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Transcription of Opportunities for home building in North Texas after CVD-19

Ryland:
Hello folks, this is Ryland Reed with Legacy Special Operations Command. We are a boutique investment firm that finds amazing companies like Wafflemat. And those folks are typically looking for growth capital and maybe need some help with digital transformations. And so I'm, I'm proud to be here with, with one of those folks, one of our early investors, Tom Richards with Wafflemat. Thanks for joining us, Tom.

 

Tom:

Thank you, Ryland. Thanks for having us.

 

Ryland:

And we were somehow convinced Tom to leave beautiful Northern California and relocate to grapevine, Texas. So we're coming to you live from grapevine, Texas. Thanks for making it up.

 

Tom:

You know, it wasn't, it was not very hard to convince me. Let me just tell you this. I just heard on the radio last week, that to rent a U-Haul from California to Texas are $2,500 to rent a U-Haul from Texas back to California are $500. So it's a one way ticket. This is true. So a lot of people including me are leaving. That is correct.

 

Ryland:

So give us 60 seconds on Wafflemat and your background.

 

Tom:

Thanks. Thanks. And, you know, thanks for setting this up to Ryland. Um, the Wafflemat is an on-grade mat foundation. Uh, it's been around for 28 years. Uh, it was originated out in the San Francisco Bay area by a gentleman named Matt Gonzalez. Matt was the chairman CEO of Conco Concrete, which is a largest concrete company in California, which just means it's probably one of the largest concrete companies anywhere. And in the, uh, late seventies and early eighties, you know, most of the good lots are gone. People are building on expansive soils and California was having foundation failures galore, and Matt developed a system of taking voids, placing them on grade tight rib system that allowed the voids allow the expansion of a heaving soils to be relieved. The tight ribs provide a very stiff slab. And when they're reinforced with, um, post-tension cables provides a super strong system. So 28 years, the first tile off from that was rolled out in 1993, since then, Ryland, we've given, given up, uh, tracking tens and tens and tens of thousands of slabs, tens, and tens of millions of square feet involved, uh, installed up and down the West coast. And I'll tell you just two facts. Number one, as you know, we've never ever had a structural failure or call back. And when I say that people's heads explode, it's like, you just don't mean very many Tom, no none. And, um, we define structural failures as if your cracks are going up your walls, or if your doors don't open your windows, don't close. Something's going on with your foundation. So we wanted to come and expand to Texas. And we were happy that when we hooked up with the legacy Alliance, because we look for two things with the waffle map, number one are there bad soils? And there are the worst soils. Actually the worst soils everywhere are in Alaska and North Dakota. The second thing we look for are people building. So they're not building so much in Alaska, North Dakota, but up in Texas, Louisiana, Oklahoma, Arkansas, they are building galore, bad soils people building. This was the perfect marriage to bring the Wafflemat to Texas because we really have a solution for the bad Texas soils. That's a little bit about the Wafflemat.

Ryland:
That's great. Thank you. And we're also excited to be joined by Barry Hensley. Barry's uh, an icon of North Texas residential building here. He's been building homes, uh, up here for, for better part of 40 years, um, founder and CEO of North star luxury homes, a long time member of the Dallas builders association. In fact, uh, Barry, if I'm not mistaken, actually at one point you were responsible for drafting curriculum for home builders.

Barry:
I did Ryland, and thank you for having me on the podcast day. I appreciate that. And yes, I've been a longstanding member of the Dallas builder association served for many years on the board of directors and was the chairman of the education committee for several years. And as chairman of the education committee, we, created curriculum to help our, our members to do a better job with what they're doing. Some of the curriculum had to do with technology. We offered a course on using technology and construction and, uh, had great success with that had enough success that some of the other builders associations in the state of Texas wanted to do the same thing, uh, which they should, should teach their members how to use technology in their business. The other one that was probably the, the flagship of the curriculum that we offered was on best practices. It was a build, build a better house, or put me a better builder series. And it was a six or eight course series that we talked to builders on. Not, not just how to be a builder. Every everybody that's member of the association knows how to be a builder. I mean, association of builders, but how to be a better builder, how to deliver a better product to your customer, how to keep up with the latest trends, how to keep up with the latest technology how to keep up with building science. And so we authored a course, we teach it every year and every year we have good attendance with that course. We also incorporate the latest codes into that. So we're giving our members code updates, so they know how to maintain the proper, you know, a relationship with the building officials.

Ryland:

And what is the primary mission of the, of the Dallas Builders’ Association?

Barry:
The, the primary mission aside from education, the primary mission is advocacy. So the Dallas Builders’ Association lobbies on behalf of its members to maintain a regulatory environment that's conducive to both the customers and the builders. So we can deliver a product that's affordable and on time, you know, cause there's some PR let's face it. There's some parts of the country, Tom you're from California, you know, talking about regulations. There's some parts of the country where it just takes forever and the cost is exorbitant to deliver a product. Texas happens to be one of those environments where it's business friendly and regulation friendly. And the Dallas Builders’ Association goes a long way towards helping us maintain a regulatory environment that's conducive to affordable housing.

 

Tom:

In Los Angeles, I don't know if you know this, Barry & Ryland, but the, uh, building code for the city and County of Los Angeles -this is a true fact- has more pages than the U.S. tax code. And that's a lot.

Ryland:
That is impressive. Maybe not for the right reasons. If somebody wants to learn more about the, the Dallas Builders’ Association and how do they, do that?

Barry:

It's very simple Ryland, the website for Dallas Builders Association is dallasbuilders.com. .

Ryland:
Perfect. dallasbuilders.com guys. All right. So the purpose of this podcast is twofold one, uh, just given Barry's expertise as a, as a long time, regional builder really want to, you know, understand what's going on with, with COVID-19 and what regional migration patterns are meaning to North, Texas and Texas as a state in terms of residential construction. Uh, so we'll spend a few minutes talking about that. This is not meant to be a shameless plug for Wafflemat and smartsense instructional systems. Um, really trying to add, you know, deliver valuable content that the builders around the area can use. And so first, uh, if you wouldn't mind, let's spend a few minutes just talking about the residential home market here in North Texas, and then maybe Texas, a little more broadly. So here at Legacy Special Operations Command, you know, we spend a lot of time on research and, and online data services because we think that there's going to be some, some dramatic migration shifting patterns, uh, here in, in the lower 48 here United States of America. And we think that, you know, States like California and Washington and Oregon, where they've got, you know, to your point, Tom, there, they're certainly highly regulated if not overly regulated. Um, that combined with the conditions that COVID has created, we're seeing a lot of migration from the West coast. We're seeing folks moving down here from Chicago, certainly New York, New Jersey, Connecticut, the kind of that Northeast corridor. Um, are you seeing that as well, Barry and, and I guess what does that mean for the North Texas residential home builders industry?

Barry:
So as you know, we have a very robust housing industry in Texas and have had for many years, there's a lot of factors that go into that. We have a lot of land available. Obviously I mentioned earlier, the regulatory environment, affordable housing. So it's a place where people can buy a lot of home for their money. People come from California and sell their 1500 square foot home in California and pay cash for a 5,000 square foot brand new custom home in Texas. So you can get a lot of home your money, but yes, we're, we're seeing, uh, uh, people move here and have for a long time, people moving to Texas from other States. And that's increasing now with some of the things that are going on in the nation. Uh, I'd say about half the calls that I get from either individuals or realtors are people from out of state that are moving in and the other half are local, the one to upgrade to a custom home. So the demand is there. The demand is growing. And I know that you guys are keeping up with the data and have every reason to believe that that demand will continue to grow in the single family world. The demand in the North Texas, the Dallas Fort worth area is for about 34,000 units a year. And that's going to continue to grow. That's strong demand. I think when you put it together with the whole state, it's, it's well over a hundred thousand, but that's how many single family units. And then you've got multifamily on top of that, which healthy families just going crazy. Uh, we can't keep up. You know, the, the demand for housing is greater than the supply and it looks like it'll continue to be greater than the supply for quite some time. If you remember back in 2008, 2009, 2010, we had the downturn, a lot of the construction labor in Texas left. They found good paying jobs elsewhere. They're not just coming back overnight. And so we've got a little bit of a labor shortage in the North Texas area and have had for several years. And then you throw COVID-19 on top of that. And we've got, you know, a few issues to deal with. So it's taken a little bit longer to build a home than it should. So multifamily strong because of that, because with multifamily, you can put up 300 units in a year. Single family is a little tougher to build that many in Texas

Tom:
Um, tell us a little bit about the permitting process here in Texas. I'm just curious. It's the same. I bet in Oklahoma, Louisiana, Arkansas, in this area, what's the permitting process like

Barry:
Permitting process is not, it's not difficult. You obviously have to have a full set of construction documents, uh, submit your documents to the city and each permit. And the fees are relatively affordable in areas where they don't assess impact fees. Uh, the state of Texas passed a law that does allow cities to pass on impact fees to the builders. Uh, I think that law was passed about 10 years ago, but, uh, if you don't have an impact fee, you can get a building permit for 2000 to $3,000, depending on the size and the value of the property. If you have impact fees, that's going to add another six to $10,000 to the building permit depending on where you're building. But to give you an idea about the timeframe in the city of Dallas prior to COVID-19 in the city of Dallas, you can get a building permit in a day, which is a really fast turnaround for a major city like Dallas, Texas. Uh, I do a lot of building in Frisco and prosper and some of the areas in the suburbs and in Frisco it takes about three weeks to get a building permit. So it's, it's, it's, you know, Dallas, the big city does it in about a day. Frisco, the smaller city, does it in about three weeks. But even at that, it's still relatively quick compared to some of the places I've heard, where it takes months to go to building.


Tom:
I want to tell you about up and down the West coast and out through to Hawaii, Hawaii is an anomaly because the process of getting permits in Hawaii can last up to 10 years. Oh my goodness. Now that's, that's, that's the crazy, you know, at the other end of the spectrum, but up and down the West coast, Washington, Oregon, California, Arizona, Nevada, and Utah, the process goes at least three to four months. And in California to get a permit for a single family home is $93,000. Wow. Just for the permit to this crazy.

 

Barry:

 I thought Colorado was high. My brother lives in Colorado and permits for small single family homes where he lives are about $25,000. I thought that was ridiculous.

 

 

 

Tom:

In 2020, 93 is the average is $93,000 to get a permit for a house. This is why those production home builders in California, they're held hostage. Not only do they have to pay the permitting fees, but at the same text, they have to have parks. You know, the, the cities make them build parks and schools and everything else. Um, it's just incredible. The amount of resources that goes into just permitting and paying before you even turn one shovel of dirt.

 

Barry:

Yeah, no wonder housing is so expensive in California.

Ryland:
So talking about expensive housing, their price of lumber has been wonky rates, so what's happening with lumber right now.

Barry:
So the COVID-19, you know, when, when people don't know what's going to happen, they do nothing. So when COVID-19, he had a lot of buildings, a lot of the large building companies, uh, canceled PO’s for foundations and sheet rock and roofing and, you know, ma major PO’s or at least put them on hold. And so a lot of starts were put on hold in March and April. And of course, lumber prices fell because of that. You know, demand goes down and lumber prices are going to go down. So we saw a dip in lumber prices in March and April. Uh, and then the opposite has happened since then the housing market, especially in Texas and really all throughout the South is so strong that now lumber prices have gone up to the tune of about 50% higher than they were in April. So we're paying, we're paying prices now that are near record highs. We haven't seen highs like this since 2000 before 2008 before the downturn was when we saw some really record high lumber prices. The prices now are back up there where they were then, and that'll change the lumber is a commodity that'll, that'll go up and it'll normalize. Some mills got closed in March and April, and that's what lumber companies will do. They'll shut down the middle of the moth ball it. It will, it takes them a month or two or three to open it back up. So I think probably that fall, we'll see an easing and lumber prices, but right now, if you were going to buy a home, Lumber's a biggest foundational number two basic biggest expenses and building a home, you're going to pay another $15,000 - $20,000 for a lumber that you hadn't planned on paying.

Ryland:
And do you think that's another 90 days, a hundred, 180 days.

Barry:
I don't have a crystal ball. Uh, you know, however they, however long it takes to get the mills opened back up, but I expect that by fall, we'll see some easing in the pricing. So maybe maybe 180 days, we'll probably be back to something. It could be, it could be, it could be a year. Absolutely could about concrete prices. So concrete prices have remained relatively flat. I think a yard of concrete is in the $105, $110 range. Okay. Um, and I can remember 10 years ago, 3000 PSI standard. Residential mix. And I think 10 years ago, I remember paying, you know, $92, $96, $98. So concrete hasn't seen the changes that everything else has. Um, but some of the similar commodity items like roll roofing, you know, roofing's based mostly on petroleum. Uh, so roofing moves around and it's kind of strange because roofing will go up when petroleum prices go up. But when petroleum prices go down, roofing has a tendency to stay. Uh, so we're paying some pretty high roofing prices, but even though, you know, petroleum is relatively affordable right now. Yeah. But the roofing prices have stayed pretty high, but concrete's, uh, it's, it's flat.

Ryland:
Yeah. Okay. And you briefly mentioned a labor force being impacted by COVID-19. So is it, is it pure scarcity? Is it, being compounded by political situation? And, and when do you think we'll see some return to normal

Barry:
Normalcy? Um, all of the above, uh, you know, people left here when the downturn occurred 10 years ago and went and got good paying jobs elsewhere. Um, there are good paying jobs in the construction industry. Obviously. I mean, the wages are pretty healthy, but we don't have enough to keep up with the demand. The demand doesn't keep up the supply. Doesn't keep up with the demand and the housing. We don't have enough workers to keep up with the demand and in housing itself. And we probably won't for several more years, I think at the peak, at the worst, we were about 19%. Our labor shortage was about 19%. As an industry, we would be concerned if it were in the three to 5% range, that would be a concern. Well, it was 19% at the highest, I don't know what the most recent numbers are, but we still are experiencing a shortage. Uh, COVID-19 impacted us, uh, more in Dallas County than it did in the surrounding counties because Dallas County was more impacted by COVID-19. So they have greater restrictions. Workers have to take the temperature before they leave their home. They have to take their temperature again, when they get to the job site, uh, have to wear masks if they're in groups of more than I think the order that came down from the County commissioner was groups of three, have to wear a mask if they're in groups of three or more and wearing a mask and a construction site is tough.

Ryland:
Yeah. Especially in August.

Barry:
All this heat that's right. Um, so I do a lot of building in the suburbs, which are in Collin and didn't County and the restrictions there are not quite as bad. Okay. But what will happen? We have a lot of Hispanic labor in Texas and they're good, strong, hardworking people. And a lot of them live in one house together. It's their culture. So you might have 10 people living in a house together. One of them comes down with COVID-19, they wind up all getting it. So you might lose a whole crew because there's brothers and cousins and aunts and uncles that work on a crew together, you might lose a whole crew. So it has had an impact on us. Um, fortunately construction was deemed an essential business. We're still building in Texas. We didn't have to shut down, but we have seen an impact in the labor force.

Tom:
Is that, is that, uh, when you were mentioning the, um, shortages, is that across the board are framing crews, uh, foundation crews, finishing crews. Are they all about the same or are some segments higher or lower than others?

 

Barry:

I haven't noticed one being dramatically different than the other. I think it's impacting all of them to some extent.

Ryland:
So let's shift a little bit to talk about, um, patterns and what folks are wanting. And obviously it's folks moving here from Chicago or, or New York or California, you are, are you seeing greater demand for smart homes? Was that something that was already, you know, in demand here in the North Texas area? Um, is there any influence for folks moving here from out of state?

Barry:
There, there is an influence. I see a whole lot more proclivity towards green from, especially from people moving from the West coast. Right. We see some of that from the East coast also, but especially from the West coast, some of the stuff that we're doing here now that we think is innovative, people were doing in Washington state 15 and 20 and 30 years ago. Right. I remember talking, I was actually teaching a class to some realtors and I was talking about sips and sips and an up and coming way to build the perimeter. Yeah. And so one of the realtors in the class raised her hand said, I lived in a sips home 20 years ago in the state of Washington. So, you know, they were doing some of this stuff, uh, being very innovative. So we, we may think it's innovative in the state of Texas. It's actually just coming of age. You know, the, the green, the smart, the energy efficient home is now coming of age. And Texas is a great place for that because it's, It's hot, it's 107 outside.The, the greatest extent, greatest expense in housing, you know, as a homeowner is their energy expense. And so when you make us home smart and you make it energy efficient, you can literally drop the energy cost by 60 or 70% easily. If you want to go to a hundred percent, you can, it's a little more difficult to get to %100, which you can easily drop 60 or 70% of the energy costs out of a home by building it.

Ryland:
And why do you think that hasn't happened in Texas? Why has there been a 10 or 15 year delay in doing that?

Barry:

It probably has the same thing to do with other factors that affect our affordable housing. We have very affordable labor. We have very affordable land. You put all that together and people weren't too concerned about a $500 electric bill because they, they only paid $400,000 for their house. Gotcha. Was housing costs go up and electricity costs go up. Then people start looking at, you know, maybe I can find a better way to build this house. Not only build the house more efficiently, but build a to where, it costs less to maintain.

Ryland:
And that becomes a competitive advantage.


Barry:
Absolutely. Yeah. Yeah. Well, you're beginning to see now you walk up to a volume builder's model home and they'll have a sign near the front door out in the landscaping. This is, this home scored 65. People don't know what that means, but it they're curious. They, so they walk in, they ask the sales consultant, what does that sign out there 65 mean? They started explaining to them, that's the energy factor for the home and the lower, the number the better. So the volume builders brag about that because you're, you're supposed to be at 65. That's what the code is. Now years ago, the code was 84, 85. Um, but now if you build a home, that score is say 55. You can really brag about it. Cause you're, you're 10% more efficient than what the code requires.

Tom:
Do they, uh, do they judge homes here on leads points?

Barry:
Lead is not very popular in this area. Um, it's an expensive program for one and, uh, it's a little more difficult to comply with. The most popular program here is a program called Greenbelt, Texas. And that was actually written right here at the Dallas Builders’ Association. It was originally called Greenbelt North Texas. I was not involved in that. I'd like to take credit for it, but I can't. Um, but Phil crown, who's the current, uh, executive officer at the association heads up Greenville, Texas. And it was originally again called Greenbelt North Texas. It became so popular that other associations adopted, we let it out. And I say, we, the North, the Dallas builders association, let it go statewide. And it is, it is the largest green building program in the state of Texas is called Greenville, Texas. It's a good program. It's easy to comply with. It incorporates energy star in it, which you're probably familiar with the energy star. So the energy section of Greenbelt, Texas is energy star compliance.

Ryland:

Tom, what are you seeing in terms of smart homes?


Tom:

Boy, this is a, the Holy grail. Um, I worked for Simpson strong tie, which is one of the largest providers of, you know, construction supplies in the industry. And Simpson's big focus was always trying to get to the smart home. Uh, my tech owned by Warren Buffet, always trying to get to the smart home and the way they started it mainly was roofs. And then they started going energy systems, sprinkling systems, um, for the Wafflemat, nobody has ever gone through with a, uh, a really smart approach to foundations. And that's something we can talk a little bit about later, uh, and with the Wafflemat, but in terms I just wanted to talk to you. You hit upon a couple of points on green. You know, the Wafflemat is made of recycled polypropylene plastic, a very green material, uh, in terms of one other factor though, the single biggest contributor of co two emissions is the production transportation of concrete. And when you void concrete like waffle boxes, you lower the CO2. When you're building a thousand houses, you lower it a lot tons and tons of hundreds and thousands of tons. But the one thing that very few people talk about except in drought areas is water savings. One of the big factors and every smart system should be reduction of presoaking. And since the Wafflemat absorbs heaving soils, you pre-soak, if not a whole lot less completely, because again, we have that place for those, those voids to, to have the expansive soils move with the Wafflemat. So in terms of green material, in terms of water savings, terms of CO2, those are all inherent functions built in technological functions, right within the product. That's great. That's, that's just what you get. Yeah.

Barry:
I know that when we inject a lot, if we're doing either water, water, injection, chemical injection, either one, we're going to go through 13, 15,000 gallons of water, which is the equivalent of filling up a swimming pool. It's a swimming pool and we're injecting that in the ground, uh, to stabilize the soil when we're doing a traditional rib foundation with beams 10 foot on center, uh, that's the way that we treat the soil. If the PVR is high enough. And a lot of this is, you know, we've got very expensive clay soils in North Texas. And, uh, I can understand where your, your product could completely eliminate them.

Tom:
We have two models that have been built by, you know, some renowned, um, PhDs in terms of energy. One of them is, uh, the CO2 emissions model. One of them is the water savings model, uh, with Wafflemat. I got to show those to you, and we're going to post those on our website because people, as they do in Texas, start looking at these green factors. Again, I don't want to brag about the Wafflemat. It's just what you get with it. It's, it's a part of the product and nothing added to it. This is a great benefit.

Barry:
And it's amazing how little things add up when you scale it. That's right. Um, when I teach green building classes, I talk about water usage a lot in that class and a simple thing like turning the water off when you're brushing your teeth, right? You turn your faucet on and you're seeing it's running about a gallon and a half a minute of water. Brush your teeth for a minute. You've used a gallon and a half of water. You just turn it on. Wet your toothbrush, brush your teeth and turn it on to rinse. You've used six or eight ounces of water. So let's say you save a gallon, then sound like much. Hey, we'll be, I saved a gallon of water. You have 330 million people do that. Every day. You just saved 330 million gallons a day. Now you're talking a lot of water.

Tom:
Well, in a couple of years ago, up and down the West coast and, and here in Texas goes through periods of drought. And there was just a massive drought West of the Rockies. Colorado was drying up, everything West, and you would have these builders presoaking lots where they, you know, they stick sprinklers for a week and let it go. And there were actual conflicts between people would stop and say, what are you doing? And, uh, it, it, water savings and water management, you know, from West in Texas, goes through these periods of drought, flood, drought, flood too. It's a big thing coming better, water usage, especially as populations grow. A lot of people. You know, it wasn't very long ago that, uh, when I grew up in Southern California, you know, the population has tripled and they take all the water they can get from everywhere in the West now. And so it's a water usage and management is a huge thing and building, especially.

 



Barry:
And people in Texas don't realize how precious water is. We have about 45 lakes in Texas. One of them natural, all the restaurant man made. So we've created these reservoirs to provide us with enough water. And if we ever get to the point where we don't have enough water, the growth will stop. You have to have the infrastructure to support the growth. There's a new reservoir coming on up Northeast of Dallas called the lower bodark reservoir, which is going to supply water for the next 40 years. So we've got planners. The planners are doing a great job of providing the infrastructure we need for the future. But you go back a few years. I think it was 2014, 2013, 2014. We had a mini drought. You go back farther than that go back to about 2006. We had a major drought. We get about 36 inches of rain per year in the North Texas area. Even in the drought year, we got 19 inches of rain. Colorado would love to have 19 inches. California would love to have 19 inches of rain. So even look at our drought years and you think, well, we have plenty of water. What's the problem. The problem is all of our water surface water. We don't pull it out of the ground. We pull it out of lakes. And if the lakes get low, we wind up going into stage two, stage three, God forbid, stage four water restriction. The stage four water restrictions is no outdoor usage at all. No car washes, no swimming pools. So if we ever got to that point, we'd be in serious trouble. We have gone into stage three several times, which means water in your yard once a week. And in Texas heat at 104 degrees, you really need to water a little bit more than once a week on your foundation. If you don't your foundation can suffer.

Tom:
And can you imagine with a population triple doubled since 2006 in this area, there's just a lot more thirsty people. You know, they're talking about the smart house Ryland. Again, that's part of the smart systems were, you know, new and improved flush systems and water management for sinks and bathtubs and shower filters and everything. That's also part, but they've solved that a lot that, um, the, the management of water is much better in today's homes than – Barry when you started building 40 years ago, you know, the flush systems were probably twice as much as they are in the tanks today.

Barry:
We have dual flush toilets, which everybody, everybody knows it's become to become a standard. Now you same in hotels and restaurants are where you go, uh, has become a standard. In our custom homes. We put in a hot water recirculating system, which the volume builders don't understand why they don't. It's a cost. You know, cost is the major driving factor in volume building. But in custom building, we'll put in a hot water recirculating system. You turn on your hot water, you run about four or five ounces of water. It turns hot. You're not sitting there running a whole gallon of water before it turns hot. So little things like that. Again, don't seem like much at the time for an individual, but you scale that towards millions of users, and you've really had an impact on society.

Ryland:
So as we talk about smart homes, what other assumptions do you think
North Texas home builders should be challenging right now?

 


Barry:
I don't think we can assume that we know what buyers want, unless we really dig into it and stay on top of it and read and educate ourselves as to what buyers are wanting. Let's take millennials, for instance, um, millennials are driving housing market. I think the last stats I read were about 65% of it. You hadn't heard that the last stats I read were about 65% of the new home inquiries are coming from millennials. And here's something, and here's something that'll shock you. A strong percentage like in the 25, 30% range are willing to buy a home site unseen. We never heard that before. Yeah. So, as an industry, you have to be prepared to sell a home to someone who's never walked through the door. How do we do that? You do it with virtual tours. We do it with more social media. Uh, and millennials are also they're growing up in this shared resource environment. Uh, they also grow up in a throwaway environment. This, you know, I've got a cell phone in my hand. This is one of the things that led millennials to this throwaway. Once a year, you take this thing, you throw in the trash, you'll get another one. And millennials have learned that they don't need to own as much stuff as their parents did. Sure. So they're willing to own smaller houses and have access to more shared amenities. And as builders, we need to be aware of that. We need to be aware of what the subdivisions and the communities of the future are going to look like. So I think we get, we can't just take it. We can't build homes the way we did 30 years ago and it just assume that that's going to work today.

Ryland:
And how does that shape or inform the challenges that, that builders up here in North Texas are going to be facing? New plans, obviously new materials…

Barry:
Even new regulations, if you want to go that far. I remember, uh, sitting in a meeting with some of the members of the home builders association at one of the planning commissions for, I think we were at the city of Frisco and we literally said to them, 40 is the new 50. And most people won't understand what I'm talking about until they realized we were talking about lot size. And because the plan has gotten so expensive in the city. Now you go out, you know, you go 30 miles outside of Dallas you can buy an acre of land for $10,000, but you go in the city, you're going to pay a hundred thousand dollars or more $125,000, $150,000 for an acre of undeveloped land.

 

Tom:

Don't forget, Barry, you get 93,000 for a permit for a building permit.

 

Barry:
So, you know, so by the time, you pay that for the land, then you do development costs, then you have your $93,000 building permit, your $200,000 into the project before you ever pour a foundation. But, um, the expense of that has caused builders and cities to look and see, how can we deliver more affordable housing? And this is a big challenge for the housing industry is delivering affordable housing. And so if we can convince the city to let us build 40 foot lots, that reduces our lot price by 20%, right. And that's a great impact on housing. So one of the, so again, we can't just assume that the way we did it years ago is the way we're going to do it in the future. I remember reading an article about two months ago about the city of Denton, which is a city in the metroplex of Dallas area. They approved their first tiny home community in the city. Wow. So now they actually have lots that are what, 20 feet wide and probably 30 feet deep. And they're putting tiny homes on them. I'm not saying that that's the housing of the future, but cities have to be willing to look at things like that to address the housing needs. Cause housing is let's face it, even in Texas is getting expensive.

Tom:
You know, very, there's a reputation in the home building industry that builders are notoriously stubborn and changing their ways. Uh, do you, do you still see that today in 2020 or are no with the, with the courses you teach and the, the shows you go to, are they, are they gaining a little more flexibility to it or are they still holding? This is the way my grandfather did it this way. My dad did it. This is the way I'm going to do it.

Barry:
I think probably the former is true that they're still holding onto the old ways as much as they can. Let's face it. It's safe. You know, we've always done it that way. We know how to do it that way. We're not taking any risks, uh, volume builders in particular risk averse. You know, they're, they're building thousands homes. I understand why they're not willing to make a change to do something that's unproven. It's a formula. That's correct. That's right. And it works for them. Uh, custom builders are more often the guys that are going to take the risk, you know, they're going to, they're going to step out and try something new, especially in terms of style, you know, custom builders are obviously going to change style at the drop of a hat when they realize this is what people are asking for. And if you look at the Texas market, you got the McMansions, you know, that's what they call them.

Barry:
And they all look alike. I remember my pardon me. I remember my brother coming out for Colorado, showed him where I had built my latest home. We're driving through the neighborhood. And he says, how do you know which home is yours? And I'm like, what do you mean? He says, they all look alike, the same, same things, cookie cutter, do them all the time. Uh, but the custom builders are willing to step out of that mold and do something a little different. And they'll do that with everything, which is why I embraced Wafflemat. I'm like, okay, this is something that we should be looking at. And I'll look at energy efficiency and I'll look at ways to do fenestration is better. I'm not looking at ways to do roofing better and all of the above. And the reason that people are risk averse is because they don't want the, the potential failure and have a thousand homes. They have a callback on them. So that's, that's the reason volume builders are so risk adverse

Ryland:
So those are the custom builders will take that risk at lower volumes, work the kinks out, and then the volume guys can then follow through and start adapting some of those technologies, what's the lag on that?

Barry:
I wouldn't, you know, I'm not going to say,  I don't know that I could put it, put a number on it to say what the lag is that there custom builders for years have been doing things in volume builders just don't do at all. Um, although, you know, it's, it's like, uh, it's the cat and mouse game to the volume builders, do it. Custom builders do more than volume builders do with custom builders to do more and try to deliver a product that differentiates yourself from the volume builders. But I will say this about volume builders. They do a very good job with the product that they deliver. They study it a lot. They know what they're doing. And so when they do adopt something, the good news is they've put the research and the time into it to know that this is something that we can stand behind. Sips for instance, we talked about that earlier. I know that DR Horton is experimenting with sips. They probably see it as the way that homes are going to be built in the future. So they'll take a subdivision and they'll experiment with it and make sure that they understand how it works and reduce the risk. And then eventually it'll become their building standard. So it may take four or five, six, eight, maybe 10 years to adopt a new technology. But once they adopt it, it becomes proven from day one because they've spent a lot of time researching it and making sure that it's the right thing to do.

 

Ryland:

I think you’ve experienced that out on the west coast with Wafflemat.

 

Tom:

Absolutely, some of these cycles are a long time. It's funny, you said those years, I'm smiling. We're doing a project right now for DR Horton, uh, in Hawaii, it's 11,500 units. Uh, it took us a five year sales cycle to do the Wafflemat and include it in that -this is a new, interesting story- included in that they wanted a test, even though we had done several hundred Wafflemat installations virtually across the street, they wanted an 18 month test on their land because it was theirs. And that was part of the five-year sales cycle, but once they have adopted it, it has gone like wildfire. So you're right. They had to study it, prove it, design it, tweak it. And then once there, it's the defacto standard. Yeah. But that's what you have to investigate into.

 

Barry:

Look at the things we've been burned by over the years. I mean, I don't know if you remember, 25, 30 years ago, all the stucco homes were rebuilt, were built with ethis and it turned out that that was not the right product to use, so the lawsuits just flew off the shelves.The two things that keep builders up at night are water intrusion and foundation failures. Right. And water intrusion is nasty. And so there's been lots and lots of, lots of wall lawsuits. You know, there's law firms now who specialize in suing condominium and township water intrusion

 

Tom:

 class action lawsuit

 

Barry:

class action lawsuit, tough thing.

 

Ryland:

Well, on that note, I'll say thank you for your time and for helping out.

 

Tom:

Thank you.

 

Barry:

Thank you

 

Disclaimer:

The views information and or opinions expressed during this recording are solely those of the individuals involved and do not necessarily represent those of Legacy Special Operations Command and its assigns.