Monthly Archives: June 2009

A Happy Interlude

My blog droughts have been long, but I have something to show for it. When October 2008 happened, our near future looked extremely bleak. I stood up in an anxious company meeting to tellour associates that we would do everything and anything necessary in order to “opt out” of the impending recession. I meant it. Our team responded with an astounding effort…and for now, we have done it.

About seven months later, I can say with certainty that we have successfully fought off some of the worst effects of the bad economy. Last week, we even had a modest (honorarium level) mid-year profit sharing. Recognizing that in the business of homebuilding, big losses are the norm, Chapter 11’s are common, and thousands of homebuilders have simply gone out of business, we had a happy celebration over the good fortune from our efforts.

How have we accomplished this? “The old fashioned way” is an essential part of the answer. There has been an extraordinary hard work effort throughout the company for months on end, but there are other reasons too. We also responded with one of the most creative and innovative periods in our company history (36+ years). We turned ourselves around quickly; in months, not years, we have simply become much better at whatwe do.

We have long been adherents of Lean Production principles and strategies. Most of our associates have taken a course on the subject and in the past several years we have also held several Lean educationalforums at our facility. Like many things, though, the ultimate success of Lean requires both knowledge and motivation. What we learned recentlyis that while we’ve had the knowledge, the critical level of motivationhad to be thrust upon us by outside forces.

Waste has always been the enemy, but seeing its many facets with claritysometimes requires a different perspective. A deep homebuilding recession cleared the scales from our collective eyes. There are now many fewer elements of redundancy, inefficiency or waste in our process and products than there were even a few months ago. We have done little things like reduced the steps taken to get a tool and the number of times a piece or element is handled, but we have also done big things, such as eliminating unnecessary construction documents and automating layout.

Sometimes it is necessary to literally invent ways to circumvent waste because it’s so embedded in how things have always been done. In homebuilding, wasteful systems and processes are the norm, not the exception. So we have been creating and inventing in software innovations, new tools, better work stations, and improved building system details. Only the quality goal at the end is unmovable; all else between the starting point and the end point has been fodder for improvement, upgrading and reinvention–whatever it takes.

As a result of intense company-wide efforts, we are already accomplishing highest quality work, with significantly increased cycle times. Better work; less time. It turns out that even in extremely difficult times for the homebuilding industry, a formula that offers thepossibility that quality, time and cost can all be optimized simultaneously will draw potential clients like bees to honey. It’s notas if we didn’t know that before last October, but we had to be jerked out of our comfort zone to get there as quickly as we have in the last few months.

What is the definition of quality? This has long remained the same for us: finely crafted, high performance buildings with the features and amenities our clients need and want. We are building homes that range from the low $200K range up to several million. Each client gives us a unique quality goal that becomes its own“no plan B” target. We customize ourselves to fit them. We are also aware that people are looking for a life improvement that goes well beyond the physical aspects of a building. In all that we do, we aspire to improve the quality of lives, which is the ultimate reason new homes are built.

What is the definition of faster time? Through prefabrication and parallel processing, we can cut typical on-site construction times by two-thirds or more. Our off-site fabrication methods are the most creative and innovative in our industry. Our Open-Built systems allow us to take a unique approach in the fabricationof building elements that includes everything from rough framing to fine finishes, without submitting to the dull architectural constraints of modular boxes.

What is the definition of cost control? Our immediate intention is to meet or beat the cost of typical on-site construction. While we eventually hope to achieve costs that we expect to be much lower eventually, for now higher quality and much faster delivery are the primary goals.

As a result of these accomplishments, we now have the same backlog we’vehad in banner years in the boom economy. It would be foolish to say that we have become immune to the travails of this hard recession (actually a Depression in homebuilding), but our team is rightly proud of having “opted out” of the recession (at least for now), exactly as planned!

Next time: back to “How to build in a Recession”

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 aculture 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 freedomto build incrementally, usually forced in the terms of the constructionloan (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 homeslowly, 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 wereoften 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 anappointment 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 wantedto understand my financial realities and the loan process. Despite having nothing on paper to show the bank officer, I left the bank after ashort 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 torun. 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 borrowedmoney, 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 savedmoney 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 enoughfor 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, allthe 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.

Benson House, ca. 1999

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, soI’m going to make some assumptions about how the theoretical math worksout: 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.

Benson House ca 2008

• For added living area, we eventually took off the solariumand added a great room.
• Dormers were added to the bedrooms and the second floor bath for addedspace, 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 gavespace 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.