Sustainability Symposium 2025 Burn the Rulebook with Allan Merrill

00:00:11:03 - 00:00:45:14
Mike Collignon: Our next speaker is the CEO of Beazer Homes, Alan Merrill. Alan joined Beazer Homes in 2007 as executive vice president and chief financial officer. He was named president and CEO in 2011 and was elected their chairman in 2019. Now, Alan is also involved in several housing industry organizations. For instance, he was elected to the Board of Directors of Freddie Mac in September 2020 and recently completed a four year term as chairman of the Leading Builders of America, which is a trade organization of the country's largest public and private home builders.

00:00:45:16 - 00:01:05:26
Mike Collignon: He also serves on the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University, and on the board of Builder Homesite, Inc.. He's a graduate of the prestigious University of Pennsylvania's Wharton School of Business with a Bachelor of Science degree in economics. Now, Alan's presentation is titled Burn The Rule Book The Radical Future of Homebuilding.

00:01:05:28 - 00:01:23:01
Mike Collignon: And while that might seem like a hyperbolic title, I just want to add a personal comment here. I got a chance to meet Alan at the vision House project. The green building media did in Las Vegas, and there is absolutely no hyperbole to his presentation title. He really means it. So, Alan, it's good to see you again, sir.

00:01:23:02 - 00:01:27:20
Allan Merrill: It's great to see you. Thank you for a very generous introduction. I'm happy to be here.

00:01:27:21 - 00:01:51:21
Sara Gutterman: Thank you so much, Mike and Alan, welcome to. So happy to have you here. You. We've been working with you on the vision House Las Vegas. It has been such a pleasure to work with you and the entire team, and really excited to hear what you have to say. So I'm going to just dive in unless you have anything that you want to say before we get into our our Q&A.

00:01:51:26 - 00:02:04:17
Allan Merrill: No, just. Hey, thank you for having me. It's nice to see you again, Sarah. Congratulations on 20 years of Green Builder Media, and I think your ninth sustainability symposium. I'll try not to mess it up for you so you can have a 10th year.

00:02:04:19 - 00:02:18:21
Sara Gutterman: That's great. Well, Ellen Visa's commitment to building 100% zero energy ready homes nationwide is a bold move. What inspired this decision and how are you making it scalable in real time?

00:02:18:23 - 00:02:43:23
Allan Merrill: I thought a little bit about this. I honestly good ideas have lots of authors, but there are probably two themes that I think I would, I would say are at the core of this. One of them is kind of personal, and one of them is a little bit more traditional. You know, personally, I've always had a bit of a rebellious streak in the sense of disliking what I call false premise choices.

00:02:43:26 - 00:03:09:09
Allan Merrill: You can have this or you can have that. And, you know, just an example. 2011 when I became CEO, I actually was also in the market to buy a car and, you know, CEO of a company. So, hey, I could buy a, I could buy a car that has high performance, but I'm also oriented to wanting to do something that is sustainable, that's more economical.

00:03:09:12 - 00:03:29:17
Allan Merrill: The choice at the time felt like you could have one or the other. And you know, this isn't breaking any real ground, that I'm certainly not trying to get into politics, but about a Tesla, about one of the first Teslas made. And I have to say that that was kind of an embodiment of an and not an or here's a car.

00:03:29:17 - 00:03:54:29
Allan Merrill: That's a performance car. And by the way, it's also got environmental characteristics that were unprecedented at the time. Now becoming CEO, I was at a point where we were trying to decide who we wanted to be as a company, and I thought about who our buyers are and what false premise choices they were. Confronting. Our buyers then and even today, really largely fall into two groups.

00:03:55:00 - 00:04:19:25
Allan Merrill: We have a group of buyers that are first time buyers who definitely are interested in sustainability. They're in interested in in affordability, access attainability, but a different group of buyers that we might call active adult, not their first home, may or may not be their last home. They know what quality is, but they absolutely want certainty. They want reliability.

00:04:19:25 - 00:04:46:02
Allan Merrill: They want affordable monthly payments because at that point in their life, they may be, you know, on a fixed income. So we looked at that buyer profile or that mix of profiles and said, really, the biggest issue that those buyers are confronting is they don't know. And because today they can't that they can have or that there's a possibility of having a super efficient, high performing home that is still attainable.

00:04:46:02 - 00:05:10:20
Allan Merrill: And it was really that that sort of breaking that dichotomy, this thesis that you could have one or the other and trying to create an and that we could do both. That was really at the epicenter of, of why we made the leap. We committed Energy Star in 2011. And when we got to 2020, it was an obvious evolution for us to to jump into zero energy.

00:05:10:20 - 00:05:14:04
Allan Merrill: Ready?

00:05:14:07 - 00:05:36:27
Sara Gutterman: Thank you for explaining that. Now most builders are still dipping their toes into sustainability. And I'll say most of the major production builders, maybe they're spotlighting energy efficiency. Some are heading towards electrification, but these are is just diving in headfirst. What is your here and now look like on the path to carbon smart climate resilient housing?

00:05:36:29 - 00:06:00:28
Allan Merrill: So for us it's it's it's about quality comfort and savings. And what are the ways that we can create quality comfort and savings. And and you know, I can give you a lot of metrics, but you've got to control the building envelope. So for us a really important measure is ACH or exchanges per hour. We're insistent that all of our multifamily communities are duets or townhomes.

00:06:00:28 - 00:06:24:26
Allan Merrill: Condos have ACH is under two, are single family homes are under one. When you get that kind of control of the building envelope, you have a great opportunity to really control air quality, to control temperature. And so that's that's really a building block works. Of course we've got super low H's, but we're also water. Since we're also using fire resistant materials.

00:06:24:26 - 00:06:53:13
Allan Merrill: We're also developing communities that are lifted from a lot and a grading perspective to withstand more than the flood of record. We're using drought resistant wildflowers to ensure carbon sequestration on our sites. So those are all elements of site selection, site design, and the homes that we build that are designed and delivered today at scale in every one of our markets, for all of our buyers.

00:06:53:16 - 00:07:20:17
Sara Gutterman: So our thesis here is that business as usual in the building industry is dead. And so talk about the mindset shift at home buyer. Excuse me. Home builders absolutely must make to survive the next decade. What if you were advising a roomful of kind of traditional builders who are clinging to outdated practices? What would you tell them? What's the wake up call that they need to hear today?

00:07:20:20 - 00:07:47:27
Allan Merrill: Well, I like to say, Sarah, the other team gets paid too. So I'm pretty humble about giving advice. I would make a suggestion, I think, which is I think a lot of our peers and a lot of companies are in the space of, of they're interested in this, but they run into a stumbling block, which is how confident are we that customers are going to pay for the things that we're doing, and we're the first to do it.

00:07:47:27 - 00:08:11:21
Allan Merrill: So we're kind of the the, the test case and jury's out. Like, we knew that when we did it. But I'd ask a slightly different question, which is what happens if and I will say when. But to a cynic, you might say, what happens if customers start to become aware that they can have a home they didn't know they could have, that it's not an or that it's an ant.

00:08:11:27 - 00:08:44:03
Allan Merrill: And that's where my suggestion would be. Kind of channel the Boy Scout motto. You know, the Boy Scout motto historically was or I think it may still be the scouting model. Be prepared. And, and I think there are two things that I would suggest. The first is understand that it is a complex system of materials design, entitlement related issues, that you can't just change a product and improve the performance of your home.

00:08:44:04 - 00:09:10:23
Allan Merrill: So you better have an understanding of the complexity of all of the parts and pieces that are necessary. And then the second part would be what's your plan for implementation? Now I would allow that others may be smarter or faster, better than us at getting there, but it's taken us 15 years to go from Energy Star to being fully zero energy ready and really almost five years through the pandemic to to to get fully zero energy ready.

00:09:10:24 - 00:09:33:08
Allan Merrill: So I think understanding that it is a complicated system and then knowing what your triggers are to kind of enact that plan. I mean, I think best case for somebody who convinces themselves or is persuaded that this is a value proposition that customers demand, you're 2 or 3 years away from being able to deliver it at scale, so be prepared.

00:09:33:10 - 00:09:50:25
Sara Gutterman: So let's pivot a little bit. The home search process is still deeply outdated. How do we better align today's sustainability conscious consumer with homes that reflect their values and evolve the buying experience to meet this moment?

00:09:50:27 - 00:10:16:00
Allan Merrill: So this is, ironically, a little bit of a personal question, because in 20 in the year 2000, I left a banking career to go be the first president of an online listing site called HomeBuilder. Com at a moment where it was super clear that advertising and search were moving from the print world to an online and digital world.

00:10:16:03 - 00:10:36:03
Allan Merrill: So I feel like I was in on the ground floor and a part of this shift, but it's a little embarrassing because 25 years later, I don't think we've made a lot of progress. You know, we still are searching with algorithms, not with values. We can we can specify beds and baths. We can specify zip codes, school districts.

00:10:36:03 - 00:11:04:00
Allan Merrill: There are all sorts of inputs we can apply that don't begin to get at the preferences. Your word, the values that that buyers have. And honestly, my my belief is and I'm quite confident of this, that AI and AI are going to create the capacity for consumers to have their lifestyle, their values, their beliefs reflected in their search.

00:11:04:06 - 00:11:26:13
Allan Merrill: Now, I'm not confident that third parties are going to execute this at scale, but I think consumers taking control of their search process are going to be able to use smart agents to act on their behalf for a lot of things, including home search. And I think about things like, where do I shop? Where do my kids go to school, what's my where do I work?

00:11:26:13 - 00:12:02:20
Allan Merrill: What's my commute pattern kind of car do I drive? What, what, what preferences do I have and media that I consume? I don't want to give all that information to somebody else. Like privacy is a very big deal. But if I've got a smart agent that's inside my cyber secure environment that knows those things about me, that agent is capable of making much better recommendations about the kinds of homes, the kinds of lifestyles that are available that I might not have found if I had simply done an algorithmic search for square footage for bedrooms, bathrooms, and zip codes.

00:12:02:21 - 00:12:28:24
Allan Merrill: So I feel pretty passionately that this is coming soon. And in fact, you know, our our our audience, you could actually test this. You can use any one of the large language models and construct really intentional questions around home search. And you'd be surprised at the disparity and the answers that you get, compared to what I would call the more traditional real estate search engines.

00:12:28:26 - 00:12:57:23
Sara Gutterman: Well, I love what you said about matching values as opposed to using algorithms. That's very astute. Now, housing affordability is at a breaking point, even though wealth and innovation are at an all time high. You and I have talked about an interesting idea of yours that involves fractional ownership and the democratization of housing. Can you unpack what that might look like in practice?

00:12:57:25 - 00:13:06:29
Allan Merrill: Yeah, I mean, this is the point at which people might want to roll their eyes, because this is going to sound a little kooky, I suspect, but.

00:13:07:01 - 00:13:26:28
Allan Merrill: You know, I think about the primary challenge in the housing industry right now is one of affordability. There's an imbalance between the quantity that has been produced and the demand for that. And it is contributed, among many other reasons, to to an affordability problem. Now, we could spend time thinking about how do we reduce all the input costs.

00:13:26:29 - 00:13:48:29
Allan Merrill: How do we lower land costs, labor costs, material costs. I think that's really tough. So I've sort of looked at it from the other side, which is what are the what are the financial elements associated with attaining homeownership. And they're really two big ones. What's the down payment? What's the monthly payment. And the bigger the down payment is, the lower the monthly payment is.

00:13:49:00 - 00:14:17:10
Allan Merrill: And so when I when I think about this problem, I really think about how do you source down payments to make homeownership attainable on a different scale and to, to audiences, to demographic groups that have otherwise not had that opportunity. And then I think about the good fortune that I know my kids will ultimately have when they're homeowners, which is they've got a private bank, they've got a private bank of mom and dad.

00:14:17:12 - 00:14:46:27
Allan Merrill: I'll do what I can to help my kids be homeowners. But I realize not all families, not all prospective home buyers are going to have that luxury. And so you thinking about this problem and sort of surprised at how generous people can be in, in a spontaneous way with things like GoFundMe pages. You know, a circumstance arises and we see GoFundMe, and I started thinking about what if GoFundMe was reoriented toward homeownership attainment.

00:14:46:28 - 00:15:15:19
Allan Merrill: And just stay with me for a second. You think about all of the people that might be in your in your sphere of influence who are interested in and willing to invest in your home ownership. It may be your mom and dad. It may be a cousin, a friend, a sibling, a child. It may be an employer. It may be anyone that has a stake in your happiness, your financial success.

00:15:15:26 - 00:15:41:02
Allan Merrill: Well, philanthropy is awesome and we're really involved in it. But for it to truly scale, I think there needs to be philanthropy. And and so how do how do we connect? Not just go fund me the idea of of a contribution, but with actually having a stake. And this is frankly, where I think blockchain is going to find a tremendous use case.

00:15:41:04 - 00:16:13:15
Allan Merrill: I think the idea of using an immutable ledger to capture and track fractional ownership interest in residential real estate is a solution to a core problem. I think it creates the opportunity for all of us to syndicate our ownership interest and to keep record of what that ownership interest looks like, and ultimately to provide a return of capital and maybe a return on capital to those who have invested with us in our pursuit of homeownership.

00:16:13:17 - 00:16:29:21
Allan Merrill: So that's maybe more words than than I needed to use. But that's how I think about using technology and in particular ledgers, blockchain ledgers to democratize access to homeownership.

00:16:29:23 - 00:16:42:02
Sara Gutterman: Ellen, it's a fascinating concept, and I know you've just given me, and I'm sure everyone in the audience a lot to think about. What role can builders play in scaling this concept responsibly?

00:16:42:04 - 00:17:19:12
Allan Merrill: Well, I think that this problem is bigger than a builder problem. We need our mortgage industry participants. We need the title industry participants. We need local government participants to agree that there is a an allocation opportunity here between the wealth and our society and the attainment of homeownership. And if we accept that that's an opportunity and each contribute ideas for how to make it work in our in our framework for tracking homeownership and and recording legal obligations, I think we can get there.

00:17:19:12 - 00:17:40:17
Allan Merrill: But we need advocates. We need people who share, ultimately, the objective of making homeownership more attainable. I think builders can be can be a part of that solution, but we certainly need industry sponsorship to to realize it entirely.

00:17:40:17 - 00:18:01:22
Sara Gutterman: And we need all of the various sectors to walk in lockstep. If we're going to continue to make the progress we need to make. So let's talk a little bit about energy. How are you thinking about renewables? Battery storage and matching consumption to supply in real time? Is the future grid interactive and are we building homes that are ready for that?

00:18:01:25 - 00:18:07:12
Allan Merrill: Well, nothing like a really complicated question.

00:18:07:15 - 00:18:34:18
Allan Merrill: I think a lot about this, I it's daunting honestly. We don't have I don't believe today the capacity to have a national turnkey solution to this problem. Our grids are our regional. The electric utilities are typically local and and weather patterns and climate are different. Regionally. The way I try and pack this area is, first of all, it's sort of the Hippocratic Oath do no harm.

00:18:34:18 - 00:19:01:27
Allan Merrill: And in this case it's used as little as possible. And so our focus has really been let's focus on limiting to the greatest extent possible consumption. And I think with her scores in the 30s gross before any offsets from renewables, that's a really good start because then you start to get to a place where an offset and a full offset becomes the physics of that in the case of solar become feasible.

00:19:01:28 - 00:19:26:09
Allan Merrill: So the first thing is you got to get consumption in. When I when I think about production, I have a really hard time thinking about production without storage. And I think that those two things go hand in hand. And where it gets particularly complicated is the storage costs are falling. They need to follow a lot further. But then the interactivity with the grid, that is a legal problem.

00:19:26:09 - 00:19:57:26
Allan Merrill: It is a regulatory problem. It's a it's a technical problem. I think there are solutions for that. There are there are a lot of industry participants that are trying to attack parts of this. But I think for our residential housing stock, I think limiting consumption through better building practices, I think on site production, particularly through solar wrapped into storage and deeply integrated into the grid, is the way we can harden our grids.

00:19:57:26 - 00:20:12:14
Allan Merrill: We can reduce the cost of production and I think, create a better environmental outcome. So I do think that this is a very big part of what's coming soon in housing.

00:20:12:16 - 00:20:36:21
Sara Gutterman: Now let's shift to another incredibly significant and essential topic area, which is resiliency. You and I have talked about homes that outsmart climate chaos. Do you think about AI as a feature or as an operating system for the home? And what does a truly AI powered living environment look like?

00:20:36:24 - 00:21:05:13
Allan Merrill: Wow. So that's you're right. That's another complicated question. I think when I think about AI. And let me start there, I've tried to explain this. And again, I'm not a technologist. I'm not a scientist computer programmer. So this is a laypersons explanation. But the way I think about particularly the large language models that most of us have had opportunities to interact with.

00:21:05:16 - 00:21:36:24
Allan Merrill: I think of them as as libraries. They have a certain quantum of information. And and they are, I think, over time, becoming, many of them quite specialized. So think about this. You might have a science library, you might have a French language library, you might have a physics library. Well, in the same way I think we are saying language models and and, and AI tools develop with very domain specific applications.

00:21:36:24 - 00:22:13:25
Allan Merrill: So when the relevance of this is when I think about the home and I think about living in a home, I think what needs to happen and I think what will happen is there will be models that are trained on what's in the home, that are trained on the lifestyle of the person who lives in the home, and the ability to interact in that library with that collection of information, I think can be a real force multiplier in in allowing people to enjoy and frankly, sustain their home ownership.

00:22:13:28 - 00:22:53:17
Allan Merrill: I mean, a home that knows what's in it, that knows what you need as you're aging in place, for example, that is able to anticipate the way in which your lifestyle is going to change, making recommendations for the things that will extend your ability to stay in your home. So I think about it as an operating system, I guess, Sarah, but I think I'm really focused on what are the questions that homeowners in occupancy have about their home, and what sort of data sets, and what kinds of models can they be trained with, can be trained so that that homeowner can interact in that specialized library.

00:22:53:18 - 00:23:17:24
Allan Merrill: I don't want to be out on, you know, a particular platform that's generic. It doesn't know me. It doesn't know my home. I need a platform that knows me and knows my home. And I that's that's I think within eyesight we can see that. And I don't know exactly when it delivers, but I believe that that is going to make the experience of home ownership more durable and more sustainable.

00:23:17:26 - 00:23:39:10
Sara Gutterman: Thank you Allen. We have just a couple more questions. And so I'm going to encourage folks from the audience to type in any questions that you have for Allen into the Q&A box. We probably won't get to all of them just because we need to wrap this session up in just a few minutes. But, Allen, I'm going to start with a question that came in to media text while we were talking.

00:23:39:11 - 00:24:04:25
Sara Gutterman: And it goes back to business decision to commit to going to Zero Energy certified across your entire portfolio of homes throughout the country, which we'll achieve I think, by the end of this year. And the question, though, is really about the fact that that was a bold move. And, you know, knowing that you could face blowback from your shareholders.

00:24:04:27 - 00:24:33:09
Sara Gutterman: You did it anyway. You did the thing, as you like to say. Yeah. So how how can other CEOs, particularly of large public builders, but just in general, garner the same level of courage to make that kind of commitment? And what what advice? Hearing what you said earlier about being hesitant to give advice, but asking again for what advice would you give to them?

00:24:33:12 - 00:25:19:15
Allan Merrill: You know, I think a public company, a company with shareholders, public or private, has to seek a sustainable way to generate a return on the capital that they've been entrusted with, above the cost of that capital. I mean, that is the mathematical financial imperative for companies that are are owned by others doing what everybody else is already doing, some of whom have been doing it longer, have been doing it faster, bigger, more seem to us a really unlikely way that we were going to create a sustainable, durable opportunity to generate returns above our cost of capital.

00:25:19:18 - 00:25:46:22
Allan Merrill: You know, it's the old adage, you might as well be yourself because everybody else is already taken. And I think, I think for us realizing that there were there were some really fearsome competitors in our space, great companies, well capitalized companies, tremendous operators going into their sandbox and trying to outdo what they do felt like a really, really tough way to make a living.

00:25:46:23 - 00:26:07:09
Allan Merrill: So that's where courage comes in. If you're not going to do what everybody else is already doing, you got to figure out what can you do that maybe everybody isn't doing, but it aligns with customers that you can connect with. And then frankly, is is is aligned with a vision that you might have of what the future looks like.

00:26:07:12 - 00:26:28:03
Allan Merrill: And I'm I'm convinced that there's more that we agree on. If we would just talk to each other, then we disagree on. And I think about our buyers, and I think that there are Prius owners who are Birkenstocks, and I think there are folks who ride cowboys on ranches, and we might try and categorize them politically or by some other means.

00:26:28:03 - 00:26:51:23
Allan Merrill: But I can tell you about both of those buyers. They don't want crap on job sites and extra waste. They don't want to spend money on utility bills that they don't have to spend. So for us, this idea was was less about trying to pander to a small audience, and it was more about finding the things that hold us together, where we have shared interests that other people aren't already doing.

00:26:51:26 - 00:27:01:17
Allan Merrill: So that's that was our journey. You know, outcomes for others may differ, but that's kind of my that's kind of my take on that.

00:27:01:19 - 00:27:26:02
Sara Gutterman: Thanks, Alan. All right. And I'm going to combine two questions into one. And please understand we have about 2.5 minutes until we've got to wrap up this session and send everybody into the next one. But if these are do you have any plans to offer warranties or home maintenance or insurance as a part of your offering? That's part one and part two in 30s or less.

00:27:26:04 - 00:27:29:29
Sara Gutterman: How are you navigating the economic uncertainty right now.

00:27:30:02 - 00:27:46:20
Allan Merrill: On the warranty and insurance? We do have a warranty program. We are innovating in that space, and I don't want to show all of our work. But I will say we launched a charity home insurance initiative about five months ago, and I'm excited about it because our homes are different and they're better, and the insurers are starting to see that.

00:27:46:20 - 00:28:16:04
Allan Merrill: And as a result, our buyers are having access to insurance opportunities that they wouldn't have buying a different home. And I'm excited about that. We have committed that anything we make in that space, we will contribute to our charity foundation, as we do with our title operation. So we are interested in that, investing in that. And frankly, I think creating value for buyers there in terms of navigating the uncertainty, the way I think about that is to try and run the business on a 3 to 5 year horizon.

00:28:16:04 - 00:28:33:21
Allan Merrill: It's not the most popular quarter to quarter, but we publish multiyear goals. We update our multi-year goals this day, this week. This month may not be exactly what we thought, but if we stay committed to a multiyear horizon and do what we say we're going to do, I think I think that will serve us well at the end.

00:28:33:21 - 00:28:42:25
Allan Merrill: And, you know, it's it's been more than a decade in the seat. I think that's worked for us. And I think that's that's what we're going to keep doing.

00:28:42:27 - 00:29:09:18
Sara Gutterman: Well. Alan, we appreciate your long term vision. It's refreshing and I think it's working seems to be working for you. So thank you also for your time and your insights today. It is always a pleasure to be in the same room, but particularly to share a stage with you. I look forward to doing it again soon. And thank you again for being here with us today.

00:29:09:20 - 00:29:12:12
Allan Merrill: Thank you very much. Congratulations on 20 years.