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The Challenge of Affordable Housing – Part 1 a

As I noted in my last blog, during the Building Contractors Association of Southwestern Idaho Political Action Committee interviews of candidates for public office, the majority of the candidates cited the lack of affordable housing as one of major the issues facing us. During the discussions, a number of the candidates said they understood that it is a supply and demand issue.

The more I thought about it, the more I felt the need to dispel some possible misconceptions regarding the supply and demand issue.  A commonly held misconception regarding supply and demand and its impact on pricing is that providers increase prices when demand exceeds supply and decrease prices when supply exceeds demand.  While this might be true in some industries, it isn’t true in homebuilding. Builders use the same mark-up percentage on their direct cost (the sticks and bricks) regardless of demand to calculate the sales price. Builders typically use a 15% to 20% markup. Markup is also referred as the expected or planned Gross Profit Margin.  The markup covers the Builders operating expenses which include financing expenses, sales and marketing expenses, general and administrative expenses (overhead), and the owner’s compensation, and the Builder’s Net Profit Before Taxes. It also covers Slippage – the variance between the Builder’s expected or planned gross profit margin and what is actually attained for a given period or particular job.  Slippage can result from a number of factors including but not limited to unanticipated increases in material and labor costs, delays due to lack of skilled trades or inclement weather, or other factors beyond the Builder’s control.  It can also result from increases in financing expenses due to unanticipated delays in selling the home.

The National Association of Home Builders (NAHB) has been conducting a biennial survey of its builder members and compiling the findings into a publication titled The Cost of Doing Business Study since 1970.  As shown in the table below excerpted from the latest study, during that time, the average Gross Profit for Builders has ranged from 14.4% in 2008 to 23.9% in 1978 with the average being 19.29%. The average Net Profit Before Taxes for Builders has ranged from minus 3.0% in 2008 to 10.0% in 1991 with the average being 5.1%. In 2017, the most recent year for which numbers are available, The Cost of Doing Business Study, 2019 Edition, the average Net Profit Before Taxes was 7.6%.

While it is not a factor in how Builders determine their markup, supply and demand is a factor in the direct cost of the home. The biggest impact of supply and demand has been in the finished lot cost. Over the years, NAHB has periodically conducted “construction cost surveys” to collect information from builders on the cost of the various components that go into the sales price of a typical single-family home.  

As shown in the tables below, the cost of the lot as a percentage of the sales price was 20.3% on 2009 and 21.5% in 2017. But those percentages don’t tell the whole story. In 2009, the average lot size was approximately 21,879 square feet – approximately ½ acre.  In 2017, the average lot size was approximately 11,186 square feet – approximately ¼ acre. The average cost per square foot of a finished lot in 2009 was $3.50.  The average cost per square foot of a finished lot in 2017 was approximately $8.22 – an increase of approximately 235%. 

While supply and demand is a factor, it is not the only factor impacting the cost of the lot as we will discuss in The Challenge of Affordable Housing Part 2 – The Cost of Regulation

Posted in: builder profit, building, cost of building, home building, home buyers, homeownership, housing affordability, housing for all, land development, Uncategorized

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The economic impact of foreclosures

It was no surprise that one of National Association of Home Builders (NAHB) major advocacy issues discussed at the Board of Directors meetings last week in Orlando was home foreclosures and their continuing significant negative impact on the housing market and economy.  We are all well aware of the impact of short sales and foreclosures on property values.  But there’s more to the story.

At one of the meetings I attended, NAHB’s Chief Economist, David Crowe, noted that for every $100 loss in the value of their property, consumers spend an average of $3 to $5 less.  The estimated loss in property value in theU.S.as a result of the housing crash is $6.5 trillion dollars.  That’s $6,500,000,000,000. If my math is correct (I’m not use to working with such large numbers), the loss in property value has resulted in a drop in consumer spending of between $195 billion ($195,000,000,000) and $325 billion ($325,000,000,000).

The U.S. Department of Commerce Bureau of Economic Analysis recently reported thatU.S. current-dollar GDP increased 3.9 percent, or $561.2 billion, in 2011 to a total of $15,294.3 billion.  So the drop in consumer spending equates to a decrease of between 1.3% and 2.1% in U.S. GDP.

According to Andrew Abel and Ben Bernanke, every 2% decrease in GDP results in a 1% increase in unemployment.

So home foreclosures and short sales impact much more than property values.

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Home Buyers Opinions Regarding Short Sales and Foreclosures

Sales of new U.S. homes fell to in August. The fourth straight monthly decline during the peak buying season suggests the housing market is years away from a recovery.

The Commerce Department said Monday that new-home sales fell 2.3 percent to a 295,000 – a six-month low – and less than half the roughly 700,000 that economists say must be sold to sustain a healthy housing market.

But all home sales remain weak. August sales for previously occupied homes at a seasonally adjusted annual rate of 5.03 million were slightly above last year’s sales but still almost a million less that the roughly 6 million older homes that economists say need to be sold each year to sustain a healthy housing market.

The low sales have been attributed to a lack of consumer confidence and on competition from short sales and foreclosures which are selling at an average discount of 20 percent. But is that really the case?

The Builder Magazine/American LIVES 2011 Study of buyers who had recently purchased or looked at newly constructed homes measured, among other things, home shoppers opinions regarding Short Sales and Foreclosures. The survey asked:

“Home shoppers have different opinions about Short Sales and Foreclosures. Check what is true for you.”

 I’ve heard that Short Sales take forever and sometimes you don’t even get the house.
 I’ve heard that the Foreclosures can be a really good deal.
 You need to know a lot more than I do to consider a Short Sale or Foreclosure.
 You can find some really good deals in a Short Sale.
 I’ve heard that Short Sales are a pain in the neck, even if you finally get the house.

In the Builder Magazine/American LIVES 2011 Home Buyer Study, 40% responded that they’d heard that the Foreclosures can be a really good deal and 38% believed that you can find some good deals in short sales. But 41% heard that Short Sales take forever and sometimes you don’t even get the house, 40% felt that you need to know a lot more than they do to consider a short sale or foreclosure, and 32% had heard that Short Sales are a pain in the neck, even if you finally get the house.

Short Sale or Foreclosure homes are selling at an average discount of 20 percent, and they are lowering neighboring home values, making many re-sales a bargain compared with new homes and creating an average 30 percent disparity in prices.

Given the uncertainty about jobs and the economy, is it a surprise that people are shopping for “deals?” Getting a “perceived deal” can give you the psychological lift you need to be confident that you are making a good decision. In addition, our expectations are being set by all of the “deals” being offered by other parts of the economy – groceries, dining, vehicles, and vacations.

According to the latest report from my friend and fellow MIRM, Mike Pennington, while the number of distressed properties in Ada and Canyon counties is declining, it is not declining at the rate we need to cause average prices of homes to increase.

Because all real estate is local, I would like to know how you would respond to the survey question on short sales and foreclosure.

Chuck Miller GMB CGB CGP CAPS MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com

 

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Americans overwhelming consider owning a home essential to the American Dream

I realize it has been awhile since I posted anything. But I am back and I believe this is too important not to share.

A recent survey of people likely to vote in 2012 conducted on behalf of the National Association of Home Builders (NAHB) shows that despite the ups and downs of the housing market, home owners and non-owners alike consider owning a home essential to the American Dream. 75% of the people polled said that owning a home is worth the risk of fluctuations in the market and 95% of home owners said they are happy with their decision to own a home. Follow the link below to download the slides and listen to an audio recording of the June 7 presentation of the results of the survey.

www.nahb.org/VoterPoll

But don’t stop there. If you agree, contact your elected officials and let them know.

Chuck Miller GMB CGB CGP CAPS MIRM CMP MCSP CSP
President / Builder
Chuck Miller Construction Inc.
(208) 229-2553

chuck@chuckmillerconstruction.com

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What are you thankful for?

“The hardest arithmetic to master is that which enables us to count our blessings.” — Eric Hoffer 

As we prepare for another Thanksgiving holiday, I would like to encourage everyone to count our blessings. It has been a challenging couple of years for many of us. But I sincerely believe in the Law of Attraction and the importance and power of developing an “attitude of gratitude.” Learning to appreciate what we have makes life more valuable and meaningful. Sharing our gratitude improves your quality of life because it can only result in positive emotions. So let’s spread some positive emotions. I’ll start.

  •   I am grateful for my faith and my connection to my Source of Being.
  • I am grateful for my ability to think and reason and choose and for my desire to learn and grow.
  • I am grateful for having been born in the USA and for the freedoms we enjoy – the freedom to worship and believe as we choose, the freedom to express our opinions, the freedom to elect our leaders.
  • I am grateful for my family and friends and for the love and friendship we share
  • I am grateful for my health, for the food that nourishes me and the fresh water that sustains me.
  • I am grateful for my home and for a warm comfortable bed to sleep in
  • I m grateful for my successes in life – personal and professional
  • And I am grateful for the challenges that I face – for the opportunities they provide to face and overcome my fears and to learn and grow.

 

Your turn.
 
Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder
Chuck Miller Construction Inc.
(208) 229-2553

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Improved insulation increases energy-efficiency

 Insulation is a key element in building a more comfortable and energy efficient home in Boise, Idaho or elsewhere.

 Insulation materials are rated according to their ability to resist heat flow. The thermal resistance rating is known as an “R-value”. The higher the R-value of a material, the better its ability to resist heat flow.

 Most new homes are insulated with fiberglass batt insulation.  However, improper installation of the fiberglass batts can significantly reduce its effectiveness.  Gaps or voids can provide paths through which heat and air can easily flow into or out of the home.  Compressing the insulation behind piping and electrical wiring also reduces the thermal resistance.

 Newer types of insulation like blown-in-blanket fiberglass, batts made of denim, blown cellulose, and spray foams have higher R-Values and protect against convective heat transfer because they penetrate around obstructions and into odd-shaped cavities, completely filling gaps or voids and providing a monolithic blanket of insulation that forms a tight seal around wiring, plumbing, and framing materials.  

 Benefits of improved insulation

 Improved insulation provides:

 Improved comfort

 Improved insulation reduces conductive heat losses and gains resulting in warmer interior surfaces in the winter and cooler interior surfaces in the summer. As noted in my article on advance framing, approximately 40 percent of our physical comfort is due to the radiant heat exchange between our bodies and the surrounding interior surfaces. Improved insulation reduces this radiant heat exchange and minimizes temperature differences between rooms, thus maintaining a more consistent level of comfort throughout a house.

 Improved indoor air quality

 When insulation materials are properly installed, there are fewer gaps and voids through which unconditioned air can leak into a house. This helps avoid dirt, dust, and other impurities that can negatively affect indoor air quality. A tight building envelope is a critical component to ensure good indoor air quality.

 Reduced heating and cooling loads

 Improved insulation also helps to reduce heating and cooling loads, allowing smaller “right-sized” heating, ventilation, and air-conditioning (HVAC) systems. The cost savings from using smaller HVAC equipment can be used to offset the additional cost of high efficiency heating and cooling equipment.

 Lower utility bills

 More than 40 percent of the energy consumed in a typical household goes to heating and cooling. Proper insulation reduces this energy consumption which results in lower utility bills.

Chuck Miller GMB   CGB  CGP   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

chuck@chuckmillerconstruction.com

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Where are the jobs?

Two of the biggest issues facing this country today are unemployment and energy. Our elected officials seem to think that the solution to both is developing emerging renewable energy technology. I disagree.

In a blog in February 2009 titled “Home Remodels, Retrofits Are Key To An Energy-Efficient Future” I noted that “Industry research indicates that even the most aggressive efficiency goals for new homes won’t make a dent in overall energy consumption.” And that “remodeling and retrofitting the nation’s older homes is by far the more efficient solution.”

Today, McKinsey Quarterly arrived in my inbox. The subject “Where are the jobs?” In case you aren’t familiar with McKinsey Quarterly and McKinsey & Company, McKinsey Quarterly is the business journal of McKinsey & Company. Their goal is “to offer new ways of thinking about management in the private, public, and nonprofit sectors.” Quarterly articles are written by McKinsey consultants and “offer practical ideas based on the Firm’s experience with the world’s largest companies and on proprietary research and close ties to academic institutions.”

McKinsey notes that many governments, including our own, have been actively trying to promote growth, competitiveness, and employment. But the state that “policy makers who hope that advanced “clean” technologies can create work on a large scale will probably be disappointed, because these sectors are just too small to make an economy-wide difference. The local-business and household-services sectors are a much better bet: from 1995 to 2005, services generated all net job growth in high-income economies.” As I emphasized in my blog 18 months ago, McKinsey consultants have concluded that “Low-tech “green” activities, such as improving the insulation of buildings and replacing obsolete heating and cooling equipment, could generate more jobs than renewable technologies can.”

Just look at the chart below. A 10% increase in construction employment would create 637,000 jobs. To create the same number of jobs in the clean technologies sector would require an 82% increase.

  To learn more, read “Where the US will find growth and jobs” (March 2010).

Now consider this.

 How much do you spend to heat and cool your home every year? If you reduced that expense by 30% to 50%, what would you do with the money you saved? Even if you only spent a portion of it, it would further stimulate the economy and create jobs in other sectors, like retail.

Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

 chuck@chuckmillerconstruction.com

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A tightly sealed building envelope is key to building an energy-efficient home

The boundary between the conditioned, indoor living spaces and the unconditioned and outdoor spaces is referred to as the “building envelope” and consists of the walls, floor, and ceiling or roof. An airtight building envelope contributes directly to the energy efficiency and comfort of a home.

Air leakage accounts for 25 percent to 40 percent of the energy used for heating and cooling and also reduces the effectiveness of other energy-efficiency measures such as increased insulation and high-performance windows. Thus, a tightly sealed house envelope results in lower utility bills.

There are hundreds of penetrations through a typical home’s building envelope. These include gaps in framing members and penetrations for wiring, plumbing, and ducts. Tightly sealing the house’s envelope, combined with proper ventilation, can reduce energy bills and eliminate unwanted drafts and pollutants.

Reduced air infiltration combined with proper ventilation not only reduces energy bills but also improves the quality of your indoor air. Outdoor air that leaks indoors makes it difficult to maintain comfort and energy efficiency. In addition, heated or cooled indoor air leaking outdoors can account for 25 – 40% of the energy used for heating and cooling in a typical home.

There are a number of ways to construct a tight thermal envelope including house wraps like Tyvek or Typar and spray foam. One of the most effective ways is to use a double air-barrier system. 

Photos courtesy of The Dow Chemical Company

Installing STYROFOAM™ Residential Sheathing, Tongue & Groove, DURAMATE™ Plus, TUFF-R™, Super TUFF-R, THERMAX™ or STURDY-R™ over the OSB structural sheathing provides a thermal break to reduce heat loss and heat gain through thermal conductance. The vertical joints of the insulation board are tongue and groove and the horizontal joints are flashed with poly z-flashing. This allows the insulation board to act as an exterior air barrier as well as a drainage plane for rain control. This exterior sheathing eliminates the need for building paper or housewrap thus reducing construction costs.

Windows are set in sealant and flashed on all four sides.

Benefits of a tightly sealed thermal envelope

Improved comfort

A tighter building envelope reduces the amount of unconditioned air, drafts, noise, and moisture that enter your home. Proper air sealing will also minimize temperature differences between rooms. As a result, tight envelopes can maintain a more consistent level of comfort throughout a house.

Improved indoor air quality

A tighter building envelope reduces the infiltration of outdoor air pollutants, dust and radon as well as eliminating paths for insect infestation. Properly sealing the building envelope will also reduce moisture infiltration from outdoor air in humid climates.

Fewer condensation problems

Moisture and condensation on cold surfaces inside wall cavities can lead to mold problems and structural damage. Exterior air barriers and drainage planes prevent moisture from entering wall cavities eliminating or significantly reducing these problems.

Reduced heating and cooling loads

A tightly sealed thermal envelope helps reduce heating and cooling loads, enabling the use of smaller “right-sized” heating, ventilation, and air-conditioning (HVAC) systems. The cost savings from using smaller HVAC equipment are used to offset the additional cost of high efficiency heating and cooling equipment.

Lower utility bills

Chuck Miller GMB  CGP  CGB   MIRM   CMP   MCSP   CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553

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Improved insulation increases energy-efficiency

Insulation is a key element in building a more comfortable and energy efficient home in Boise, Idaho or elsewhere.

 Insulation materials are rated according to their ability to resist heat flow. The thermal resistance rating is known as an “R-value”. The higher the R-value of a material, the better its ability to resist heat flow.

 Most new homes are insulated with fiberglass batt insulation. However, improper installation of the fiberglass batts can significantly reduce its effectiveness. Gaps or voids can provide paths through which heat and air can easily flow into or out of the home. Compressing the insulation behind piping and electrical wiring also reduces the thermal resistance.

 Newer types of insulation like blown-in-blanket fiberglass, batts made of denim, blown cellulose, and spray foams have higher R-Values and protect against convective heat transfer because they penetrate around obstructions and into odd-shaped cavities, completely filling gaps or voids and providing a monolithic blanket of insulation that forms a tight seal around wiring, plumbing, and framing materials.

 Benefits of improved insulation

 Improved insulation provides:

 Improved comfort

 Improved insulation reduces conductive heat losses and gains resulting in warmer interior surfaces in the winter and cooler interior surfaces in the summer. As noted in my article on advance framing, approximately 40 percent of our physical comfort is due to the radiant heat exchange between our bodies and the surrounding interior surfaces. Improved insulation reduces this radiant heat exchange and minimizes temperature differences between rooms, thus maintaining a more consistent level of comfort throughout a house.

 Improved indoor air quality

 When insulation materials are properly installed, there are fewer gaps and voids through which unconditioned air can leak into a house. This helps avoid dirt, dust, and other impurities that can negatively affect indoor air quality. A tight building envelope is a critical component to ensure good indoor air quality.

 Reduced heating and cooling loads

 Improved insulation also helps to reduce heating and cooling loads, allowing smaller “right-sized” heating, ventilation, and air-conditioning (HVAC) systems. The cost savings from using smaller HVAC equipment can be used to offset the additional cost of high efficiency heating and cooling equipment.

 Lower utility bills

 More than 40 percent of the energy consumed in a typical household goes to heating and cooling. Proper insulation reduces this energy consumption which results in lower utility bills.

Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

chuck@chuckmillerconstruction.com

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Advanced framing techniques increase energy-efficiency

An effective building envelope – the first floor, exterior walls, and roof – is a key element for an energy-efficient home. Advanced framing techniques increase efficiency and comfort while decreasing costs.

 Most homes in Boise are framed with wood and wood loses or gains heat more quickly than insulation. In wood frame construction, studs, joists and rafters are placed at regular intervals throughout the building envelope. Standard construction practice places these framing members at 16 inches on center. The cavities formed by the framing members are filled with insulation. Standard construction practice at exterior corners and at the intersection of interior partitions and exterior walls creates pockets that are difficult or impossible to insulate and air seal. The unnecessary use of wood displaces insulation and degrades the thermal efficiency of the building envelope.

 By eliminating unnecessary framing members, advanced framing increases the thermal resistance of the building envelope without compromising structural integrity.  Advanced framing techniques include:

 In-line framing

 Wall studs, floor joist, and roof trusses are spaced 24 inches O.C. and aligned directly over top each other to promote thermally efficient walls, increase structural efficiency, reduce drywall cracking, and reduce wood waste.

 2 X 6 – 24 inch o.c. exterior wall framing

 2 x 6-inch studs set 24 inches apart instead of 2 x 4 inch studs set 16 inches apart are used to allow more room for insulation, reduce heat loss and heat gain due to thermal bridging through the studs, enhance the strength of the house, and reduce the overall amount of wood used in the construction of the home.

 Exterior corners and intersections of interior partitions and exterior walls

 Exterior corners and intersections of interior partitions and exterior walls are framed to allow space for insulation preventing uninsulated spaces in exterior walls and reduce heat loss and reduce the overall amount of wood used in the construction of the home.

 Insulated door and window headers

 In single story homes and in second floor walls of two-story homes, single-ply headers are used in load-bearing walls to allow for partial insulation. In non-load bearing exterior walls, headers are eliminated entirely to allow for full insulation. In two-story homes, a structural rim joist is used to eliminate the need for headers in first floor exterior walls allowing for full insulation.

 Raised heel roof trusses

 The heels of roof trusses where they bear on the outside walls are raised to allow for R-42 attic insulation to extend over the exterior walls reducing heat loss and improving attic ventilation.

 Engineered lumber

 Using engineered I-joists and beams, and OSB sheathing reduces problems associated with shrinkage and warpage, allows more flexibility in design, and reduces the impact on old growth forests.

 Benefits of advanced framing

 Improved comfort

 Increasing wall insulation and eliminating air spaces increases the overall R-value and integrity of the building envelope resulting in walls that are warmer in winter and cooler in summer. Approximately 40 percent of our physical comfort is due to the radiant heat exchange between our bodies and the surrounding interior surfaces. Advanced framing reduces this radiant heat exchange maintaining a more consistent level of comfort throughout a house.

 Reduced framing cost

 Advanced framing reduces the amount of lumber and labor needed to build your home – up to a 25 percent reduction in the amount of wood used. The cost savings are “reinvested” in additional energy-saving features such as increased insulation and high efficiency heating and cooling equipment.

 Lower utility bills

 By reducing the amount of heat and air that flows through the building envelope, advanced framing results in lower utility bills.

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

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