than one-third of the sites as the market found the homes to be overpriced, a result no doubt of the builder having overpaid for the homesites. The land prices have not been lowered, no other builders have come into the community and the development is beginning to be perceived as a failure.  The developer took the short-term profit several years ago but has since more than paid it all back and then some incurring substantial unanticipated carry and marketing costs.  Where is the common sense in that?    

One of my clients attempted to purchase a failed community two years ago but the lender refused to accept the contract, even though the price was in excess of the present value.  Four months ago the property was sold to a major merchant builder who paid almost three times the price that my client had offered.  The community recently reopened for sales at virtually the same prices that had been in effect originally even though local market values have since declined by 50%.  It was no surprise to me that no sales have yet been made and my crystal ball suggests that sales will be very, very slow at best and the development will never be profitable.   

Perhaps this is what is known as “sport building” – building to show activity to Wall Street and their investors, even though no money will be made. That may prop up the value of the builder’s stock for the short term but investors are going to be demanding profitability which will not occur and the stock value must therefore decline.  I do not see the logic in their action. 

The Joint Center for Housing Studies at Harvard University just released their report “The State of the Nation’s Housing – 2010” – http://www.jchs.harvard.edu/son/index.htm.  There were few surprises this year as the current challenges of the economy and the housing market will continue to impact our industry for some time to come.  But the good news is that our population continues to grow and once household formations resume at a reasonable pace, a factor of job growth, housing demand should again rise to over 1,500,000 units annually.  However, unless our industry begins to utilize common sense, I am afraid that we may not enjoy anywhere near the full benefits of the recovery.  But that’s just my opinion. 

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5 thoughts on “HAVE WE SEEN THE DEATH OF COMMON SENSE IN THE HOMEBUILDING INDUSTRY?

  1. Excellent post, Daniel
    Common sense is necessary if you want to be successful in whatever you are pursuing and without it you will fail. Your real life examples of builders and developers that didn’t utilize common sense and failed or are in the process of failing should help us all wake up and realize that we need to listen to our “common sense” before we start our projects, or attempt to sell the homes that we have already built.
    Change is good and we must be prepared to change directions if our homes aren’t selling, if our consultant suggests that the price to purchase the land for the new development is too high, if the floor plans aren’t suitable for the target market that you are trying to sell to, etc. Common sense lets us know if something is right or isn’t right and if we are being told that it isn’t right or we have the gut feeling that what we are considering isn’t right then we should listen to our common sense and do something different if we want to succeed.

    Listening to our common sense must certainly be a part of our sales and marketing plans and strategies in order to be successful going forward.

    Thank you.
    You do a GREAT job.
    Regards,
    Del Barbray

  2. Daniel: Very good post. I enjoyed reading it and agreed with everything you wrote, except that it is not the just the lack of common sense in “our industry” but the lack of common sense in virtually all industries and professions. Common sense is no longer taught by parents or schools and very simply it is lacking from society at large.

  3. The truth is even in the scriptures – God says “come now and let us reason together.” Common sense has really been neglected.

  4. Maybe some builders should invest one hour of their time and read “Who moved my Cheese?”.
    Common sense said it was time to change 4 years ago, now builders will be playing catch up or probably disappear. Some are making good moves and will do well, as with any business cycle there will be a dramatic shift in the home building industry. It is healthy and will take some time. These lessons’ learned should last last at least 6 months (if we are lucky).

  5. Great post! Sadly though, I am of the belief that the inflated economy camouflaged the fact that so many don’t actually possess common sense rather than it being a dying attribute.

    Frederick, I agree with your comment that builders and really anyone contributing to the business world, should read “Who Moved My Cheese” it is well worth the time and money spent!

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