Left to Right: Don Horton, David Auld, Michael Murray, and Bill Wheat
Jeff WilsonLeft to Right: Don Horton, David Auld, Michael Murray, and Bill Wheat

Here’s where all discussion on labor capacity in home building takes a decisive, if not sudden, turn.

Here also clear investment in a strategy whose thrust toward a dramatic increase in construction productivity–a pipe dream among American builders up until now–can unleash opportunity to serve a greater universe of households that work but are priced-out of all but a few of today’s new residential developments, for-sale or for-rent. And serve them profitably.

And here, too, is one of a number of quickly emerging signs that home builders–even the most mature, best-of-breed operators–are working to free themselves from, as Amazon ceo Jeff Bezos would express it, “an unhealthy adherence to process.”

This week, ICON, which won wide notoriety earlier this year by producing and unveiling the United States’ first 3D-printed home in its headquarters city of Austin, unveiled another noteworthy chapter in its rocket trajectory as a potentially disruptive home building start-up.

Per this press statement, ICON:

“Closed a $9M seed round led by Oakhouse Partners. Additional investors in ICON include D.R. Horton, the largest homebuilder by volume in the U.S. since 2002; Emaar, the largest developer in the Middle East and creator of the tallest building in the world; Capital Factory, Texas’ premier start-up accelerator; CAZ Investments; Cielo Property Group; Engage Ventures; MicroVentures; Saturn Five; Shadow Ventures; Trust Ventures; Verbena Road Holdings and Vulcan Capital among others. ICON will use the funds to further its mission to revolutionize homebuilding through robotics, software and advanced materials and to bring affordable, resilient and sustainable homes to people across the world.”

Among the other investors: CAZ Investments; Cielo Property Group; Engage Ventures; Saturn Five; Shadow Ventures; MicroVentures; Trust Ventures; and Verbena Road Holdings.

Horton–whose land investment strategy and pairing with land developer Forestar means that it can remain nimble and deeply penetrated in its geographical arenas simultaneously–would leap a couple of strategic fences should it find ways to scale a low-cost 3D printed home model. Its stated big worry of the future–the ability to keep building affordably priced quality homes–would be addressed should this investment gain traction.

  • One opportunity is on the labor capacity and cost front.
  • A second opportunity area is on the materials and distribution channel cost front

What’s more, by seizing production and delivery capability at the 3D level, D.R. Horton could remap an addressable universe of customers currently not active in the new-home and new apartment community development marketplace: American housing’s missing middle.

A successful 3D printed home platform would not only rival others stick- and site-build operators, but would put D.R. Horton in more direct competition with Berkshire-Hathaway’s Clayton Home unit, which has been hiving off real estate and operational talent with a series of site build private home builder acquisitions over the past three years.

We know that D.R. Horton’s biggest competitor for claim to the No. 1 spot among home builders, Lennar, is also exploring its own investments in new factory-based construction capability, partly through its limited partnership anchor position with Southern California-based venture capital firm Fifth Wall, and partly on its own. Now, following, in short order, last month’s tidings that Amazon’s Alexa Fund was part of a Series A fund for California-based Plant Prefab, it’s time to call it.

And for more than the past 36 months, U.S. manufactured home leader Clayton Homes has been investing in and looking for operational synergies at the nexus of site-built and factory prefabricated homes, as it tries to close the gap between the land and real estate and skill-sets on the one side, and the productivity power of the other.

The tipping point for capital investment in and operational transformation to long-awaited advanced design and building technology in home building is 2018.

Seven driving forces propel an industry known for resisting change through its inflection point, even as market momentum has checked up of late raising at least a specter of the end of housing’s 6-plus year recovery. Here they are, from Whelan Advisory principal Margaret Whelan [listen here to a podcast, hosted by Dean Wehrli, senior VP at John Burns Real Estate Consulting].

  1. Scale. The US now has two national builders building 50K homes per year, and multinational building product companies like Louisiana Pacific and Certainteed, who have seen success overseas, are investing in US factory-built homes.
  2. Costs. Substantial tariffs are directly impacting the cost of building a home, and undocumented low-cost labor is no longer available. Off-site construction can take 10% off the build time on a home, offering a better return on capital as long as the costs are the same or lower than building on-site. The extra transportation costs are offset by substantial reductions in wasted materials.
  3. Technology. BIM (building information modeling) has improved to the point where homes can be perfectly designed and tested on a computer ahead of time.
  4. Consumers. Consumers tend to be demanding the latest and greatest technology within their budget. They will figure out that: (a) The US stigma associated with factory-built homes stems from very low quality homes built decades ago, and today’s homes are different. (b) Their home can be built faster. In Orlando, where a majority of builders have been using RCI’s off-site construction for years, consumers have been asking their builders why the home next door (using RCI) is being constructed so much faster than their home. (c) Their utility bills will be lower (every home in France already has a HERS score), every spot in the house will be certified for high-speed wi-fi, and the air quality will be much better. Thrive Homes, winner of the Department of Energy’s Innovation in Housing Award for five years in a row and Professional Builder’s 2017 Builder of the Year, has delivered net-zero homes in Denver for as little as $200,000.
  5. Affordability. As Margaret says, “Necessity breeds invention.” D.R. Horton Express and LGI Homes have been successful selling very simple homes. Homes don’t need to be complicated.
  6. Capital. Money has been flowing into the space from overseas as well as building products companies that have seen successes internationally. In addition to Softbank’s investment in Katerra, Louisiana Pacific invested in Entekra, and CertainTeed invested in Unity Homes.
  7. Government. California’s mandate for all solar by 2020 is putting the industry on notice that the construction process needs to improve, and the thermal envelope of new homes needs to be better.

Prior to 2018, home builders’ relative path of success in growth and profitability may have inhibited investment in technologies that could alter basic operational workflows and processes. Now, increasingly challenged by cost increases and volatility on the land, labor, materials, and capital fronts, builders seem to sense an urgency in seizing control of their own destinies.

Longstanding friction points in architecture, engineering, construction, development, and investment have tended to fracture cohesive new approaches to housing’s value stream. Now, as players like Katerra, Entekra, Blueprint Robotics, Boxabl, Blokable, Unity Homes, and Clayton are proving, no single design, construction, procurement, investment, engineering, or community planning dimension in home building’s value stream is off the table for potential disruption.

This is why we’re seeing players like D.R. Horton getting in on the ground floor of operations like Icon. In a sense, it’s a departure for home builders, and one that Lennar, KB Home, Pulte and other big builders are embracing: true investment in R&D to improve both productivity and customer experience, vs. deployment of most of the talent and financial firepower into land and real estate.