Social Darwinism is alive and well in the homebuilding industry.

When my younger son was active in debate he often used the concept of Social Darwinism as a justification for the most outrageous concepts and, while the ideology was disproven decades ago, his opponents were usually unable to defend against the argument and he handily won his rounds.  In fact, although he has not lived at home for fifteen years, we still have several of his debate trophies in his old bedroom, now referred to by us as the “museum”.

For those unfamiliar with the concept, Social Darwinism is a pejorative term used for various late nineteenth century ideologies which piggy-backed on the popularity of Charles Darwin’s new discoveries.  While often contradictory, the philosophy exploited ideas of survival of the fittest as applied to society. It commonly refers to notions of struggle for existence being used to justify social policies which show no sympathy for those unable to support themselves, perhaps similar to some extent to the less well publicized policies currently promoted by the more extremist members of the Tea Party movement. While the most prominent form of such views stressed competition between individuals in free market capitalism, it is also associated with ideas of struggle between social groups and classes. In sociology it has been defined as a theory of social evolution which asserts that there are underlying, and largely irresistible, forces acting in societies which are like the natural forces that operate in animal and plant communities. One can therefore formulate social laws similar to natural ones. These social forces are of such a kind as to produce evolutionary progress through the natural conflicts between social groups. The best-adapted and most successful social groups survive these conflicts, raising the evolutionary level of society generally. 

I was working in a southeastern market last week and, as it had been a few years since I had last visited this area, I was curious to see what changes had transpired.  The community with which I had previously been involved had been successfully completed and sold out but several new developments had opened and I took the time to visit them.

This market is fortunate in that it did not suffer a housing downturn anywhere near as severe as most other areas of the country.  Resale housing prices did not escalate unreasonably and therefore have not fallen substantially.  And new home production was not uncontrolled in the boom years and now is down only about a third from the average of the prior ten years.  There are three homebuilders whose operations I found to be noteworthy, two smaller local builders who are doing relatively well in the market and a large regional builder who is not doing as well. 

The first, a smaller semi-custom homebuilder, has been in business only for two years.  He has several good product designs, brings them to the market at very competitive pricing (under $100.00/s.f.) and the market has responded well to both the design and value.  Although well funded, his background in business has guided him to avoiding excess speculative building.  He has managed to achieve reasonably strong market penetration with 24 sales last year, is on track to exceed that by 50% this year, and he is looking to expand into nearby markets.

The second homebuilder has been around for several years but when he saw the market changing he reinvented his operation.  His newest development includes 300 single family homes and duplexes and since opening last year has sold 109, the best selling community in the market.  This is an absolutely basic subdivision in an unremarkable location, no amenities, no community elements, minimal sophistication in sales and marketing, but obviously responsive to the market.  Only one single family home design is offered, although available in several elevations and with options and expansion capabilities.  This plan was designed specifically for this market, was extensively value engineered and cost-optimized and the pricing and value is the absolute market leader – a three bedroom/two bath home @ $139,900 base or $87.44/s.f. 

The third homebuilder is a large regional operation who in 2005 was the area’s largest builder by far with a 22% market share.  But this builder has failed to adapt and his sales and market share have declined substantially. His product is attractive but relatively unchanged and so is his pricing and his values are now far below the market @ $106.75 to $122.15/s.f.  I had spoken to this builder a few months back regarding assisting him in repositioning his operation in another market and his response was that he was battening down the hatches and waiting for the markets to return.  This market and the others in which he builds will certainly return but I am afraid that without substantive change, that improvement will not accrue to his benefit.

I was on a phone conference this week with one of the major Wall Street investment banking firms that had asked my opinion of the homebuilding markets around the country.  My response was that most markets have now hit bottom and were poised for a slow but gradual recovery.  With the continuing population growth, once job formation took hold we would be returning to 1,500,000+ housing starts by the end of the decade. I added that what we would see for the next several years was a continuing change in the composition of the builders doing business as the new reality of the market would require new product, lower pricing and better value and only those builders who made the necessary changes to their operations would be around to benefit from the recovery.  There was no need to worry, however, as there were new builders coming into the business that were adapting to these new market conditions. 

You may call this Social Darwinism, survival of the fittest or just good business practice but the process is visible throughout the homebuilding industry and that is more than just my opinion.

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4 thoughts on “Social Darwinism is alive and well in the homebuilding industry.

  1. Excellent post, Daniel
    You are correct when you say that since the market has changed then the remaining builders need to change along with it by changing their product mix, size of homes being built, options offered and included features, size of home sites, etc if they want to still compete in today’s market and be successful.
    I agree that “only the strong builders, that is to say the builders that change with the changing market conditions will survive, still be around and benefit from the recovery once it starts.
    Thank you for sharing your post today.
    You do a GREAT job.
    Del Barbray

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  3. Good post Dan, but isn’t it common sense that those who refuse to adapt to the realities of the market are doomed to failure? Even well funded / capitalized builders will eventually fail if they don’t provide what the market will buy. Social Darwinism at work. Don’t we teach this in our IRM classes? 🙂 See you in NY.

  4. Are you also trying to make a point about social networks and the exchange of information that helps communities (local, regional or national) adapt to market conditions. Many of the old social laws and networks have been devalued and new more effective networks are emerging. Interesting discussion, thanks.

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