CEO Roundtable: Homebuilders

Each month, we gather around the table with a different group of Springfield business leaders to discuss industry trends, workforce and company operations. Join us as we get a behind-the-scenes look into our business community from the C-suite.

An excerpt from the start of the podcast follows.

Christine Temple: Let’s start with the work that you have right now. So, projects, size of the projects, type of projects, and where you’re building.
Tyler Bussell: We have three different active subdivisions with two coming down the pipeline. One in Nixa will have 240 or so homes. I’m about halfway through getting ready to start the next phase there, which will bring us another 77 lots. The next one is going to be in Battlefield. I’m in my second phase of Green Ridge Estates there. Our second has 49 lots, and we’re getting ready to start the third phase, which has 44. Last one’s going to be Valley Ridge Estates down in Ozark. That’ll be 139 lots.
Alexis Woodward: We are building in Hoffman Hills in Willard. That’s approximately 160 single-family homes. We’ve got Wilson’s Valley in Republic, about 160 home sites. We are also building in Lionsgate and Valley Ridge Estates. We do have 44 home sites in Ozark, and we’re wrapping up our Nixa community.
Travis Little: We have 62 lots in the Crown Meadows development, which is in Hillcrest School District. We also have a small one in Willard. It’s 41 lots. We just finished 120 in Rogersville. We have 41 in the second phase of Creek Bridge in Ozark. I have a 270-lot development in Clever, 54 lots in Marshfield and 54 lots in a development that will be called Turner Fields in Springfield.
Temple: That’s maybe a thousand homes between you all. And the prices of those homes are at an all-time high. In the Springfield area, average home price in March was $293,500. Interesting stat from the National Association of Home Builders that homes are 70% higher than the last peak of the housing boom in 2006. Curious, what are you guys seeing as far as the factors that are driving up the cost to build?
Bussell: Biggest thing I saw is when COVID hit, material and labor shot up just because they could, the material was hard to get. Right when we had COVID, we had a very, very rainy spring, which seems to be forgotten about, which really put us in a tough spot. Whenever all the weather did break, all the labor was pulled in the same direction, but you only had the same size labor pool. Everything almost doubled in price in a lot of the labor areas, and it just never really worked its way back down.
Woodward: I would also say land costs are a big factor for us. You can’t put starter homes on expensive land, which has forced new construction to build bigger homes.
Little: Well, I think what hasn’t caused prices to go up? I mean, land, infrastructure, labor, materials – it all just went up, up, up. And I think probably the pent-up demand. COVID came along, and when it first hit, no one knew what to think. So, a lot of us kind of pulled back and then realized, oh, we should have been charging forward because, I mean a bulldozer showed up on a lot and 10 people wanted to buy it. You’re going to build a house here? I want that house. And lumber particularly, it went up. It went from $8 a sheet to $50 a sheet in a few months. Now, that’s not inflation, that’s a bubble. And it did pop and lumber did come back down to a level much higher than it was before, but still much lower than its peak.
Temple: When you look at cost and where it’s all divided up, has everything gone up kind of in equal measure?
Bussell: Land has been the largest factor of that. We develop a lot of our own lots, and were seeing lands costs, as far as our finished lots, in some instances double. When it comes to labor, you have some labor that has doubled or tripled in cost and you have some that stayed the same. Most material has gone up substantially, but I’ve actually seen relief in a few areas.
Temple: So, how are you addressing your profit with that?
Bussell: It is tricky. Ultimately, all you can do is build the best house for the best price and make it as affordable as possible to the largest number of people, and you get what’s left. We don’t have a strict profit margin that we try to achieve. You’re going to sell a house for what you can sell it for and the market’s going to drive that.
Temple: Did you have to renegotiate what margin was right for you in this?
Little: It’s just almost overnight everything went way up. I think a lot of people had contracts that were actually for a lower price than it costs to build a home. And some builders worked through, some builders backed out. You go back 10 years, you could go to some of these outlying towns, the Clevers, the Spartas, and you could buy lots for $15,000-$18,000, and you could build starter homes on those for young families. You can’t even pour the asphalt on the streets for that now. Prior to ‘08, I was a small builder and could buy lots here and there. I don’t think you can hardly do that anymore. It’s become more of a one builder takes that whole development. It is challenging. How do you build a 1,200-square-foot house that people can afford when the lot is $60,000? So builders had a tendency to build bigger houses to make the margins correct. But if you do that now, people just can’t afford it.
Temple: We’ve seen with King Built Properties, doing a much smaller lot. And heard more about the thought of medium density or cluster developments, pocket neighborhoods. Springfield has identified a shortage of housing units and right now our housing stock is 92% single family. What do you think about that concept of medium density or smaller lot size to try to solve some of these problems?
Bussell: Springfield is a traditional market. Everybody wants their house, their yard. I mean there’s a market for apartments, duplexes, townhomes, you name it. But do I think that that’s the answer? Most likely not because the other side of that is a lot of municipalities don’t allow those types of developments with lot sizes between the planning and zoning board, the city council. I’m pro smaller lot because the smaller lot you have as far as width goes, typically the lower cost your lot’s going to be because most of your costs in your lots is driven by just the lineal footage of the street. And so the narrower the lot, the more lots, the lower the cost, but a lot of these municipalities don’t want that. A lot of them will have square footage minimums on the lots. In my opinion the best way to combat the shorting of housing is these municipalities looking at zoning codes and how they can be more in line with the nation because we have larger lots compared to most other places in the nation. Just because you have a 60-foot-wide lot doesn’t mean you’re going to build a cheap house. It gives you the ability to build a more affordable house, but trying to push development in a certain area by requiring lot sizes doesn’t necessarily push development in that area. It stops development.

Excerpts by Editorial Intern Jillian Smith, intern@sbj.net.