Disruption is Coming to the Housing IndustrySource:“Three Myths About Millennials that Impact...

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Disruption is Coming to the Housing IndustrySam RashkinRetooling the U.S. Housing Industry

2012 2014 2020

Basis for Presentation

Retooling Executive Workshops/Boot Camp:

• Vetting• Feedback• Ongoing Research

Lectures

Disruption Happens

Fifth Ave. Easter Parade, NYC - 1903 Fifth Ave. Easter Parade, NYC - 1913

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DisrupterWorld’s Largest

Ownership

Uber Taxi Company No Vehicles

Facebook Media Company No Content

Alibaba Retailer No Inventory

AirbnbAccommodation

ProviderNo Real Estate

TBD in ~3 YearsHome Building

CompanyNo Construction

Disruption Happens

• 3 New Realities

• 5 Housing Crises

• 3 Housing Disruptions

The Path to Housing Disruption

Housing New Reality

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• Younger Buyers

• Age of Acceleration

Housing New Reality

• Informed Homebuyers

“Millennial demand for homeownership was one of the biggest trends influencing the housing market in 2018. This is unlikely to reverse going into next year, the year after that, and many years to come.”Odeta Kushi, senior economist for First American

Younger Buyer Pent Up Demand

Housing New Reality Younger Buyers Age of Acceleration Informed Buyers

Younger Buyer Pent Up Demand

Source: “Where are the Millennials Buying Homes? – 2018 Edition,” Derek Miller, Smart Asset, January 26, 2018

• No big city cracks the top ten where millennials are buying homes

• Across 200 largest cities, only 18 saw millennial home‐ownership rate increase from 2007


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60% expect to live in detached single‐family home within five years

75% plan to get married which has historically driven suburbanization

~$200 Billion purchasing power currently that will increase as the generation ages

~50% of the global workforce by 2020Source: “Three Myths About Millennials that Impact Commercial Real Estate,” Nick Romito, Realcom Advisory, Vol. 17, No. 28, June 12, 2017 and ULI survey

Younger Buyer Pent Up Demand: Millennial Data


Younger Buyer Pent Up Demand Out of the City


• Huge Debt

• Sharing Economy

Younger Buyer Reality

• Delayed Commitment

• Job Volatility

• Crash Experience

• Experiences vs. Savings

• Wage Stagnation


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Younger Buyer Reality: Huge Debt

$1.48 Trillion Student Loans

44.2 Million Americans

11.2% Student Loan Delinquency Rate

$351 Average Monthly Loan Payment (20-30 years old)

Source: “A Look at the Shocking Student Loan Statistics for 2018,” Student Loan Hero, May 1, 2018, https://studentloanhero.com/student‐loan‐debt‐statistics/



Source: College Board (dollars inflation‐adjusted to 2016)

+250%



+50%

Source: U.S. Census Bureau


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Younger Buyer Reality: Wage Stagnation

Source: U.S. Census Bureau (dollars are inflation‐adjusted to 2016)

+0%

Source: U.S. Census Bureau (dollars inflation‐adjusted to 2016)


A staggering 74 percent of Americans prioritize experiences over products. The focus on experiences is closely related to the growth of the sharing and experience economy.

Younger Buyer Reality: Experiences vs. Savings


While 27% of US online adults report using at least one sharing service in the past six months, Millennials’ usage rate

is more than quadruple that of Boomers.

Younger Buyer Reality: Sharing Economy


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Younger Buyer Reality: Delayed Commitment

+150%

Source: Pew Research Center analysis of the 1960‐2000 decennial censuses and 2010 and 2016 American Community Survey (IPUMS)


Younger Buyer Reality: Job Volatility


How job predictions apply to 2016 U.S. employment statistics. Black fields are jobs likely to be automated and white fields are jobs that are likely to remain.

Robots will take over half of today’s jobs in 10-20 years

Sources: U.S. Bureau of Labor Statistics; Frey & Osborne, The Future of Employment, 2013



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“ Looking to the future, 65% of

children at school today will work in

jobs that do not yet exist.”Source: U.S. Department of Labor, 2013



“People are realizing that houses are not necessarily the best places to store wealth.”Michael Cook, Operations Chief, Streetlane Homes

Source: “Meet Your New Landlord: Wall Street,” Ryan Dezember and Laura Kusisto, Wall Street Journal, July 21, 2017

Younger Buyer Reality: Crash Experience


Younger Buyer Reality: Crash Experience

-20%

Source: U.S. Census Bureau


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1. If it [a better experience] can be done, it will be done.

2. If you don’t do it [a better experience], someone else will.

* Daniel Burrus, “Flash Foresight”

Acceleration Rules


• Data;

• Software; and

• Technology

That Deliver a Better Consumer Experience

Acceleration Drivers


“Accelerating rate of change…will disrupt catastrophically every aspect of every industry…

—except for those who see it coming.”Daniel Burrus, “Flash Foresight”

Acceleration Reality


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Imaging• Kodak• Polaroid

Phones• Motorola• Nokia

Transport• Taxis• U.S. Cars

Retail• Retailers• Malls

Acceleration Graveyard


Frequently or Occasionally Search Web Before Buying Homes

71%77% 79% 80% 84% 87% 90% 89% 88%

92%90%

Source: National Association of Realtors®

Homebuyers Searching Web First

Content


Plymouth University psychologists 2014 study showed that householders who received thermal images of their homes were

4.9 times more likely to install draught proofing than those just presented

with an energy audit

Homebuyers will know… Good and Bad Enclosures


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Homebuyers will know… Insulation DefectsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know… Air Leakage Defects


Homebuyers will know… Advanced WindowsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

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Homebuyers will know… Leaky WindowsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know… Moisture DefectsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know… Healthy LivingHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

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Homebuyers will know about… True ComfortHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know about… Smart PlumbingHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know about… Quality Lighting


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Homebuyers will know about… High-Tech Convenience


Homebuyers will know about… Aging Homes

Median Age of Owner‐Occupied Homes in U.S.

1985 1990 1995 2000 2005 2010 2015

40

30

20

10

2327

31

38

Source: HUD, American Housing Surveys


TruHomeFAX™: Report – Summary

Report for 6207 Sudley Church Ct., Fairfax Station, VA 22039 Prepared March 4, 2017

Based on the information provided and general cost assumptions, this home is estimated to have the following costs and grades associated with the five key risks of home ownership.

For more information CLICK HERE

10‐Year Cost Assessment

Low High GradeMonthly Cost to Maintain

$108,000 $199,000 B‐ $900 – $1,700

Interior Systems Exterior Report Summary

Based on the information provided, research data, and cost assumptions, this home is estimated to have the following costs and grades based on three key maintenance costs.

>

Homebuyers will know… Added Cost of Older Homes


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Homebuyers already know… Poor Energy Efficiency

Source: The Housing Satisfaction Gap: What People Want but Don’t Have, Demand Institute, 2014

71%think it’s important

35%satisfied with current home

36%Satisfaction Gap

“very energy efficient with low monthly utility costs.”


Homebuyers will know about… Relative Energy EfficiencyHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know… The Excitement of ZeroHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

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Monthly Utility BillSavings

AddedMonthly Mortgage

Lower True Cost

Monthly Utility BillSavings

Lower True Cost

Homebuyers will know about… True Cost of ZeroHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Hurricane Harvey Aftermath: Houston, TX

Homebuyers will know about… Disaster RisksHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know about… Disaster Risks

The states that are most in harm's way are California, Florida, New York, New Jersey and North Carolina, while the metros with the most risk include New York City, Los Angeles, Miami, Houston, and the Riverside-San Bernardino area of California.

43% of U.S. Homes with an Estimated

Market Value of $6.6 Trillion in Counties with High Natural Disaster Risk


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Homebuyers will know… Disaster Protection is Harder

Insurers refused to renew thousands of polices in fire areas after a wildfire disaster


Homebuyers will know… Disaster Risk Affects Value

Flooding has erased nearly $7 billion in value for homeowners in New York New Jersey and Connecticut since 2005, a new study finds.


Source: American Planning Association, https://www.planning.org/research/postdisaster/briefingpapers/floodinsurance.htm

Homebuyers will know… Disaster Protection Saves


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Homebuyers will know… Disaster Protection Saves

13% ‐ 15%*

16% ‐ 19%*

6% ‐ 8%*


Homebuyers will know about… Certified PerformanceHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know about… Consumer ReviewsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

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Homebuyers will know about… Consumer Builder ReviewsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Homebuyers will know about… Consumer Builder ReviewsHousing New Reality Younger Buyers Age of Acceleration Informed Buyers

Housing New Reality Summary

Younger Buyers,

Age of Acceleration, and

Informed Homebuyers…

…are creating a

Consumer Experience Imperative.


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5 Housing Crises

• Supply

• Affordability

• Trades

• Productivity

The Five Crises in U.S. Housing

• Innovation

Historic Housing Shortage

Home construction per household a decade after the bust remains near the lowest level in 60 years of record-keeping, according to the Federal Reserve Bank of Kansas City.

Housing Crises Supply Affordability Trades Productivity Innovation

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Housing Starts per 100 Households 3-Month Moving Average

Source: Federal Reserve Bank of Kansas City

Housing Supply Has Not Recovered


Source: Urban Institute American Community Survey, July 21, 2016

Over Supply

SupplyDemand

Shortage

Housing Supply Short 430,000 Units


“Only 10 of the nation’s 50 largest metros has managed to create enough new housing to keep up with growth.”Source: https://www.curbed.com/2017/7/26/16033876/rent‐housing‐shortage‐jobs

Shortage in 80% of Largest Metros


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Where We Live in the U.S.

11 Megapolitans contain 70% of U.S. Population in less than 20% of land area in 2008


Where We Live in the U.S. is Unaffordable


House Price to Income Ratio Not Sustainable

~3.5X~3X ~2X

The long used real estate agent and homebuyer rule of thumb is you can afford a house if its price is equivalent to roughly 2.6 years of your household income. That ratio is based on historical nationwide averages under healthy economic conditions.

Source: ‘Where the House‐Price‐to‐Income Ratio Is Most Out of Whack,’ Richard Florida, May 29, 2018, CityLab


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Meet Your Buyers


72% said affordability was the primary obstacle to buying a home

$1.3 trillion student loans by the end of 2016

20%+ of salaries go to student loan payments

Millennial Debt Crisis


Nearly 70% have saved less than $1,000 for a down payment

About 40% aren't saving anything on a monthly basis

8 and 20+ years to purchase home in NYC and LA/San Jose respectively

Less than 30% can save enough for 10% down payment in next 3 years

Millennial Savings Crisis


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Source: Census Bureau

< 1,600 sf

1,600 – 1,999 sf

2,000 – 2,399 sf

2,400 – 2,999 sf

> 3,000 sf

Affordable Housing Supply Crisis


Declining U.S. Homeownership Rate

% U.S. Households That Own Homes

Source: ‘Meet Your New Landlord: Wall Street,’ Ryan Dezember and Laura Kusisto, Wall Street Journal, July 21, 2017


200,000 Homes

Affordability Impact on Homeownership


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Affordability Impact on Homeownership

Single-Family Homes Owned by Large Investors

200 thousand

150

100

50

0

Cumulative Total Since 2010

2010 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16Source: ‘Meet Your New Landlord: Wall Street,’Ryan Dezember and Laura Kusisto, Wall Street Journal, July 21, 2017


Affordability Driving Historic Increase in Renting


Affordability Crisis for Rental Housing


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Affordability Crisis for Rental Housing

$63/Hr.


Affordability Driving Ownership Alternatives


Affordability Will Impact Where We Live


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Source: “Where are the Millennials Buying Homes? – 2018 Edition,” Derek Miller, Smart Asset, June 8, 2018

Affordability Impacting Where Young Buyers Moving


Home Prices Not Sustainable


• Land

• Regulation

• Hard Costs‒ Labor‒ Materials

• Design Services

Where Are the Cost Savings Going to Come From?

• Marketing/Sales

• Transaction Costs


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Relative Price Levels[PPP = Purchasing Power Parities]

Source: “Cost of Living, South Africa vs. the World,”Business Tech, April 20, 2015

Why Affordability So Critical


Australia

United States

Why Affordability So Critical


Trade Partner Issues

•Availability•Quality •Training•Cost•Productivity•Waste


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Source: NAHB Eye on Housing, “Builders Report Labor Shortages on the Rise,” August 23, 2017

Large Labor Shortages


Source: NAHB Eye on Housing, ‘California, Texas, and DC Most Reliant on Immigrant Construction Workers,’ Natalia Siniavskaia, January 24, 2018

Large Labor Shortages Tied to Immigrant Workers


Source: 2016 ACS, PUMS, NAHB estimates.

Large Labor Shortages Tied to Immigrant Workers


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Trade Partner Problems Not Getting Better

Two Headed Monster:“Our inability to attract new talent, combined with the aging of our present workforce, is the most serious issue affecting growth…there is no single, concerted, industrywide effort that attacks this issue head‐on.”

Tony Mancini


1984 2000

100%%

60%

180%

140%

Construction Industry ‐28%

All Non‐Farm Industries +76%

Labor Productivity Index

Source: U.S. Bureau of Labor Statistics, U.S. Dept. of Commerce

3X

Housing Industry Productivity Lagging


Source: FactSet –Compound annual growth rate for productivity, defined as GDP per worker

Average Year‐Over‐Year

Productivity Growth 2005‐2015

For Major Industries

Housing Industry Productivity Lagging


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Individual Auto Assembly

1903

Ford Model T Assembly Line

1913

Automobile Offsite Productivity Innovation

Ford EdgeRobotics Assembly Line

2017


Glacial Progress with Framing Innovation

1877 Wood Frame Source: Wood frame house on a Omaha Reservation in Nebraska (Photo by William Henry Jackson: The National Archives, Smithsonian Institution)

2015 Typical Wood FrameSource: Wall Street Journal, Construction Workers ‘Left the Business and They Didn’t come Back’, Oct. 13, 2015


150,000

50,000Home Builders

Typical Industry Housing Industry

RemodelingContractors

100,000

Number of Producers

Housing Innovation Challenge: Fragmentation


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Manufacturers

4%

3%

2%

1%

Corporate America Housing Industry

Builders

R&D Investment as % of Revenue

Housing Innovation Investment: Miniscule

0%


Production100%

75%

50%

25%

Land

Europe/Asia U.S.

Home Builder Assets

Home Builders: Europe/Asia vs. U.S.

0%Land

Production


“Despite the importance of the housing industry to the national economy,

there is very little investment in residential technologies… it can take 10 to 25 years for a new housing technology to achieve full market penetration."

Source: ‘The Diffusion of Innovation in the Residential Building Industry,’ Center for Housing Research Virginia Tech & NAHB Research Center, Jan. 2004

Housing Innovation Outcome: Painfully Slow


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Offsite Construction Accessing Resources for Innovation


Computer 3D Modeling Critical to Auto Industry


Building the Home Twice, Virtual Before Actual, Allows Greater:

• Speed

• Quality

• Accuracy

• Efficiency

• Waste Reduction

• System Integration

Building Information Modeling (BIM) Benefits


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3 Housing Disruptions

Crisis Driven Disruption

5 Housing Crises: 1. Supply2. Affordability3. Trades4. Productivity5. Innovation

3 Housing Disruptions: 1. Mass‐Customization2. Offsite Construction3. SaaS Aggregator

Crises Driven Disruption

Housing Disruptions

Housing Crises

Supply Affordability Trades Productivity Innovation

Mass‐Customization

Offsite Construction

SaaS

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1. Optimized Floor Plans

2. Expert Building Blocks

3. Limited Quality Finishes

Mass Customization: 3 Concepts

• Diverse Choice• Rich Streetscapes=

Disruptions Mass Customization Offsite Construction SaaS

Mass Customization: Optimized Floor Plans


DigiBilt

Mass Customization: Expert Building Blocks

AB BC

DE F

A B C D E F

First Floor

• Design• Technology• Health• Zero Energy• Quality

IntegrateWorld‐Class

Experts Second Floor


DigiBilt

AB BC

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Mass Customization: Limited Quality Finishes

Options:

• Roof Trusses• Pop‐Out Windows

• Front Porches

• Siding/Trim• Color Packages


DigiBilt

Mass Customization: Diverse Consumer Choice


DigiBilt

Mass Customization: Rich Streetscapes


DigiBilt

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Mass Customization: Rich Streetscapes


DigiBilt

Mass Customization: Kitchens


Katerra

1. Eliminate Waste

2. Improve Quality

3. Improve Speed

4. Reduce Trades

5. Lower Cost (potentially)

Offsite Construction: 5 Benefits


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Visibly Poor Field Productivity


Imagine Auto Field Fabrication Like Housing


Visibly Poor Waste

Source: Scott Sedam, TrueNorth Development


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Imagine Auto Waste Like Housing


Offsite Construction: SIPs



Extreme Panel


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Unity Homes, Walpole, NH



Unity Homes, Walpole, NH

Living Homes: Environmental Design

World‐Class DesignWorld‐

Class Perf.

World‐Class Quality

Offsite Construction: High-Performance Modular


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Living Homes in Santa Monica



Living Homes in Santa Monica



HercuWall

Offsite Construction: Insulated Concrete Panels


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Superior Wall

Offsite Construction: Precast Concrete Walls


Offsite Construction: Robotics


Blueprint Robotics



Sekisui House

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Source: Building Design + Construction, David Malone, August 29, 2018



SaaS Aggregator: 3 Concepts

1. Integrate World‐Class Expert Solutions

2. Digitize BIMWorthy Designs

3. Continuously Improve with Data


SaaS Concept: Branding Opportunity

Design Technology Health Zero QualityCommunity

[Your Builder Name]Featuring Aggregator World-Class Innovation


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SaaS Concept: Branding Opportunity

Design Technology Health Zero QualityCommunity

[Your Builder Name]Featuring Aggregator World-Class Innovation

Architecture

Color

Lighting

Materials

Trim/Details

Enclosure

Comfort

Convenience

Entertainment

Security

Organic

Fresh Air

Filtration

Advisor

Monitoring

Energy

Outages

Water Waste

Auto Fueling

Disaster Risk

Products

Installation

Certified

Warranty

Service

Open Space

Nature

Landscaping

Maintenance

Enduring


SaaS Concept: Address Housing Fragmentation

Other Major Industries:Limited Key Players

Housing Industry:Unique Fragmentation



Individual

Design

Individual

Technology

Individual

Health

Individual

Zero Energy

Individual

Quality


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World‐Class

Design

World‐Class

Technology

World‐Class

Health

World‐Class

Zero Energy

World‐Class

Quality

SAASAggregator

Individual

Design

Individual

Technology

Individual

Health

Individual

Zero Energy

Individual

Quality


Integrated Packages

SaaS Concept: Optimize World Class Experts


World‐Class

Design

World‐Class

Technology

World‐Class

Health

World‐Class

Zero Energy

World‐Class

Quality

SAASAggregator

SaaS Concept: World-Class Expert Packages

SaaS Aggregator

‘Brand’Promise

SaaS ServicesWorld‐Class Expert

Solutions

Design

Big Data

Supply Chain

BIM Integrated Design

Scheduling

Bill ofMaterials

Performance

Technology

Quality

World‐Class Design

Superior Consumer Experience

• Design• Performance• Quality • Sales

Builder Pain

Design

Performance Risk

Technology

Trades Construction Docs

Superior Builder

Experience

• Risk• Cycle Time• Waste• Quality• Brand


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SaaS on Steroids: Bundle with Offsite Company

Offsite Plant/SaaS Aggregator

‘Brand’Promise

Offsite PlantWorld‐Class Expert

Solutions

Design

Big Data

Warranty

BIM Integrated Design

Marketing

Setup

Performance

Technology

Quality

Mass Customization

Superior Consumer Experience

• Design• Performance• Quality • Sales

Builder Pain

Design

Performance Risk

Technology

Trades Factory Built Quality

Superior Builder

Experience

• Risk• Cycle Time• Waste• Quality• Brand


SaaS Concept: Gentle Disruption

Like Uber but Different:• Like: Leverages technology and data for a better consumer experience

• Different: Leverages existing builder supply chain rather than displace it

• Result: Builders embraces changerather than fights it!

SaaS = Gentle Disruption


• Prepare sales for the informed homebuyer

• Move to zero energy ready performance

• Continually improve your customer experience

• Look for opportunities to integrate with off‐site production

• Work with upcoming housing SaaS aggregators

Disruption is Coming Builder Recommendations


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Sam Rashkin6207 Sudley Church Ct.Fairfax Station, VA [email protected]

Thank You and Questions

Builder Events:

Executive Workshops:• Charleston, SC:

March 6-7, 2019

• Loudon, VA: June 6-7, 2019

• Aspen, CO:Setember 19-20, 2019

Boot Camp:

• Scottsdale, AZ: November 15-16, 2019

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Disruption is Coming to the Housing IndustrySource:“Three Myths About Millennials that Impact...

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