Sustainable Land Development Today - February 2008 - (Page 34) FINANCE million each, and Pulte has reported a $700 million quarterly loss. A Better Approach The housing market will not recover until new homebuilders stop discounting. Then, and only then, will consumers see that a bottom in the market has been reached. In order to stop discounting, builders must cut back available inventory and to do that they need to stop building for a while. Again, this would be another signal to consumers that builders do not intend to build themselves into oblivion. Builders need to start using sales techniques that will help homebuyers achieve their goal, be it a first home, a larger home, or a luxury home. Homebuyers are always looking to buy the biggest or the best home that they can. They may need help with a down payment or with selling their existing home, or even just affording the monthly payment. Builders should tackle each of these challenges by offering programs that will solve their customer’s problems. Someone needing help with a down payment could be offered a lease option program. Moving someone into a brand new home, and letting them pay off the down payment through lease payments for a period of time is better than giving them a $50,000 discount. You overcome the homebuyers challenge without destroying new home values. Someone with a house to sell could be offered a trade-in program, whereby the builder will take the customer’s existing home in trade and allow them to move up to a brand new home. The integrity of the local market is protected and the customer is offered a valuable service which has a price tag. The builder takes the risk of being able to resell the existing home within a short time frame and at a reasonable price. Or, the homebuyer who needs help with monthly payments could be offered a subsidy or buy-down to lower payments at an affordable level. Again, these subsidies will cost the homebuilder money without destabilizing market values. For the homebuyer seeking a better deal, homebuilders would be better served offering upgrades and options to create extra value in the home. It is better for the builder to add value than to discount the price and destabilize the market. Builders refused to challenge these unwarranted fees for fear of retribution. Stand up to a city council that wants to charge fees to build a local museum and you risk losing your permits. We call that being held hostage! Give in to the unwarranted demand and hope you can build out your project before your decision catches up with you. A Fork in the Road Will our nation’s builders change their course of action? Will they turn their back on the destructive forces that have ruined housing markets across the country and led to economic spill-over effects, which now prompts economists to speculate on the possibility of national recession? Let us hope they do because we all have an interest in this. While new-home builders have demonstrated the scale of their suffering in their quarterly results, the fact is that many people throughout the country have lost equity in their homes – new and resales – over the past two years. Today, a lot of bad decisions have caught up with builders, and as they seek ways to lower costs and restore some margin, they will have to take up this battle. Let us hope our national homebuilders have made some New Year’s resolutions not to discount, not to overbuild and not to run way from the battles that need to be won in order to restore sanity to local markets. Will they do it? Time and the value of our homes will tell. SLDT About the author: Michael “Mick” Pattinson is the president of Barratt American, a Carlsbad, California-based homebuilding company. Once Approved, Tough to Cut Historically, builders have refused to challenge unwarranted fees, but now, they have to be responsible for turning back many of the costs that drove prices so high in the early part of the new century. In many parts of the country, the “good times” that existed a few years ago, saw builders turn a blind eye to cost increases that are painful to bear today. Development-impact fees and housing regulations, in many parts of the country, are out of control. In Dublin, California, development impact fees add $156,000 to the cost of a new home, and local politicians wonder why there is no affordable housing! These impact fees alone may include everything from fees for public art, fees for local museums, fees for freeways or parks or police stations – or to protect endangered species. The list is endless and the cumulative effect is devastating. 34 February 2008 Sustainable Land Development Today
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