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Thursday, June 11. 2009
How to Build in a Recession: #3
Through human history, most people would have been unsurprised by the story of how I built our original cabin as related in my previous posting. Building a place to live without money, using one’s own labor and locally available materials was normal and common for several thousand years. It’s still true in many parts of the world. I’m not suggesting that we’d want to go back to the old, more difficult ways, but submitting to complete dependency on others and to a culture of endless, daunting indebtedness should also be considered situations to avoid, not accept.
Construction professionals are fond of saying that time, quality and money are the three factors in play that affect a building project’s outcome, and you have to choose among them because you can’t optimize all three. The supposition is that if high quality is the priority, it will require more time and money; if time is the priority, then quality and cost control will suffer; if saving money is the priority, then quality and time will be compromised. The reverse is true too. If the project is given a large budget, quality can be enhanced, but the time to achieve that quality may need to be increased too.
But the big consideration I want to point out is this: given enough time, it becomes increasingly possible to accomplish both high quality and decreased cost. As people are forced to complete every detail in their construction in an arbitrarily finite amount of time, they are forced into higher costs or quality compromises. The loss of the freedom to build incrementally, usually forced in the terms of the construction loan (or the personal desire for immediate gratification) is causing new homes to become simultaneously worse and more expensive.
Patience and perseverance are tools that can be employed by anyone to help make big dreams achievable and affordable. When building codes and lending agencies take those tools away from us, we should be fighting back, just as we would about any other personal freedom in jeopardy.
Were it not for my ability to defer gratification and finish my own home slowly, I would have had to choose between continuing with my still-fledgling business and properly housing my family. Here, then, is another way to build when personal or national recessions crimp the normal processes.
We hadn’t intended to stay in the cabin so long. It was rustic but comfortable; small but debt-free. At 500 square feet, it was fine for two people and tolerable for a family of three (our first daughter, Emily). But when we knew our second child was coming (our second daughter, Corona), we knew we needed a bigger home.
By then (1979) our business kept us plenty busy, even if it was only occasionally profitable. I had an income and some savings, but I wouldn’t have met the requirements to borrow as much money as would be needed to build a new (and complete) home. So I did what had to be done: racing against a growing womb, I decided to ignore the barriers and made plans to build immediately.
Banks were typically friendly institutions back then. Local bankers were often trusted financial advisors as well as lenders. I know; it seems far-fetched, but it’s true. Anyway, the first thing I did was to make an appointment with my banker to find out how much I could borrow and how much information about the new home I would need to bring in to them to get a construction loan. On that visit, I had no plans or drawings with me because the drawings I had were still rough, and I really just wanted to understand my financial realities and the loan process. Despite having nothing on paper to show the bank officer, I left the bank after a short and casual meeting with loan commitment, which came in the form of a handshake. It wasn’t enough to build the house, but it was all I felt comfortable borrowing. I was determined to stretch it as far as possible and get my family into a larger home. With my personal savings and the bank loan, I had about $36K.
Unlike the cabin, I couldn’t do all the work myself. I had a business to run. Much of the work would have to be contracted. I would have real costs that were going to eat through most of the money. Therefore, we had to start subtracting from the big dream and distill it down to the essence. Our plan was a 30 ft. x 36 ft. story and a half cape, with primary living on the first level, three bedrooms and a bath on the second level and small loft spaces on the third level. We also wanted a south-facing solarium, a screened porch and an entry porch.
But we couldn’t do it all at once. With my sweat equity and the borrowed money, my goal was to build a high quality, energy-efficient enclosure and finish the first floor so that we could move in. The bedrooms, second floor bathroom, third floor lofts, and all the appendages would have to wait. We tried to not compromise the things that affected the long-term performance and durability of the home, while sacrificing and cutting back on things we might be able to change or finish at a later date. When we moved to the new house in1980, with our borrowed and saved money gone, here’s what we had:
The photo below shows the house we moved into, waiting for the solarium and screened porch. The bedrooms and 2nd floor bath weren’t in yet, but we were moving from 500 sq. ft. to the nearly 1000 sq. ft. on the main level. It was huge step up for us. Though the house wasn’t complete, all the visible surfaces were finished, making “finished, but not complete” our motto for the next years. As we tackled projects, we have always tried to consolidate the construction areas to minimize the disruption of our lives. We tried always to have the house look finished, even though it took years to complete.
The original core building proved to be remarkably energy efficient. When it was finally completed, we had 2400 square feet of living area, kept warm by passive solar and one central woodstove. It also won’t freeze. Through the coldest winter conditions, we can leave the house for days without worrying about pipes freezing. The secret to this building’s performance is the separation of the supporting structure from the insulating skin. With the frame on the interior and protected from the potential compromises associated with being subjected to air infiltration and moisture, its durability is optimized. Likewise, the insulation system is less compromised by structure, allowing it to be intrinsically tighter and more contiguous. This high performance “chassis” was the primary achievement in the original construction. Exterior finishes and interior “fit outs” were accomplished as time and money allowed and some of it changed several times in the following decades, but the core building remains today, even though you may have trouble identifying it in recent photos.
I don’t know my total costs exactly and I certainly don’t know what it would have cost to borrow the full amount when I started the project, so I’m going to make some assumptions about how the theoretical math works out: I’m going to assume the house would have cost about $250K
Now you can see what I’m getting to. Banks don’t give money away. The very best way to save money is to borrow less. By “suffering” with our “finished but not complete” home, we theoretically saved $410,000!
No wonder banks are discouraging people from building incrementally!
***
All these many years later, our house has changed again. We recently invested again and made yet more changes to our home.
•
Even today, our home is finished but not complete. I’m planning some much-needed bookshelves; we’re talking about adding doors to the study; what about a little separate writing room? Or perhaps we’ll just relax.
Construction professionals are fond of saying that time, quality and money are the three factors in play that affect a building project’s outcome, and you have to choose among them because you can’t optimize all three. The supposition is that if high quality is the priority, it will require more time and money; if time is the priority, then quality and cost control will suffer; if saving money is the priority, then quality and time will be compromised. The reverse is true too. If the project is given a large budget, quality can be enhanced, but the time to achieve that quality may need to be increased too.
But the big consideration I want to point out is this: given enough time, it becomes increasingly possible to accomplish both high quality and decreased cost. As people are forced to complete every detail in their construction in an arbitrarily finite amount of time, they are forced into higher costs or quality compromises. The loss of the freedom to build incrementally, usually forced in the terms of the construction loan (or the personal desire for immediate gratification) is causing new homes to become simultaneously worse and more expensive.
Patience and perseverance are tools that can be employed by anyone to help make big dreams achievable and affordable. When building codes and lending agencies take those tools away from us, we should be fighting back, just as we would about any other personal freedom in jeopardy.
Were it not for my ability to defer gratification and finish my own home slowly, I would have had to choose between continuing with my still-fledgling business and properly housing my family. Here, then, is another way to build when personal or national recessions crimp the normal processes.
Big Need, A little Money
(Where we embrace a work always in progress)
We hadn’t intended to stay in the cabin so long. It was rustic but comfortable; small but debt-free. At 500 square feet, it was fine for two people and tolerable for a family of three (our first daughter, Emily). But when we knew our second child was coming (our second daughter, Corona), we knew we needed a bigger home.
By then (1979) our business kept us plenty busy, even if it was only occasionally profitable. I had an income and some savings, but I wouldn’t have met the requirements to borrow as much money as would be needed to build a new (and complete) home. So I did what had to be done: racing against a growing womb, I decided to ignore the barriers and made plans to build immediately.
Banks were typically friendly institutions back then. Local bankers were often trusted financial advisors as well as lenders. I know; it seems far-fetched, but it’s true. Anyway, the first thing I did was to make an appointment with my banker to find out how much I could borrow and how much information about the new home I would need to bring in to them to get a construction loan. On that visit, I had no plans or drawings with me because the drawings I had were still rough, and I really just wanted to understand my financial realities and the loan process. Despite having nothing on paper to show the bank officer, I left the bank after a short and casual meeting with loan commitment, which came in the form of a handshake. It wasn’t enough to build the house, but it was all I felt comfortable borrowing. I was determined to stretch it as far as possible and get my family into a larger home. With my personal savings and the bank loan, I had about $36K.
Unlike the cabin, I couldn’t do all the work myself. I had a business to run. Much of the work would have to be contracted. I would have real costs that were going to eat through most of the money. Therefore, we had to start subtracting from the big dream and distill it down to the essence. Our plan was a 30 ft. x 36 ft. story and a half cape, with primary living on the first level, three bedrooms and a bath on the second level and small loft spaces on the third level. We also wanted a south-facing solarium, a screened porch and an entry porch.
But we couldn’t do it all at once. With my sweat equity and the borrowed money, my goal was to build a high quality, energy-efficient enclosure and finish the first floor so that we could move in. The bedrooms, second floor bathroom, third floor lofts, and all the appendages would have to wait. We tried to not compromise the things that affected the long-term performance and durability of the home, while sacrificing and cutting back on things we might be able to change or finish at a later date. When we moved to the new house in1980, with our borrowed and saved money gone, here’s what we had:
• 10 inch, heavily reinforced poured concrete foundation
• Drilled well
• Septic system (real plumbing!)
• 3 in. rigid foam insulation under concrete basement slab
• 2 in. rigid foam insulation inside foundation walls
• Timberframe structure: oak and recycled timbers deemed not good enough for clients, but beautiful to us.
• R28 SIP wall and roof panels
• Fixed windows purchased for $10 each from lumber yard going-out-of-business sale. They were paired and mulled with operable windows, purchased for full price.
• Cedar clapboards
• Asphalt shingle roofing
• Brick chimney
• Plank subfloor on primary level was sanded, finished and used as a finish floor until we could afford hardwood flooring
• Kitchen cabinets: built from butternut trees from our land
• Second and third levels: floors planked, but otherwise empty
• Heating system: central wood stove and the sun
The photo below shows the house we moved into, waiting for the solarium and screened porch. The bedrooms and 2nd floor bath weren’t in yet, but we were moving from 500 sq. ft. to the nearly 1000 sq. ft. on the main level. It was huge step up for us. Though the house wasn’t complete, all the visible surfaces were finished, making “finished, but not complete” our motto for the next years. As we tackled projects, we have always tried to consolidate the construction areas to minimize the disruption of our lives. We tried always to have the house look finished, even though it took years to complete.
The original core building proved to be remarkably energy efficient. When it was finally completed, we had 2400 square feet of living area, kept warm by passive solar and one central woodstove. It also won’t freeze. Through the coldest winter conditions, we can leave the house for days without worrying about pipes freezing. The secret to this building’s performance is the separation of the supporting structure from the insulating skin. With the frame on the interior and protected from the potential compromises associated with being subjected to air infiltration and moisture, its durability is optimized. Likewise, the insulation system is less compromised by structure, allowing it to be intrinsically tighter and more contiguous. This high performance “chassis” was the primary achievement in the original construction. Exterior finishes and interior “fit outs” were accomplished as time and money allowed and some of it changed several times in the following decades, but the core building remains today, even though you may have trouble identifying it in recent photos.
I don’t know my total costs exactly and I certainly don’t know what it would have cost to borrow the full amount when I started the project, so I’m going to make some assumptions about how the theoretical math works out: I’m going to assume the house would have cost about $250K
Lessons of this project, by the (theoretical) numbers:
As built:
Initial construction: $36K; $30K borrowed (assume 8%, though interest rates were higher then); $6K savings
Loan period: 5 yr.; payments approximately $600 per month
Cost of loan after 5 yr.: $36,500
“Paycheck” cash invested over following years to complete: $215K (this is a worst case scenario)
Total of loan and incremental cash investment: $250K
If I had borrowed the full amount:
Full construction: 250K at 8% (again, 1980 rates were higher)
Loan period: 30 yr; payments approximately $1830 per month
Cost of loan after 30 yr.: $660,000
Now you can see what I’m getting to. Banks don’t give money away. The very best way to save money is to borrow less. By “suffering” with our “finished but not complete” home, we theoretically saved $410,000!
No wonder banks are discouraging people from building incrementally!
***
All these many years later, our house has changed again. We recently invested again and made yet more changes to our home.
•
For added living area, we eventually took off the solarium and added a great room.
• Dormers were added to the bedrooms and the second floor bath for added space, light and ventilation.
• The screened porch was removed and became a larger three-season porch.
• An addition to the north side gave us added room in our study and gave space for an additional second floor bath.
• We added to the entry side for a larger laundry, a new porch and a pantry. It also added space to the master bedroom.
Even today, our home is finished but not complete. I’m planning some much-needed bookshelves; we’re talking about adding doors to the study; what about a little separate writing room? Or perhaps we’ll just relax.
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Tedd. Excellent articles, a starter 'kit' that could be weathered quickly would be a beginning. Here in the UK despite recent lessons you can feel the pressure building to jump back onto the rollercoaster. Peter.
Tedd,
Been loving this series, especially since I'm going through the exact same efforts and calculations myself right now (with the same family of four to accommodate and a business to run...).
I ran your numbers through an inflation calculator out of curiosity. For reference: $36,000 in 1979 is the same as $105,000 in 2009 dollars. It still doesn't sound out of line for what you built.
And your monthly payment of $600 would be $1,757 today.
Been loving this series, especially since I'm going through the exact same efforts and calculations myself right now (with the same family of four to accommodate and a business to run...).
I ran your numbers through an inflation calculator out of curiosity. For reference: $36,000 in 1979 is the same as $105,000 in 2009 dollars. It still doesn't sound out of line for what you built.
And your monthly payment of $600 would be $1,757 today.
Jesse,
Thanks for checking the inflation calculator. I should have done that.
At 105,000 in today's dollars, I enclosed 2500 s.f., but finished only a little over 1000 s.f. The total floor area cost about $42 p.s.f., which is a very, very good deal and the finished s.f. would be about $100 p.s.f., which is still good, considering how energy efficient the building is.
Before I'm done with the series, I'm going to find out what it would cost our company to produce a building with similar R-values, volume and square feet. I don't know the answer, so I'll be as curious as anyone to find out how we do.
Stay tuned.
TB
Thanks for checking the inflation calculator. I should have done that.
At 105,000 in today's dollars, I enclosed 2500 s.f., but finished only a little over 1000 s.f. The total floor area cost about $42 p.s.f., which is a very, very good deal and the finished s.f. would be about $100 p.s.f., which is still good, considering how energy efficient the building is.
Before I'm done with the series, I'm going to find out what it would cost our company to produce a building with similar R-values, volume and square feet. I don't know the answer, so I'll be as curious as anyone to find out how we do.
Stay tuned.
TB
Tedd,
Just finished reading the series of blogs ("How To Build...), and found it right up my alley - comforting to read, actually. This is much like my sort of evangelism - you can have anything you want, though it be only the one thing. As an added blessing, doing the work yourself has a reward that only people that have done so understand. I'm about your vintage, but I'm still excited about the possibilities. It helps that I have a full-sized bandmill in the backyard. I've just bought "The Timber-Framed Home" and look forward to working with your organization in the future. As you well know, you could not have done this without a terrifically supportive wife. Thanks for the blog...
Just finished reading the series of blogs ("How To Build...), and found it right up my alley - comforting to read, actually. This is much like my sort of evangelism - you can have anything you want, though it be only the one thing. As an added blessing, doing the work yourself has a reward that only people that have done so understand. I'm about your vintage, but I'm still excited about the possibilities. It helps that I have a full-sized bandmill in the backyard. I've just bought "The Timber-Framed Home" and look forward to working with your organization in the future. As you well know, you could not have done this without a terrifically supportive wife. Thanks for the blog...
I've watched the Weston house episodes of TOH at least 3-4 times now, and when I say watched, I mean watch, pause, rewind, and at times watch again in slow motion. I put together a 2-page description of Open-Built to show around my office, and with some University colleagues. I find this absolutely fascinating.
My knowledge of home design is limited to 15 years of watching TOH, but I do have expertise in the area of Digital Manufacturing; helping companies in Aero, Ship and Auto develop their manufacturing, procurement, and execution systems using 3D product designs. Creating 3D designs and sending the data to CNC machines? We do that in Auto. Flipping the assembly upside-down to make assembly easier? We do that in Ship (in Bath, ME for example). Build major subassemblies in one location then final assemble them in another? We do that in Aero. (Of course we do all of these things in each of these industries.)
I have a thousand random thoughts, but I should probably keep this short in a blog response. Here’s a few:
- Could you use this method to build 1500 homes per month? I know that’s a huge number, but over 200,000 homes were lost to Katrina. 1500/mo. means 18,000/year or about 1 decade to replace all of them. OK – so maybe there’s a housing glut and they shouldn’t all be replaced. What would it take to do 150/month?
- What if the method was applied to HfH or the Fuller Center? (My Aunt does some counseling for a Fuller Center group that responds to disasters.) I read an article in our local paper about an HfH effort in Bay Saint Louis, MS. Habitat members (and anyone else) who wanted to be involved needed to provide their own transportation to the site, then someone would organize them once they got there. It was a one-week minimum assignment, and the cost/time of transportation was borne by the volunteer. This requires a good deal of effort by the volunteer that doesn’t actually build a home. But what if the designs were developed in 3D, the 3D data then distributed around the country, and volunteers could spend a weekend building major subassemblies within 30 miles of their own homes (thus reducing the strain on the limited facilities in a recent disaster area). The assemblies would be shipped and assembled onsite. (Of course workers would still be needed onsite, but I think we could get more volunteer hours spent working directly on the building homes.)
- And I don’t think these should all be identical row houses; with 3D designs and what Industrial Engineers call ‘mass customization’ (an alternative to ‘pre-fab’) there can be many, many styles of homes. (Believe it or not, no two cars are identical; there are enough body styles, colors, and options that the number of possibilities exceeds the number of models manufactured in a year; and each airplane and large ship are individually designed. It gets into a topic called 'Configuration Management'.)
- But I also wonder if pre-building assemblies leads to paradigm shifts in the area of home inspection? My understanding (again, I’m not a homebuilding guy) is that inspections tend to be local. TOH showed the electrical being done in Walpole NH, for a project in Weston, MA. Did the Weston inspectors commute? Or – could it be more like Aero, where the assembly planner defines the processes where inspections need to be made, and an inspector signs off on the inspections and records the information to a database, forever to live in this case with the house? (Anecdote: every hour of assembly on a Boeing 747 requires 4 hours of planning and 4 hours of inspection, and THE PAPERWORK WEIGHS MORE THAN THE PLANE!)
- In fact, this leads to another value that I don’t recall being mentioned on TOH. The owners have a 3D model of their house. I didn’t say that right - THE OWNERS HAVE A 3D MODEL OF THEIR HOUSE! I realize that your wall panel design limits the need to know the location of the studs, but wouldn’t it be great to know of that your new Queen size mattress will fit up the stairs?
Well, this has gone far beyond a short blog response. I’d be curious to Tedd’s or anyone’s thoughts.
FWIW - I have a Bio on LinkedIn: http://www.linkedin.com/pub/patrick-hillberg/a/839/141
My knowledge of home design is limited to 15 years of watching TOH, but I do have expertise in the area of Digital Manufacturing; helping companies in Aero, Ship and Auto develop their manufacturing, procurement, and execution systems using 3D product designs. Creating 3D designs and sending the data to CNC machines? We do that in Auto. Flipping the assembly upside-down to make assembly easier? We do that in Ship (in Bath, ME for example). Build major subassemblies in one location then final assemble them in another? We do that in Aero. (Of course we do all of these things in each of these industries.)
I have a thousand random thoughts, but I should probably keep this short in a blog response. Here’s a few:
- Could you use this method to build 1500 homes per month? I know that’s a huge number, but over 200,000 homes were lost to Katrina. 1500/mo. means 18,000/year or about 1 decade to replace all of them. OK – so maybe there’s a housing glut and they shouldn’t all be replaced. What would it take to do 150/month?
- What if the method was applied to HfH or the Fuller Center? (My Aunt does some counseling for a Fuller Center group that responds to disasters.) I read an article in our local paper about an HfH effort in Bay Saint Louis, MS. Habitat members (and anyone else) who wanted to be involved needed to provide their own transportation to the site, then someone would organize them once they got there. It was a one-week minimum assignment, and the cost/time of transportation was borne by the volunteer. This requires a good deal of effort by the volunteer that doesn’t actually build a home. But what if the designs were developed in 3D, the 3D data then distributed around the country, and volunteers could spend a weekend building major subassemblies within 30 miles of their own homes (thus reducing the strain on the limited facilities in a recent disaster area). The assemblies would be shipped and assembled onsite. (Of course workers would still be needed onsite, but I think we could get more volunteer hours spent working directly on the building homes.)
- And I don’t think these should all be identical row houses; with 3D designs and what Industrial Engineers call ‘mass customization’ (an alternative to ‘pre-fab’) there can be many, many styles of homes. (Believe it or not, no two cars are identical; there are enough body styles, colors, and options that the number of possibilities exceeds the number of models manufactured in a year; and each airplane and large ship are individually designed. It gets into a topic called 'Configuration Management'.)
- But I also wonder if pre-building assemblies leads to paradigm shifts in the area of home inspection? My understanding (again, I’m not a homebuilding guy) is that inspections tend to be local. TOH showed the electrical being done in Walpole NH, for a project in Weston, MA. Did the Weston inspectors commute? Or – could it be more like Aero, where the assembly planner defines the processes where inspections need to be made, and an inspector signs off on the inspections and records the information to a database, forever to live in this case with the house? (Anecdote: every hour of assembly on a Boeing 747 requires 4 hours of planning and 4 hours of inspection, and THE PAPERWORK WEIGHS MORE THAN THE PLANE!)
- In fact, this leads to another value that I don’t recall being mentioned on TOH. The owners have a 3D model of their house. I didn’t say that right - THE OWNERS HAVE A 3D MODEL OF THEIR HOUSE! I realize that your wall panel design limits the need to know the location of the studs, but wouldn’t it be great to know of that your new Queen size mattress will fit up the stairs?
Well, this has gone far beyond a short blog response. I’d be curious to Tedd’s or anyone’s thoughts.
FWIW - I have a Bio on LinkedIn: http://www.linkedin.com/pub/patrick-hillberg/a/839/141
Pat,
Our system can be scaled, though I don't know if those kinds of numbers would be desirable. It would probably be better to distribute the production to additional operations. GM is not a good model for what we're trying to achieve; a better model is Home Depot or Lowe's where additional stores are added as needed.
On the subject of inspection, we haven't had difficulty working with local inspectors because our Open Built systems make the plumbing and electrical installations open for inspection which is the primary issue. So, by using licensed professionals and giving the inspectors the ability to do their inspections, we don't have a problem.
The 3D model is indeed a very useful, near term and long term. We are looking at ways to give our clients reader access to their model for future reference. Obviously, it would have to be easier to use than our professional software. We're working on that.
Our system can be scaled, though I don't know if those kinds of numbers would be desirable. It would probably be better to distribute the production to additional operations. GM is not a good model for what we're trying to achieve; a better model is Home Depot or Lowe's where additional stores are added as needed.
On the subject of inspection, we haven't had difficulty working with local inspectors because our Open Built systems make the plumbing and electrical installations open for inspection which is the primary issue. So, by using licensed professionals and giving the inspectors the ability to do their inspections, we don't have a problem.
The 3D model is indeed a very useful, near term and long term. We are looking at ways to give our clients reader access to their model for future reference. Obviously, it would have to be easier to use than our professional software. We're working on that.
Wow, great post! It is a good example of why you should build incrementally now. There are great deals to be had. If I had more time I would share a few examples.
Did it cost quite a bit to turn the butternut trees into cabinets? That is a really neat idea.
Did it cost quite a bit to turn the butternut trees into cabinets? That is a really neat idea.
The cost of the butternut boards was minimal. I traded a few other logs for having the butternut logs sawed into boards. I air-dried them before milling into cabinet doors, drawers and fronts.
