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Mark Tilley

Should We Proactively Prepare for Change?

For America's biggest builders, this is a tough question. In good times, when your divisions are selling every home they produce, and making great margins and profits by building in the same way and to the same standards that you and your competitors always have. Why change anything? In hard times, when home sales are tough to come by and the pressure is on price, revenues, and earnings, why focus on anything other than beating the bushes for sales, and bearing down on reducing costs?

 

So why should builders think differently? Perhaps when homebuyers, investors, and government are all creating new market expectations… all at the same time.

 

Homebuyers                     

The pandemic, and our shared experiences from recent years has shifted the paradigm on the work and home life balance. The impact of adapting and learning to work from home, while utilizing digital technology as the dominant means to manage our lives and our personal and professional relationships has intensified. It has introduced new thinking about where we choose to live and the quality and responsiveness of our home environments. In today’s uncertain, highly connected and AI-influenced world, homebuyers will increasingly rely on homebuilders to understand both their spoken and unspoken needs. Homebuyers today expect attainable new homes that clearly demonstrate they are more livable, safe, resilient, comfortable, efficient, smart and perhaps for the first time, authentically sustainable.

 

Investors

As major investment organizations consider the investment worthiness of any company, non-financial, strategic investment criteria now assuredly come into play: Values Based Asset Management. This simply means using environmental, social and governance factors as a means of further analysis and selection. Once enough data has been acquired on these three metrics, they can be integrated into the investment evaluation process when deciding what equities or bonds to buy. Over the last three years, most large, publicly traded U.S. homebuilders have come to clearly recognize the need to proactively measure, benchmark, and visibly report on their sustainability performance. The main priority and challenge for builders now lies in genuinely demonstrating a true position of environmental sustainability and positive carbon impact, directly through their finished homes and construction practices. Proactively designing and delivering quality-driven, high-performance homes with measurable decarbonization construction strategies will be a critical component of any credible homebuilding ESG profile that is shared with both current and future investors. 

 

Government

Climate change and the decarbonization of the homebuilding industry is here to stay.  Government initiatives to reduce the operational carbon emissions of homes will result in a constant upward drive on energy efficiency codes and legislation, targeting improvements in construction quality and home energy performance. All with the intent of accelerating progress toward Net-Zero Energy (NZE) homes. The carrot and the stick are clearly defined: First, the proverbial carrot - new tax incentives that have been established to encourage and promote positive change. This includes the ten-year 45L tax credit of $2,500-$5,000 for each single family or manufactured home that either meets the standards of ENERGY STAR, or for the higher incentive, is certified as a Net-Zero Energy home. Then, the proverbial stick - new requirements on the provision of lower cost, first-time homebuyer mortgages. Starting in November 2025, HUD-backed mortgages will only be provided on new homes that meet the 2021 IECC energy efficiency standards.

 

At the same time, new sustainability standards in the form of Environmental Product Declarations (EPDs) are emerging. Manufacturing companies are being asked to report on the embodied carbon profiles and sustainability of the products and materials that they produce. This same kind of expectation is also destined to become a future legislative overlay on the business of building homes. As the home becomes further visualized as a vast integration of construction materials and manufactured products, new forms of mandated government home decarbonization standards will become an everyday part of the homebuilding design, specification, and construction process.  

 

These agents and attitudes of change are already in motion… and the tide is moving in only one direction. The question now is whether builders choose to step up and proactively pursue both the challenge and opportunity – or just carry on with business as usual, and simply wait for the waves to break on the shore.

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