Survival Tool : The ‘affordable’ home helps savvy builders stay alive in recession by winning first-time buyers. ‘Basic box’ has many changes in design and amenities to keep costs down.
On a brisk desert evening last weekend, one of the 60,000 developers who came here for the annual convention of the National Assn. of Home Builders leaned over a craps table at the Hilton Hotel and stared at the dice.
With all the care of a mother caressing her newborn child, he placed the dice on the green felt table and slowly turned them so the number he needed to win faced the ceiling.
Then he picked them up and, on his first toss, rolled a winning seven and raked in a stack of $25 chips in front of a cheering crowd.
But a winning casino bet was about the only thing builders had to cheer at this year’s convention. Barely 1 million new homes were built in 1991, a 15% drop from the year before and the lowest level of building activity since 1945.
And even though construction is projected to rise about 17% in 1992, the 1.18 million homes that are expected to be built this year would still be about 30% below the average annual output since World War II.
“If the construction industry was a doctor’s patient, you’d have to say that he’s in ‘critical’ condition,” said Mark Ellis Tipton, a builder and NAHB official. “The increase we’re projecting for ’92 wouldn’t even upgrade him to ‘stable.’ ”
Like last year’s new-home market, the 1992 market is expected to be driven by first-time buyers who can now afford to purchase a house because interest rates have dropped and prices have turned soft.
Entry-level buyers accounted for about half of all home sales in 1991, up from 40% in 1989, according to Chicago Title Insurance Co.
Although a handful of developers who cater to high-income buyers should do well this year because the wealthy don’t have to worry much about the recession, builders who cater to first-time buyers are expected to remain the busiest.
“We’re seeing a shift back toward simpler, low-cost homes,” said Art Danielian, an Irvine-based architect who works for some of the Southland’s biggest builders.
“We’re going back to the ‘basic box’--a home with a floor plan that’s not as complex as the ones we were designing a few years back. Simpler floor plans keep a builder’s costs down, so he can lower his sales price.”
Even Southland builders who once specialized in the mid- and high-priced markets now say that they’re trying to build “affordable” homes priced below $150,000 or $200,000 to bolster their sagging profits and keep their construction crews working.
“If you’re a builder and you’re not focusing on the first-time buyer, you must be ‘brain-dead,’ ” summed up Larry Webb, president of A-M Homes’ Southern California division.
Building an inexpensive home in the Southland has never been easy. Land and labor costs are among the highest in the nation, and many builders complain that laws designed to protect the environment and limit growth drive costs even higher.
Many of the ways that builders are cutting costs to keep their prices down are never seen by the average home buyer.
Developers say that they’re driving harder bargains when they buy raw land and building better relationships with local government agencies to reduce costly red tape.
“We’re also putting pressure on all of our subcontractors to cut the cost of their labor and materials,” said Ira Norris of Inco Homes, a company that’s building a 107-unit development in Adelanto, where homes start at a rock-bottom $69,900.
But while much of builders’ efforts to control costs is taking place behind the scenes, many of their other attempts are more visible to the average home-buyer.
The typical “starter” home in 1992 will be smaller, simpler and have fewer amenities than homes that were built just a few years ago, as builders struggle to keep their prices down and their sales up.
You’ll notice the changes the moment that you pull your car up to the front of the model homes.
EXTERIOR
“Most new homes today will (have) less-complicated roof lines,” said Barry Berkus, a Santa Barbara architect who designs houses for Southland builders.
“Every time you put a ‘break’ in the roof that sends it in another direction, you add more to your construction costs and have to raise your sales prices.”
You’ll also notice that most of the homes that are built for first-time buyers this year will have fewer corners.
When the housing market was red-hot a few years ago, many homes had “pop-outs”--a little nook that “popped out” of the side of a larger room where you could put, say, a love seat or roll-top desk.
But when a builder includes a pop-out in the floor plan, it adds four more corners to the house.
Although most of today’s first-time buyers still like the additional space that a pop-out provides, they’re not willing to pay for the extra lumber and labor that it takes to build.
If the windows in the model you visit look a little smaller than the ones in your current home, it’s probably no illusion.
“If you can put a 4-foot by 4-foot window in a house instead of a 4-by-5 window, you’re using 25% less glass,” said Keith Johnson, president of the Fieldstone Co., a Newport Beach-based builder.
“By itself, that’s not a huge savings. But when we make little alterations like that all around the house, we can wind up lowering our prices by $10,000 or $15,000.”
One feature that won’t be missing from most starter homes this year is a front porch.
Many builders over the past several years had downsized or even eliminated porches, figuring that the space could be used to make the inside of the home a bit larger.
“Today, first-time buyers want a more traditional look--and that includes a front porch,” said Michael Woodley, an architect for building giant Kaufman & Broad Home Corp.
“A porch really improves a home’s ‘curb appeal,’ but only adds about $700 to our construction costs.”
LIVING ROOM
The living room, once the focus of many floor plans at new housing tracts, may soon wind up on the endangered species list.
“What’s the use of having a room, filling it full of fancy furniture, and then telling the kids that they can’t play in there?” asks Sandy Goodkin, a San Diego-based housing consultant.
Instead of building a large living room, Goodkin said, many developers are downsizing or even eliminating it and adding the space they have saved to less-formal family rooms or other parts of the house.
“They’re also using different-colored paint and special lighting to separate one room from the next,” said Jeff Meyers of the Meyers Group, an Encino-based housing-research firm. “It’s a lot cheaper than adding a dividing wall.”
Other builders, who still include living rooms in their starter-home floor plans, are cutting costs by eliminating the fireplace and lowering the height of the ceiling.
“In fact, I’m seeing a lot more ceilings that are sprayed with acoustic ‘popcorn,’ ” Meyers said. “It saves the builder a lot of money, because he doesn’t have to pay a guy to get up on a ladder and smooth out the surface.”
KITCHEN
Of all the changes that a builder can make to a house, few can save as much money as alterations to the kitchen.
“Start with the countertops,” said architect Danielian. “A few years ago, everyone wanted tile countertops or Corian countertops, and they were willing to pay extra for them. Now, they’re settling for laminate tops.”
Gone too are the days when first-time buyers could expect fancy appliances as standard features: If you want a double-oven or a stove with a built-in barbecue grill, you’ll probably have to pay extra for it.
Builders are also using a lot more “slide-in” cooking units. “Instead of getting a built-in stove and oven (surrounded by ceramic tile), you might see a one-piece set that has a stove, oven and a microwave on top,” Meyers said.
Many of today’s first-time buyers still want a kitchen “island”--a free-standing countertop where meals can be prepared.
Builders are willing to oblige, but they’re cutting their costs by eliminating the sink and cooktop range that was commonly found in islands that were built a few years ago.
“The island might not have any water, but it still gives the kitchen a ‘gourmet feel,’ architect Woodley said.
Meantime, many builders who were installing solid-oak cabinets in their kitchens a few years ago have now switched to lower-cost laminated wood.
“In fact, I’ve seen a lot of projects where they’re not even putting backs on the cabinets,” Meyers said. “You open up the cabinet door, and you see the wall behind it.”
BEDROOMS
In the booming ‘80s, even first-time buyers generally insisted on having a large master-bedroom with its own bath.
“Now, married couples are more willing to accept a smaller master bedroom if it means they can get a small, extra bedroom for their kids,” said Randall Lewis of Upland-based Lewis Homes.
Many builders are also replacing walk-in closets with standard-sized ones to cut costs and provide more living space, Lewis said.
In another attempt to keep their homes affordable, some companies are building houses with two or three bedrooms and one bath but supplying their buyers with professionally drawn plans if they ever want to add an extra bedroom or bath.
“Most first-time buyers can get by with two bedrooms, and they don’t have the $30,000 or $40,000 extra that it would take to buy something larger,” said Aaron Raznick, president of Raznick & Sons in Woodland Hills.
“So we just sell them a house and give them plans so they can expand the place when their family starts growing and they build up some equity in a few years.”
BATHROOMS
The bathroom is another area where builders can save a lot of money by making a few simple changes.
One-piece tub kits made of fiberglass are now common in many developments geared toward first-time buyers. These tubs are replacing the costly ceramic or cast-iron ones and tiled walls.
The actual placement of the bathroom is also changing at many developments.
For example, it was common a few years ago for a one-story home to have two bathrooms. To maximize privacy, one bathroom would be on one side of the house and the second would be on the other.
Now it’s common to find two bathrooms that are separated by a single wall. That way, the builder can trim his plumbing costs because he only needs to run pipes to one end of the house instead of both.
Similarly, bathrooms in many two-story homes are being “stacked”--the bathroom on the second floor is directly above the bathroom on the first floor. Again, pipes only need to be on one side of the home.
“The money that’s saved can be used to put in nicer amenities or passed along to buyers in the form of lower prices,” said Bruce D’Eliscu, a marketing consultant in Newport Beach.
“Either way, the buyer comes out a winner.”
