Priced Out vs Built to Fit
The concept of “Priced Out” is a way to describe the effects of the rising price of goods or services. However, there seems to be another way to evaluate this effect. Rising prices of a product assumes that the product already exists in a given form, size or configuration. Within the context of the home building industry, there is a wide range of possible sizes and configuration for all but the highest volume builders. For the large builders who invest large amounts of capital in the design and standardization of their homes, this can reduce their ability to respond to the influences of rising costs. The result is that as prices go up, the size of the potential market shrinks.
The issue for many large builders is that they depend on serving a market of willing and able buyers who fit a given profile. Much effort is put into maximizing the product design for that specific market. There are long lead times to make significant changes in the designs and product specifications when costs go up too rapidly.
Smaller builders however have an easier time making adjustments in size and specification of their products, but the portion of their investment may be similar in size and scope as the larger homebuilders.
When the size of the homes and the size of the homesites they will be built on takes years to go through the process of being approved, it becomes difficult to be flexible. But, not entirely out of the realm of possibility. What is planned today may not be profitable by the time it is built and ready to market.
And still there is the very real possibility that the homebuyers are not priced out because of escalating costs, but by the lack of flexibility in what the homebuilder has designed a received approval on. We might call this being “Sized Out.” or even being “Approved Out.” Price is not the only criterion that closes the doors of opportunity for the buyer.
Now, consider if the homes were made smaller. That alone would reduce the cost of the homes without compromising quality of fit and finish. We see that in the automotive industry. When the economy turns downward, the size of cars that are purchased gets smaller. Would it be possible that smaller homes would gain a larger share of the market.
Profits on smaller homes would diminish. But, the reason to buy and own a home would change very little based on size. A roof over your head and a place to call home and raise a family has been done in smaller homes in the past. And, the ability to realize the value of a smaller home would become simpler when the size of a new home were comparable to the size of an older home. Utility costs would be lower as well.
It might be time to give this size of the homes that are built some thought. While the size of the market is reduced by being priced out, the market would move towards an alternate size product.
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GEN 23400 X
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BERC24100B
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BWOS24100
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