Houston, We Have a Housing Affordability Problem

But we are coming to fix it! 

According to one expert, we’re living in an unprecedented age of acceleration defined by two key realities. First, “if it can be done, it will be done,” and second, “if you don’t do it, someone else will.” Let me interpret what this means to any business. Any market-ready innovation that can deliver a superior user experience (UX) at lower cost is a sure thing, and if you ignore this opportunity, it is also a sure thing that someone else will not … eventually.

Another more common way of framing this reality is “adapt or be left behind.” And the data bears this out. Two separate studies show companies adopting innovations optimizing UX dominate their respective industries. Specifically, UX leaders compared to laggards provide three times greater financial returns to investors and are three times more resilient during recessionary periods with shallower troughs and quicker recovery. Yet, decades of personal experience and industry data suggest housing is an industry highly resistant to innovation. I’m not talking about incremental innovation; there’s plenty of that. I’m talking about transformational innovation. The figure below shows depicts the dramatic impact this kind of major innovation has on product cost.

There are two key takeaways from these bar charts. First, there have been 80 to 90 percent cost reductions for products following successfully adoption of major innovation: assembly line production for cars, advanced chips for computers and LED screens for televisions. In contrast, there has been over a 75 percent increase in the cost of homes as housing remains the only industry with declining productivity since the construction began in Levittown, NY following World War II.

As the nation suffers from an epic housing affordability crisis, the industry can no longer sit on the innovation sidelines. The industry will increasingly need to embrace the following innovations to be viable financially for mainstream homebuyers:

• Replace obsolete old platforms: Conventional framing is 150 years old with only minor incremental innovation (e.g., western platform framing, engineered lumber, improved fasteners, power tools). Advanced manufacturing systems hold the promise to provide faster, better, and cheaper enclosures. That said, significant challenges to scaling remain relative to cost, friction, uncertainty and regulatory burden. However, they can significantly be addressed by optimizing design integration and field assembly. In addition, business models are needed that can absorb high capital expenditure or reduce costs with mobile micro-factories.
  
  
• Leverage advanced technology: Housing cannot be the only major product that doesn’t benefit from readily available portals, controls, cameras, sensors, and batteries linked to a central hub and smart devices. That’s because they empower a whole new level of comfort, convenience, safety, health, resilience, durability, and entertainment.
  
  
• Ensure a superior UX: Builders can transform how their homes live by treating the house as a system of user experiences: community, design, performance, and quality. Most importantly, optimizing these experiences can be achieved at lower cost by eliminating the many forms of excess that are too often ignored in homes today: waste, complexity, systems as-an-afterthought, rework, customer service, customization, time and process.
  
  
• Curate expert packages: Most production home companies feel obligated to offer extensive homebuyer choices. However, this conflicts with a famous research study from 2000 that examined the impact of choice on two groups of shoppers. To the astonishment of many, shoppers given 24 options were far less likely to make a purchase than another group given only six options. A more recent study had similar findings: more choice leads to greater focus on superficial product characteristics, increased difficulty committing to one option, and lower satisfaction with the final selection. The accepted explanation for this phenomenon is that less choice reduces burden on our cognitive resources. This concept has become known as the paradox of choice. If we believe science, excessive choice imposes significantly more business costs and negatively impacts sales by exhausting customers. Meanwhile, there are impressive opportunities to significantly reduce customization by curating more limited expert choices.
  
  
• Own the customer for life: If you optimize the user experience, the corollary is that you have very satisfied customers. This is a huge asset to any business … if not ignored. Thus, as the housing builders improve UX, they need to harness this asset by owning their satisfied customers for life with services that continually ensure and improve their UX (e.g., updates to smart home applications similar to those provided seamlessly with electric vehicles), cultivate a value-based relationship, and provide ongoing revenue streams (e.g., maintenance, upgrades, protection).

I predict this certain future is imminent because all of the innovations discussed are market ready to build better at lower cost. However, I’m not delusional and recognize many challenges lie ahead. How we get there is the subject of my recent book entitled, “Housing 2.0: A Disruption Survival Guide.”

Please join me for a full-day workshop based on this book at the Greater Houston Home Builder Association on April 22. The unique guidance provided will focus on seven strategies for building better homes at lower cost with proven results.

My personal goal is to help ensure builders are aware of innovation opportunities and take immediate action applying those that meet their preferences. I predict those that do adapt to the future will be best positioned to be industry leaders. If it can be done, it will be done. If you don’t do it, someone else will.

Please join us by registering here.