| In the midst of our recent economic crisis, the US | | | | Some of the larger builders have developed smaller |
| federal government's interventionist policies have | | | | plans, but they have mostly done so to meet the |
| again redeployed finite resources in contravention to | | | | lower price points that the government influenced |
| market forces. Consumers and many custom builders | | | | market demanded. They are not increasing the |
| have been pushing for better quality, sustainable, | | | | quality, sustainability or energy efficiency of their new |
| energy efficient construction. Unfortunately these | | | | homes. Though not all large home construction has |
| market forces have been overcome by government | | | | stopped, only the truly wealthy, who tend to build |
| intervention. The government has incentives for first | | | | better constructed homes, are still building. Homes of |
| time homebuyers who typically purchase cheaper | | | | this quality usually include energy efficient systems |
| starter homes. As a result almost all new construction | | | | and last much longer; both qualities of sustainable |
| is being undertaken by large tract builders who | | | | construction. Much has been written about |
| specialize in cheap housing. This end of the market is | | | | "McMansion" homes, but generally homes in this |
| very price sensitive leading these builders to | | | | market are not included. That is discussion for |
| continued with larger designs that sacrifice quality for | | | | another day. |
| size. | | | | While tract home builders dominate the starter home |
| Contrary to the belief of the US Congress, capital | | | | segment, custom builders control the large home |
| cannot be created by printing money or authorizing | | | | market. The real battle will be for the "move up |
| programs intended to create jobs. In a free market | | | | market". This market will determine the character of |
| capital is deployed efficiently to areas with the best | | | | American housing for the foreseeable future. Move |
| returns. When the government intervenes, it may | | | | up consumers will chose between low quality, |
| skew the use of resources to less efficient | | | | lower-cost homes built by large corporate builders |
| enterprises. History provides us with numerous | | | | and high quality, higher-cost homes built by small |
| examples, but we do not have to look far back to | | | | custom builders. Given the same available dollar for |
| see one of the best. | | | | construction, the tradeoff is size for quality. |
| The deep recession we are experiencing resulted in | | | | Assuming market forces determine lending limits, the |
| large part from government interference in the | | | | average price of homes in the move up segment will |
| housing market. The American dream has become | | | | likely remain much lower than previously experienced. |
| the American nightmare. Successive governments, | | | | At the peak the move up segment ranged easily into |
| both Democrat and Republican, since the Great | | | | the $1M plus range. Those who grew accustom to |
| Depression have done everything they can to | | | | the quality of higher priced homes will not likely |
| encourage privately owned housing. Government | | | | abandon their affinity for hardwood floors, |
| bureaucracies like the Federal Housing Administration | | | | commercial-grade appliances, custom cabinets and |
| and government sponsored, now government | | | | granite tops. To match those features with a lower |
| owned, entities like Fannie Mae and Freddie Mac | | | | total budget, consumers will need to build smaller, high |
| artificially created a market for low interest loans to | | | | quality homes. The skill set to build these homes lies |
| high risk customers. In a perfect storm, the Federal | | | | with the custom builder. |
| Reserve artificially depressed interest rates for a | | | | If Americans are truly interested reducing |
| short-term economic boost. | | | | dependence on foreign energy and increasing |
| Without artificially low rates and low credit standards, | | | | sustainability in the housing market, we will need to |
| it is unlikely that the production of homes would have | | | | decide to build smaller homes to offset the higher |
| risen from 1.6M in 2001 to almost 2.1M by 2005. Post | | | | cost of quality construction. While it is possible that |
| deflation the housing starts fell to 554,000 in 2009. At | | | | tract builders may chose to build smaller, their main |
| the beginning of the expansion, the Federal Funds | | | | advantage currently is delivering large size for a low |
| Rate in January 2001 stood at 6%. When housing | | | | price. Their organizations are not set up to deal with |
| peaked the rate had been lowered to 1%. Not only | | | | the custom aspects that would make their housing |
| did the volume of construction increase during that | | | | sustainable or more energy efficient. Through builder |
| time, but the size of homes increase dramatically as | | | | association programs custom builders have become |
| did the price. Consumers were encouraged by lenders | | | | much more educated in energy efficient, sustainable |
| to purchase the largest home they could afford to | | | | building to go along with their inherent quality. |
| take advantage of a once in a lifetime opportunity. | | | | The question now is whether the government will |
| Capital that might otherwise have been used in other | | | | continue to incent consumers to continue a behavior |
| areas of the economy was deployed in housing at | | | | pattern contrary to free market forces. If all new |
| artificially low rates. The result was catastrophic. | | | | construction continues in the low end of the market, |
| The same government is again intervening through | | | | it will drive many of the remaining custom builders |
| first-time homebuyer tax credits. Coupled with low | | | | from the market. Already the number of builders |
| interest FHA loans having 3% down payments, they | | | | belonging to professional organizations like the |
| are creating some of the previously existing | | | | National Association of Home Builders has been |
| conditions. In addition to risking another bubble, the | | | | drastically reduced. Most small custom builders are |
| tax credits funded by all taxpaying Americans are | | | | surviving only through remodel work, but if the |
| being funneled to large corporate builders that | | | | market continues much longer many will likely move |
| specialize in low-end housing. This is evidenced by the | | | | to other work. Rebuilding the knowledge base and |
| fall in the median sales price in 2009 to $209,000 | | | | expertise may take years and impact the overall |
| from a high of $262,000 in 2007. | | | | quality negatively for year to come. |