Archive for February 2015
Without a strong commitment to being Green, the Housing Cycle can cause the Green housing movement to go backwards. I know it’s a strong statement, but after 30 years in this business the only thing I know for certain is that the housing cycle won’t go away. There are currently 115 million or so households in the US. 99.9% of these households live in a housing unit. Every year around a million new households get created mainly through normal population growth. If all of us 35,000 homebuilders got together and said “Let’s only build a million new houses every year so that we can eliminate the housing cycle”, we could probably eliminate it.
The problem is that most of us homebuilders are a pretty prideful group. We all think we’re better homebuilders than all the other homebuilders. We all have a chart in our offices that shows steady growth in the number of homes we will build in the next few years. Every one of us has this “chart”. It doesn’t take much of a mathematician to arrive at the conclusion that it’s impossible for all of us to continue increasing the amount of homes we build each year forever. At some point we will be building more than a million homes. At the peak of the last housing cycle we all built 2 million homes in one year. All of our charts looked like they knew what they were doing. Until they didn’t. Until we ran out of new households to buy new homes. The problem is that homebuilding isn’t like a light switch that you can just turn off. There is a lag time between when we’ve ACTUALLY built too many homes and when we actually REALIZE we’ve built too many homes. By the time we actually realize we’ve built too many homes….. we’ve built WAY too many homes.
And a crash occurs.
And for a while we build zero homes. Homebuilders become a banks worst nightmare. Nobody wants to lend money to build homes. There are clearly way too many of them. So we go from 2 million a year to zero. It defies logic because we clearly don’t stop making more people. And thus a cycle is created. We go from zero to 2 million back to zero. On the surface it sounds insane. Why can’t we control this? Let’s never let the number go above a million per year nor below it. A perfect steady one million new homes every year for the one million new households we create every year. My guess is even as you read that you realize it’s basically impossible to do. How do you allocate who gets to build what? How do you regulate that ? There’s 35,000 of us, how can anyone believe we could mutually decide on anything let alone how many homes we each get to build. This is a capitalistic country, we’re supposed to let the natural forces of supply and demand determine market size and market share. Its dog eat dog. The consumer votes on who gets to build homes with their pocketbook. Therefore the cycle will never go away. As a homebuilder you have to be smart enough to guide your business WITHIN the cycle understanding that the cycle is real and won’t go away and once you believe you can beat the cycle, I almost guarantee you’ll get run over. The cycle is like Mother Nature and as the old saying goes “Don’t screw around with Mother Nature.”
So being that this is The Green Builders Journal, why am I talking about the Housing Cycle? Well as my opening statement said, I believe the housing cycle can slow down the Green housing movement that basically started at the bottom of the current cycle. I made the statement because I believe it.
The problem is I’ve already written too much for this month.
I’ll continue explaining next month.