Bill Ramsey – Buying Power
May 28, 2015
James Godman, his wife and children are walking through a group of model homes nestled tightly against the foothills on the western edge of south Summerlin. In one of the models, Godman stands on the large patio that opens to the home through a wide sliding-glass doorway. He likes what he sees.
“I love to be able to open the doors like this,” he says. “You can be in the living room and still enjoy the outside. If you have a pool with a waterfall, you can stand in the kitchen and still enjoy the ambience. And that would be worth paying for.”
Godman is in his 40s and works as a juvenile probation officer. He’s lived in Las Vegas since 1995, bought before the housing crash, then lost that home because of the crash. Now he’s looking at new homes and is intrigued by the features being offered, such as the indoor/outdoor living spaces and small, flexible loft spaces where family can gather. “Sometimes you look at resales, where they have three bedrooms and a loft,” he says, “but the loft takes the place of the fourth bedroom. I want that fourth bedroom.”
Before the housing bubble burst, such amenities rarely came standard, as developers had just one primary concern: building enough homes to meet seemingly endless demand. But in today’s post-crash world, the challenge is getting buyers through the door. To do that, builders have had to return to the drawing board, offering small flex spaces, indoor/outdoor living, larger showers and even increased energy efficiency. Indeed, in the current real estate market, buyers like Godman—not to mention the very reluctant and reclusive millennials—hold all the power.
The statistics tell the story of how dramatically the market plunged during the Great Recession. According to the Southern Nevada Home Builders Association, the number of traditional homebuilding companies in Las Vegas had been dropping steadily since 1996. However in just one year—from the end of 2006 to the end of 2007—the Valley lost 30 builders.
The tune was similar for new-home sales. In 2006, the Southern Nevada Home Builders Association reported 36,051 new-home closings. A year later, that number plummeted to 19,670. And in 2008, it roughly halved again. According to Home Builders Research, a Las Vegas real estate research firm, the number of new-home building permits also dropped precipitously from 23,219 in 2006 to 14,510 in 2007.
Today our housing industry is nowhere near running at the historic, breakneck speeds of the mid-aughts. Brian Gordon, who tracks the residential real estate market as a CPA and principal with the local economic research firm Applied Analysis, suggests everyone who deals in real estate has learned a valuable lesson. “Homebuilders and folks in the industry are operating much more cautiously than they were 10-15 years ago,” Gordon says. “At the height of the boom, we were developing or selling in excess of 3,000 homes a month. Now we’re in the 400, 500 or 600 homes range. So the world has changed for builders.”
But what does that mean for people such as Godman who are in the market for a home in Southern Nevada’s suburbs? It comes down to one word: competition. And that’s a good word for Godman and other buyers.
“The shift in the market itself has people operating a little differently,” Gordon says. “Homebuilders were essentially ticket takers during the height of the economic boom. They couldn’t build homes fast enough. Today, they’ve been forced to be more creative and more thoughtful in how they capture part of the demand pool, and that has builders operating more creatively and more efficiently than they have in the past.”
It’s understandable that production homes in Las Vegas have a very similar aesthetic: For more than a decade, there was no incentive to spend the time and money to be architecturally creative in a region where demand was outpacing supply. Besides, the words “unique” and “subdivisions” usually don’t go together anyway. Even those responsible for designing homes admit that.
“Typically builders travel in a herd,” says Howard Perlman, an architect who designed homes before, during and after the recession. “Designs are kind of passed around, the same as in any industry. If you’re designing a casino, you would go into one, walk around and say ‘I like this. I like this. I like this.’ It’s always borrowing ideas, and the homebuilding industry is the same. Builders will walk into existing homes and say ‘I like this, I want this and I want that.’”
William Ramsey, an architect and a principal with KTGY Architecture and Planning, says his firm has designed homes in Las Vegas for more than 20 years. He agrees that builders and architects have been forced to sharpen their focus in this post-recession market. Instead of relying on a basic cookie-cutter template, tract homes now feature elements that are more identifiable with custom properties. “Before the recession, builders really could get away with simpler designs,” he says. “[These days], they really have to build plans that directly target a demographic more than ever before. People have gotten tighter with their dollars, and they really want something that’s designed for them and their style of living.”
Today’s buyers have the luxury of demanding more bang for their bucks for one reason: There’s a wealth of inventory. Not only are new-home builders competing against each other, they’re also competing against the resale market and homes they built themselves only a few years ago. “What you have to do as a builder is find a niche,” says Nat Hodgson, executive director of the Southern Nevada Home Builders Association since 2012 and a building professional since 1993. “You’ve got to think outside the box.”
Ron Rulof, owner of Team Power Marketing, advises builders on what and where to build and even how to train their sales staff. From his perspective, the market is radically different because there’s a new group of buyers that’s in a very different position, financially and mentally: millennials.
“Before the recession, the people who walked into model homes when they were fresh out of college weren’t as deep in debt,” Rulof says. “They weren’t taking longer to decide not to rent.”
To Rulof’s point, many millennials lived through a recession weighed down by student debt while only managing to work part-time jobs. That feeling of economic unease remains even in a post-recession world. The result? Rulof says builders must offer more to draw millennials out of their apartments or parents’ houses and into model homes.
In many cases, these young buyers are not being drawn out at all, thanks to something called multigenerational homes. These are residences built with separate entrances and semi-private areas so family members can live under the same roof while having their own space. “This isn’t really a guest room,” Ramsey explains. “It’s a whole separate living quarter for a person who is part of the extended family.”
When millennials and others do decide to dip their toes into the real estate market, it’s taking some unique options to get them to buy. “I always tell my clients, ‘Even if you’re building entry-level homes, you need to add at least one or two features from your nicer [models],” Rulof says. “You’ve got to give them something more than a bunch of windows and walls. There has to be something that turns them on.”
One of the more popular turn-ons is the kind of indoor/outdoor living spaces like the one in Summerlin that piqued Godman’s interest, with those larger sliding-glass doors or even rooftop decks. “In the old days, before the crash, the inside and outside of the house were two different projects,” architect Perlman says. “The [building] architect didn’t know what the landscape architect was doing, and vice versa. It didn’t matter, because there wasn’t that much of a connect. But today, everyone’s trying to get the house extended to the outside.”
Some of these new amenities seemed inevitable—in fact, Perlman, Ramsey and others admit that builders would’ve incorporated them … eventually. They say the post-recession competition simply accelerated things. “Today, we assume every room has a TV and it’s mounted to the wall,” Perlman says. “Before the crash, we had media niches, a thing with a fireplace on one side and a huge alcove on the other for a projection TV. No more.”
And remember that huge bathtub, once a mainstay of the master bathroom? It’s gone the way of the dinosaur (or the compact disc, depending on your frame of reference). “One thing I’ve found in Pulte, one of my clients, is there isn’t a big tub in the master bedroom anymore,” Rulof says. “Who soaks in tubs anymore? People want a great big, fun shower.”
Another popular 21st-century selling feature: flex spaces, places set aside to use tablets or laptops. “It’s a design change that has been well received,” Ramsay says. “You’re putting in small spaces, like 6 feet by 8 feet or 4 by 8, off the kitchen or the primary living area.
“It’s a spot where people can go and use their laptops to pay their bills, or if they don’t want to watch what their husband is watching on television, they can go into this nook with an iPad and relax without having to go into the bedroom. And [the space is] not that big, so you don’t have to give up a bedroom in order to have it in your home.”
But what about changes to exterior design? Unfortunately for many, even post-recession, stucco and Spanish-style homes with tile roofs are here to stay. Hodgson points to some changes and improvements in the way home exteriors in Las Vegas look, but he’s not exactly effusive about it. “We’ve had a couple of builders—Blue Heron, for example—jump on the square boxy look,” he says. “And we do have lots of beiges and browns … and cultured stone. I remember in the early ’90s there were only four paint colors. We’ve come a long way from that.”
One theory as to why homebuilders aren’t quick to adopt a more modern approach to design: Modern doesn’t mean homey. And homey is what today’s buyers want. “Contemporary-[style design] is coming in, but you’ll never see it as a dominant force, because it’s not as comfortable as the traditional style,” Rulof says. “It is having its play, but mainly in move-up and higher-end homes.”
Another thing that hasn’t changed is the special place home ownership has in the minds of many. It’s the reason why some builders have installed a deck on the roof, or why there’s pressure—even in less expensive developments—to have a bigger yard or driveway than similar homes would have had, say, a decade ago.
“There have been some problems [selling] houses with smaller lots,” Rulof says. “[Maybe it’s] because they don’t have full driveways so the guys can work on their cars. Or the buyer might say, ‘You know, I want a little bit more of a yard so I can have the guys over for a barbecue, or [have] a hot tub.’
“Maybe you’ll never do any of these things. But when you’re a buyer and you’re young, you have these things in your mind. And when you’re a builder offering homes, you have to have a space for these dreams.”