<%BANNER%>

Discovering Business Trends for Successful Homebuilders during a Recession in Alachua County, Florida

Permanent Link: http://ufdc.ufl.edu/UFE0041251/00001

Material Information

Title: Discovering Business Trends for Successful Homebuilders during a Recession in Alachua County, Florida
Physical Description: 1 online resource (51 p.)
Language: english
Creator: Schlaffer, Gregory
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2009

Subjects

Subjects / Keywords: Building Construction -- Dissertations, Academic -- UF
Genre: Building Construction thesis, M.S.B.C.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Science in Building Construction DISCOVERING BUSINESS TRENDS FOR SUCCESSFUL HOMEBUILDERS DURING A RECESSION IN ALACHUA COUNTY, FLORIDA By Gregory Peter Schlaffer December 2009 Chair: R. Raymond Issa Co chair: Robert C. Stroh, Sr. Major: Building Construction As a result of the boom and bust of the housing bubble, demand for newly built homes has been drastically affected. This drop in demand has had substantial effect on home builders in Alachua County, Florida. The amount of new homes built per year has significantly decreased since 2005, and builders are struggling to stay afloat. In the year 2005, one thousand seventy-five permits were applied for by home builders for new single-family home construction. Through September 28, 2009 only one hundred seventy-five permits have been applied for. With demand for new homes being so low, builders have had to adapt their business practices to meet the needs of the changing markets. Two of the most successful strategies observed by this research being applied in Alachua County are focusing on lower priced entry level homes, and shifting focus to the renovation market. After reviewing market trends it was observed that there is substantial need for these types of practices in the county. The success of home builders will depend on their ability to adapt to the market needs. The time when builders were able to build and sell homes for much greater values than what residents of Alachua County could truly afford is over. This adaptability is what may make the difference between which companies succeed and which fail in this transitional period.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Gregory Schlaffer.
Thesis: Thesis (M.S.B.C.)--University of Florida, 2009.
Local: Adviser: Issa, R. Raymond.
Local: Co-adviser: Stroh, Robert C.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2010-06-30

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2009
System ID: UFE0041251:00001

Permanent Link: http://ufdc.ufl.edu/UFE0041251/00001

Material Information

Title: Discovering Business Trends for Successful Homebuilders during a Recession in Alachua County, Florida
Physical Description: 1 online resource (51 p.)
Language: english
Creator: Schlaffer, Gregory
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2009

Subjects

Subjects / Keywords: Building Construction -- Dissertations, Academic -- UF
Genre: Building Construction thesis, M.S.B.C.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Science in Building Construction DISCOVERING BUSINESS TRENDS FOR SUCCESSFUL HOMEBUILDERS DURING A RECESSION IN ALACHUA COUNTY, FLORIDA By Gregory Peter Schlaffer December 2009 Chair: R. Raymond Issa Co chair: Robert C. Stroh, Sr. Major: Building Construction As a result of the boom and bust of the housing bubble, demand for newly built homes has been drastically affected. This drop in demand has had substantial effect on home builders in Alachua County, Florida. The amount of new homes built per year has significantly decreased since 2005, and builders are struggling to stay afloat. In the year 2005, one thousand seventy-five permits were applied for by home builders for new single-family home construction. Through September 28, 2009 only one hundred seventy-five permits have been applied for. With demand for new homes being so low, builders have had to adapt their business practices to meet the needs of the changing markets. Two of the most successful strategies observed by this research being applied in Alachua County are focusing on lower priced entry level homes, and shifting focus to the renovation market. After reviewing market trends it was observed that there is substantial need for these types of practices in the county. The success of home builders will depend on their ability to adapt to the market needs. The time when builders were able to build and sell homes for much greater values than what residents of Alachua County could truly afford is over. This adaptability is what may make the difference between which companies succeed and which fail in this transitional period.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Gregory Schlaffer.
Thesis: Thesis (M.S.B.C.)--University of Florida, 2009.
Local: Adviser: Issa, R. Raymond.
Local: Co-adviser: Stroh, Robert C.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2010-06-30

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2009
System ID: UFE0041251:00001


This item has the following downloads:


Full Text

PAGE 1

1 DISCOVERING BUSINES S TRENDS FOR SUCCESSFUL HOMEBUILDERS DURING A RECESSION IN ALACHUA COUNTY, FLORIDA By GREGORY PETER SCHLAFFER A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN BUILDING CONSTRUCTION UNIVERSITY OF FLORIDA 2009

PAGE 2

2 2009 Gregory Peter Schlaffer

PAGE 3

3 To my m other

PAGE 4

4 ACKNOWLEDGMENTS This thesis is dedicated t o my family, who has supported me through out all of my endeavors. I would also like to also thank Chelsea Wagner who is my constant inspiration. Lastly I would like to express thanks to the members of my committee, without their help this would not have been possible.

PAGE 5

5 TABLE OF CONTENTS page ACKNOWLEDGMENTS ................................ ................................ ................................ .. 4 TABLE OF CONTENTS ................................ ................................ ................................ .. 5 LIST OF TABLES ................................ ................................ ................................ ............ 7 LIST OF FIGURES ................................ ................................ ................................ .......... 8 ABSTRACT ................................ ................................ ................................ ..................... 9 CHAPTER 1 INTRODUCTION ................................ ................................ ................................ .... 11 Background ................................ ................................ ................................ ............. 11 Statement of Problem ................................ ................................ ............................. 11 Purpose of Study ................................ ................................ ................................ .... 12 Organization of the Study ................................ ................................ ....................... 12 Significance of the Study ................................ ................................ ........................ 13 2 LIT ERATURE REVIEW ................................ ................................ .......................... 14 Introduction ................................ ................................ ................................ ............. 14 Causes of the Boom and Bust of the Housing Bubble ................................ ............ 14 Effects ................................ ................................ ................................ ..................... 18 Increased Foreclosures ................................ ................................ .................... 18 Reduction of Home and Property Values ................................ ......................... 19 Tightening of Money Markets ................................ ................................ ........... 20 Exam ples of Adaptation ................................ ................................ .......................... 20 Summary ................................ ................................ ................................ ................ 23 3 METHODOLOGY ................................ ................................ ................................ ... 24 Introduction ................................ ................................ ................................ ............. 24 Market Analysis ................................ ................................ ................................ ...... 24 Home Builder Interviews ................................ ................................ ......................... 25 4 RESUL TS ................................ ................................ ................................ ............... 27 Market Analysis ................................ ................................ ................................ ...... 27 Population Trends ................................ ................................ ............................ 27 Size of popula tion ................................ ................................ ...................... 27 Earning potential of population ................................ ................................ ... 28

PAGE 6

6 Household formations ................................ ................................ ................ 29 Building Trends ................................ ................................ ................................ 30 Types of permits pulled ................................ ................................ .............. 30 Quantity of permits pulled ................................ ................................ .......... 34 Sales Trends ................................ ................................ ................................ .... 35 Single family residential sizes ................................ ................................ .... 35 Single family residential prices ................................ ................................ ... 36 Interviews ................................ ................................ ................................ ................ 39 Builders Still Buildin g New Homes ................................ ................................ ... 39 Builders Not Currently Building New Homes ................................ .................... 40 General Observations ................................ ................................ ...................... 41 5 CONCLUSIO N AND RECOMMENDATIONS ................................ ......................... 42 Conclusions ................................ ................................ ................................ ............ 42 Recommendations ................................ ................................ ................................ .. 43 Speculative Building ................................ ................................ ......................... 43 Affordable H ousing ................................ ................................ ........................... 44 High End Construction ................................ ................................ ..................... 45 Energy Efficient Housing ................................ ................................ .................. 46 Remodeli ng and Renovation Work ................................ ................................ ... 46 Closing ................................ ................................ ................................ .................... 47 APPENDIX: HOME BUILDER INTERVIEW ................................ ................................ .. 48 LIST OF REFERENCES ................................ ................................ ............................... 50 BIOGRAPHICAL SKETCH ................................ ................................ ............................ 51

PAGE 7

7 LIST OF TABLES Table page 4 1 Alachua County population projections. ................................ ............................ 27 4 2 Median hou sehold income in Alachua County. ................................ ................... 29 4 3 Predicted growth in housing units in Alachua County. ................................ ........ 30 4 4 Total permit values since 2000, by permit type. ................................ .................. 32 4 5 Median size of new homes sold compared to median size of all homes sold. .... 35 4 6 Median sales prices pe r year versus median incomes. ................................ ...... 38

PAGE 8

8 LIST OF FIGURES Figure page 1 1 Demand for new single family home construction. ................................ ............. 12 4 1 Graph illustrating projected population growth in Alachua County. ..................... 28 4 2 Graph illustrating predicted demand for new housing units. ............................... 31 4 3 Total value of permits pulled each year by type in Alachua County. ................... 33 4 4 Total value of permits pulled each year by type in Alachua County (excluding single family detached). ................................ ................................ ...................... 33 4 5 Single family residential permit totals per month. ................................ ............... 34 4 6 Comparison of the sizes of new homes built versus all homes sold. .................. 36 4 7 Median sales prices of all homes sold versus the total number of permits per year. ................................ ................................ ................................ ................... 37 4 8 Median household income versus median home sales prices. ........................... 38

PAGE 9

9 Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Science in Buildin g Construction DISCOVERING BUSINES S TRENDS FOR SUCCESSFUL HOMEBUILDERS DURING A RECESSION IN ALACHUA COUNTY, FLORIDA By Gregory Peter Schlaffer December 2009 Chair: R. Raymond Issa Co chair: Robert C. Stroh, Sr. Major: Building Construction As a result of the boom and bust of the housing bubble, demand for newly built homes has been drastically affected. This drop in demand has had substantial effect on home builders in Alachua County, Florida. The amount of new homes built per year has signi ficantly decreased since 2005, and builders are struggling to stay afloat. In the year 2005, one thousand seventy five permits were applied for by home builders for new single family home construction. Through September 28 2009 only one hundred seventy f ive permits have been applied for. With demand for new homes being so low, builders ha ve had to adapt their business practices to meet the needs of the changing markets. Two of the most successful strategies observed by this research being applied in Alac hua County are focusing on lower priced entry level homes, and shifting focus to the renovation market. After reviewing market trends it was observed that there is substantial need for these types of practices in the county.

PAGE 10

10 The success of home builders w ill depend on their ability to adapt to the market needs. The time when builders were able to build and sell homes for much greater values than what residents of Alachua County could truly afford is over. This adaptability is what may make the difference b etween which companies succeed and which fail in this transitional period.

PAGE 11

11 CHAPTER 1 INTRODUCTION Background The current decade has seen very turbulent times for home builders across the country. Both prices and demands for new homes rose to record hig hs around 2005. This sharp rise was then followed by a collapse greater than any other seen since the Great Depress ion. Dramatic decreases in home values along with increases in foreclosure rates have lowered consumer confidence to all time lows. With so l ittle currently going on in the home sales market, builders are finding themselves with little if no work at all. What was a booming business from 2000 to 2005, has become a business with little demand. Statement of Problem Alachua County, like much of t he country, has been significantly affected by the bursting of the housing bubble. As shown in Figure 1 1 below, demand for new homes hit an extreme high in 2005, only to have demand fall to significant lows in 2008 and 2009. This drop in demand has made a significant impact on the businesses of home builders. A combination of large stocks of homes for sale with decreasing home and p roperty values has hurt builder s abilities to build and sell new homes for a profit. Demand for new homes in the area is at h istoric lows and builders have been faced with the potential of lay offs, bankruptcy, and closing of their businesses. Of those businesses that have been able to survive, most are barely making ends meet and are desperately waiting for changes in the marke t.

PAGE 12

12 Figure 1 1. Demand for new single family home c onstruction Purpose of Study The purpose of this study is to determine and evaluate the practices and strategies being used by builders in Alachua County in order to identify which are best suited for the current market conditions. Organization of the Study Chapter 2 of this study wi ll review the causes and effects the housing bubble has had on home buyers and home builders. It will also cover techniques being used by builders in different parts of the county to adapt to the change in market conditions. Chapter 3 is a description of t he methodology used in gathering research on the home market in Alachua County. Chapter 4 covers the results of the research and compares trends seen in different areas. Trends in both the entire housing market and the new home market are investigated and compared. Finally, this paper will end with conclusions made from the research done on these markets along with recommendations as to which techniques are best suited for the Alachua county area. 25 50 75 100 125 150 175 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Millions of Dollars of New Homes Built in Alachua County Year

PAGE 13

13 Significance of the Study In just a f ew years, the home b uilding went from a flourishing market to one of the worst performing in the country. The primary benefit of this study is to identify strategies being used by successful home builders in Alachua County and assess these strategies based on market trends. T his is in a hope that these strategies can be applied by those builders not currently experiencing these relative levels of success.

PAGE 14

14 CHAPTER 2 LITERATURE REVIEW Introduction This literature review presents a summary of possible causes for the sharp ris e and fall in demand for new homes over the period of 2000 2009 and its effect on home builders. There has been no definitive research done on the causes and effects of the rise and subsequent decline in demand in Alachua County, Florida. As a result of th is, the following research will focus on the broader view of national policies, national home buying trends, lending practices, and other trends seen throughout the nation. The focus will be on trends throughout the country that may have had a direct effec t on the local market. This chapter is divided into three sections. The first section will explain some of the causes of the housing bubble as well as the reason for its burst. The second section will detail some of the effects the burst of the housing bu bble had on both home buyers and home builders. The third and final section will look at possible segments of the market that home builders may be able to find work in. Causes of the Boom and Bust of the Housing Bubble The recent turmoil faced by home ow ners, home builders, and finance markets has attracted considerable attention from the media, the government, and potential home buyers. Home buying and real estate investment in general went from being a gold mine where people were making millions of doll ars to a land mine forcing individuals into bankruptcy in merely a few years. By understanding the causes of this boom we can better prevent busts in the future.

PAGE 15

15 From the year 2000 to early 2006 home prices and sales of homes rose dramatically According to the US Census Bureau, in the year 2000, the national median sales price of a new home was $169,000. In the year 2006, the national median sales price for a new home was $246,500. Also, in the year 2000 there were about 877,000 new homes sold in the US. That number grew to around 1,052,000 new homes sold in 2006. These numbers show that there was not only an increased demand for new homes, but a sharp increase in home values. The increases in prices and demand can be attributed to many factors. Coleman et al. (2008) states that the sharp increase in prices in the time period being examined was caused by a combination of a few main factors including: economic fundamentals (e.g., employment, income, population increases); increased credit availability; and f undamental changes in the regulatory environment which resulted in incentives for a strong surge in lending by loosening underwriting standards which were not sustainable. Each of these factors had significant roles in the unraveling of the market. The fir st issue is based on the overall economic fundamentals of the country which are derived from employment rates, income levels, and population increases, among other factors. In the few years leading up to the bubble the country saw significant economic grow th through continued increases in the GDP growth rate. Much of this growth came from the housing and construction market. In fact, according to the Bureau of Economic Analysis (2009) the gross domestic private investment in the residential market rose fro m 449 billion dollars in the year 2000 to 775 billion in 2005. At the same time the GDP was rising, income levels were rising as well. According to the US Census Bureau, from 1995 to 2001 the median household income rose from

PAGE 16

16 $47,803 to $51,356 and the me an rose from $63,041 to $70,790 (income in 2008 adjusted dollars). These numbers show a significant increase in the overall earning potential of households in the US. Increases in income, led to both increases in spending as well as increases in investing in the real estate market (Coleman et al. 2008). Like most of the twentieth century, the population in the US in the twenty first century continued to grow. Along with population growth and increased wealth, came of households grew faster than any other state. The total number of households grew 20.5% in th ose 8 years (US Census Bureau). With the growing economy, increases in income, and improved confidence to form new households, the housing market was primed for expansion. This rapid expansion is what led to the beginning of the housing bubble. These econ omic factors were not the sole cause of the bubble, but were merely the factors that set the stage for it (from 2000 to 2003). These increases in demand led to fundamental changes in the practices by builders, investors, and the regulatory environment. Th e finance industry led t he way to expansion in the real estate market Its ability to create new lending for the growing demand in housing made mass growth possible. The creation of sub prime lending as well as other unconventional mortgage practices made obtaining loans easier than ever. Perhaps the most important impact of lending patterns was found to originate with the regime shift in early 2004 (Coleman et al. portions of the market, were being forced out of the home lending market because of

PAGE 17

17 their inability to provide loans as large and as easily as those provided by subprime lenders. GSEs by law were unable to take part in sub prime lending because it was capital in the market resulted in both a record increase in total lending volume after 2003 and substantial substitution of alternative private instruments for conventional conform government backed private organizations. Examples are organizations like Fannie Mae and Freddie Mac. Since these are government backed loan providers, they are required to make loans based on sound economic fundamentals. According to Hamilton (2008) the fraction of outstanding home mortgage debt that was either held or guaranteed by the GSEs (known as their "total book of business") rose from 6% in 1971 to 51% in 2003. After 2003 however, there was an explosion of home mortgages held in the form of privately issued asset backed securities that did not go through either Fannie or Freddie. By 2006, these represented 20% of all outstanding home mortgages. The relative absence of the 2006 permitted the spread of not only new private issue instrument designs and asset backed securities products, but also weaker underwriting standards to flow in great volumes into the void. The issuance of private labe l, subprime, and Alt A RMBS loans increased from $98 billion in 2001 to almost $814 billion by 2006 (Immergluck 2009). Privately held loans became so easy to get that they were being issued for amounts greater than the applicants earning potential allowed for. These events may be deemed at fault in precipitating the subsequent series of trends which later collapsed the housing and mortgage markets (Coleman et al. 2008).

PAGE 18

18 Greater purchasing power led to greater demand and increased home values. Home prices in support the prices of homes. In late 2005 early 2006 the housing bubble burst. Far too many people were able to take out loans that they could not truly afford. As the rate of foreclo sures started increasing, and private lending practices were put under scrutiny, the housing market began to dive. The result of which was the greatest housing slump sinc e the Great D epression (Mullins 2009). Effects As the national mortgage crisis worsene d, the housing market began to collapse. In examining the effects of the collapse, this portion of the review will cover three main topics: increase of foreclosures in the market; the reduction of home and property values; and the tightening of money marke ts. Increased Foreclosures When home prices began hitting their highest points, increasing numbers of communities began experiencing rises in foreclosure rates. These rates were due in part to consumers purchasing homes at prices greater than what they could truly afford, and increases in unemployment. The resulting effect was that many people lost their homes to their lenders, thus significantly increasing the amount of homes for sale in the market, in turn increasing the overall supply. Also, these ho mes were selling at rates considerably lower than surrounding homes in the area of the foreclosed home because This increase in foreclosed homes for sale creates significan t problems for the supply side of the housing market. According to an interview with Richard Dugas, the Chief executive of Pulte homes, about 50 percent of all resale homes in the first half of

PAGE 19

19 2009 have been foreclosure sales (Mullins 2009). This is signi ficant for not only people trying to sell their homes but for builders and developers of new homes because sales of foreclosed homes are controlling the market. In order for builders to be able to move forward and sell their homes, the current inventory of foreclosed homes being sold below market value must be cleared out. Unfortunately, as long as consumer confidence remains low, it will take significant time to clear out the supply of underpriced foreclosed homes (Strand 2009). Reduction of Home and Prop erty Values One of the greatest effects that foreclosures have had on the market is the reduction of home and property values. According to classic supply and demand principles, as supplies increase, and demand remains the same or lower, prices will decrea se. Home markets have been flooded with supplies of homes for sale due to significant increases in foreclosures (Schuetz et al. 2008). Sales of new homes are hitting record lows and as a result prices are dropping. The US Census Bureau states that, the med ian sales price of all homes sold in the US in 2006 was $246,500. The median price in 2008 was $232,100. This reduction in values is partially a reflection of the increase in foreclosed homes for sale in the US (Strand 2009). One problem hurting home buil ders the most perhaps is that many people purchased their homes near the peak of the market and now owe lenders more than their home is worth. This then prevents the home owners from being able to sell their home and purchase or build another. That portion of the market will not be freed up to buy homes until prices rebound to their previous point (Mullins 2009).

PAGE 20

20 Tightening of Money Markets Since the dramatic increase in foreclosure rates, lending markets have tightened up. The step that lenders have take n to prevent the accumulation of additional bad dept is to strengthen the requirements needed to obtain loans. For example, a traditional mortgage today typically requires a 20 percent down payment (Mullins 2009). During the height of the boom, one could e asily obtain a loan for 100 percent of the home cost (Schuetz et al. 2008). These types of stringent demands are making it difficult, if not impossible for many to obtain a loan. Even as home prices are receding back to levels seen before the bubble, over all purchases are still low because of this barrier to entry. Not only has the tightening on money markets affected buyers, but it has significantly affected builders as well. For many builders, credit is what allowed them to build many homes as speculati ve homes (spec homes) with the intention of selling them during or after their construction (Cocheo 2009). This practice is now is becoming less and less viable of an option for builders. According to Strand (2009) the total inventory of properties owned b y home builders declined from a high of 572,000 in July 2006 to 281,000 in June 2009. Examples of Adaptation Through this very significant downturn, some builders around the US have been able to continue business with some levels of success. In most case s, business is down, but there are exceptions. Entrepreneurs who have long experience in real estate, or who have carved out special niches, have been able to ride out the worst and take advantage of the changes in the market (Bowers 2008). Some proven ni ches are those that take advantage of the effects of the downturn. For example, Bounds (2008) investigated the business of maintenance and repair of

PAGE 21

21 maintenance of these e mpty homes increases as well. Lenders faced with growing housing inventories are pushing servicers to handle the maintenance and repair of more and more houses. Many of these houses fall into disarray after months of sitting vacant and in some cases are in need of significant repairs such as replaced roofs, new plumbing, or even complete renovations. This investigation stated that some companies the burst of the bubbl e. Another possible niche increasing in strength is the renovations market. Remodelers, who for the last several years have devoted their skills to purchasing homes, renovating them, and flipping them, are now returning to their old lines of work. Also, with the barriers to buying houses being so high, many homeowners are unable to trade up their homes and are therefore remodeling them. Whether they are remodeling for the purpose of sale or remodeling instead of purchasing a new home, the potential work i s available for builders (Bowers 2008). Other niches are those that are not as affected or shielded from the down turn. An example is the first time home buyers market. This market is not bound to a mortgage or a house that is overpriced. The most signif icant barriers to entry in this market are the availability of loans and the affordability of homes. With aid coming from the federal government in the form of an $8,000 first time home buyer tax credit as well as affordable loans from the Federal Housing Administration, the barrier to entry has been reduced. In order to take advantage of this, some successful builders are introducing smaller more affordable homes making the first home more attainable (Mullins 2009).

PAGE 22

22 The other end of the housing spectrum i s building high end homes. Some markets have seen little downturn in demand for very high end homes. These builders are remaining successful by earning profits on just a few large contracts rather than many smaller ones. In some neighborhoods outside of Ch arlotte, North Carolina little change has occurred in the very high end market. Those builders servicing that niche of the market, are being affected less in this economy (Bowers 2008). One niche being seen across most all markets is the increase in deman d in energy efficiency in construction. With increases in energy costs and increasing incentives from American Recovery and Reinvestment Act of 2009 (AARA) is just one e xample of the many opportunities that are becoming available to developers seeking to integrate energy efficiency into housing projects. This act provides for multiple tax credits for making energy efficiency upgrades to existing homes as well as building new homes which consume less energy (Lyon Collis 2009). This niche has the potential of taking advantage of most segments of the housing market (Mullins 2009). The most important factor in home buying demand to understand is that real estate markets are r egionalized. Whether the builder focuses on entry level homes, renovating homes, or high end homes, understanding the demands of that local market is imperative to their success. While the luxury homes market may be unaffected in some areas, there may be o ther areas that the luxury market is nonexistent. This ability to adapt is the trait of an entrepreneur (Cocheo 2009). In order for builders to persuade customers to build or purchase new homes, builders must better understand new home dless of if they are the needs of the low end or high end markets.

PAGE 23

23 The time when builders could develop large tracts of land and sell hundreds of indistinguishable homes for exorbitant amounts is over. Builders are realizing the need to redesign their busi ness strategies to remain competitive (Nahmens & Ikuma 2009). Summary The boom and bust of the real estate market has had a dramatic effect on home builders over the past few years. Home prices and demands are hitting record lows and the effects are being felt across many industries. Record amounts of homes are falling into foreclosure and the availability of lending has been greatly reduced. Many home builders and developers are sitting on stocks of homes and properties which they cannot sell. Though over all performance in the housing market is very low, there are a few niches which adaptive builders have been able to take advantage of to ride out the storm.

PAGE 24

24 CHAPTER 3 METHODOLOGY Introduction The purpose of this research is to discover trends in the residential construction market of Alachua County that are prevalent during the current economic downturn. It was determined that in order to best understa nd the observed market, multiple research methods should be used. A market analysis was performed to grasp a picture of the economics and the trends related to the local home purchasing population. Interviews with home builders who work in Alachua County w ere also used to determin e business strategies of successful firms. It is the goal of this research that by using both of these techniques for gathering data conclusions about trends in the observed market can be drawn. The following steps were taken to obtain the necessary information: An extensive literature review was conducted on published materials relating to recent trends in residential construction. The data needed for the market analysis was identified. Data pertaining to residential market w as collected. The data collected on the residential market was analyzed to identify significant trends. The significant trends were analyzed to select trends with the highest potential for future demand. A home builder survey was created to obtain opinions techniques and outlooks from home builders. Interviews were conducted with selected builders. Responses from interviews were analyzed and conclusions were drawn from the answers. Market Analysis In analyzing the local market, this study focused on three segments : population trends, construction trends and sales trends.

PAGE 25

25 In order to better understand the local population, census data was used to analyze several aspects of the observed population. Important factors that will be analyzed are the size o f the population and the predicted growth of the population. Also, changes in income levels and household formation rates were investigated. These sets of data were analyzed and compared in order to predict future housing needs for the observed market. The next segment of the market analysis covered current building trends. Data was collected from the Alachua County Department of Growth Management in order to track the amounts and categories of permits being pulled for construction. From this data set, many trends could be observed. Trends included the sizes of new home, construction values, as well as the overall demand for new construction in Alachua County. The data was collected as of noon, September 30, 2009 to reflect the first three quarters of 2009. data set was used to track information on the homes that have been sold in Alachua County. The median size of homes sold since the year 2000 was tracked, as well as median p rices and total units sold. This data was then analyzed to illustrate trends in consumer demands for the entire home buying market. Th is data was collected as of noon, September 28, 2009 to reflect the first three quarters of 2009. Home Builder Interviews Structured interviews were scheduled and conducted with local home builders to better understand the effects of the economic downturn on their business practices. Top home builders in Alachua County were selected. The goal was to discover specific adapta tions in strategies being made to continue success and to compare these

PAGE 26

26 strategies to the market research to try and find relationships. Questions were also asked about the overall strength of their company in order to better understand the typical effects that the downturn has had on many businesses.

PAGE 27

27 CHAPTER 4 RESULTS Market Analysis Population Trends Size of population The following data shows population predictions for Alachua County through the Economic and Business Research. The Bureau of Economic and Business Research publishes population projections on an annual basis for the state of Florida and each best projection as Center for Affordable Housing. Table 4 1shows the projected populations as well as annual population increases and the annual growth rate. As illustrated in Figure 4 1, the Table 4 1 Alachua County population p rojections Year Medium Pop. Projection Annual Change Annual Growth Rate 2000 217,955 2001 222,935 4,980 2.28% 2002 228,607 5,672 2.54% 2003 231,296 2,689 1.21% 2004 236,174 4,878 2.11% 2005 240,764 4,590 1.98% 2006 243,779 3,015 1.25% 2007 247,561 3,782 1.57% 2008 252,388 4,827 1.95% 2010 253,400 506 0.20% 2015 269,899 3,300 1.30% 2020 283,198 2,660 0.99%

PAGE 28

28 population in the county was projected to hit somewhat of a plateau from 2008 to 2010. This reduction in growth would in turn result in a decreasing rate at which new homes would be needed. After the year 2010, it is predicted that the population will beg in to increase again, thus increasing the housing demand in Alachua County. Figure 4 1 Graph illustrating projected population growth in Alachua County Earning potential of population The next chart shows the median household income in dollars by year for Alachua County. The estimates were collected from the Small Area & Poverty Estimates data set generated by the US Census Bureau. The Annual increase was then calculated. The average annual increase over the 9 year period was found to be 2.26% per year. By continuing this increase, the projected median household income for the year 2010 will be $40,715. This data is significant in that is shows that income levels did not increase at a rate that could support home price increases caused during the ho using bubble. 2000: 217,955 2008: 252,388 2010: 253,400 2015: 269,899 2020: 283,198 100,000 120,000 140,000 160,000 180,000 200,000 220,000 240,000 260,000 280,000 300,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Alachua County Population Year Alachua County Projected Population Medium Range Projections

PAGE 29

29 This fact may have been a major contributing factor to the bursting of the housing bubble. Table 4 2 Median household income in Alachua County Year Estimate 90% Confidence Interval Annual Increase 1999 $31,889 29,873 to 34,042 2000 $32,724 30,414 to 35,210 2.62% 2001 $32,061 29,950 to 34,320 2.03% 2002 $32,153 30,038 to 34,417 0.29% 2003 $33,176 31,179 to 35,301 3.18% 2004 $34,696 32,617 to 36,907 4.58% 2005 $35,474 33,377 to 37,572 2.24% 2006 $37,046 35,236 to 38,856 4.43% 2007 $38,075 36,036 to 40,113 2.78% 2008 $38,935 2.26% 2009 $39,815 2.26% 2010 $40,715 2.26% Household formations The next set of data predicts future need for new housing based on population predictions generated by the Bureau of Economic and Business Research. The annual population projection is divided by the average household size in Alachua County to estimate to tal housing units. The average household size since the year 2000 was found to be 2.29 persons per household. This was calculated by taking the mean value of the average household size for each year after the year 2000. By dividing the predicted population values by the mean household size for Alachua County, the growth in housing units for the years 2010 and 2015 was predicted. Figure 4 2 shows that the predicted household growth rate will rebound from its decreased rate from years 2009 to 2010. It is expe cted that there will be only 489 new housing units built each year from

PAGE 30

30 2009 to 2010, then that rate will increase to an average of 1,447 housing units per year until 2015. The rate from 2010 to 2015 is not expected to be as steep as the trend shown by the dashed line illustrating the linear regression from years 2000 to 2008. However, it will be a significant increase following the years 2009 to 2010 where rates were at significant lows. Table 4 3 Predicted growth in housing units in Alachua County Yea r Population Housing Units Average Size of Household per year Difference from Previous Period Growth Per Year Preceding Period 2000 217,955 95,570 2.28 2001 222,935 97,426 2.29 1,856 1,856 2002 228,607 99,587 2.30 2,161 2,161 2003 231,296 101,197 2.29 1,610 1,610 2004 236,174 102,701 2.30 1,504 1,504 2005 240,764 104,614 2.30 1,913 1,913 2006 243,779 106,753 2.28 2,139 2,139 2007 247,561 108,449 2.28 1,696 1,696 2008 252,388 109,562 2.30 1,113 1,113 2010 253,400 110,539 2.29 977 489 2015 269,899 117,774 2.29 7,235 1,447 Building Trends Types of permits pulled The information in following set of data (Table 4 4) and the resulting graphs (Figures 4 3 and 4 4) was collected from the Alachua County Department of Growth Management. It shows the total project values for each year for specific classifications of permits. For the purpose of this research, the focus is on types of work many home builders typically take part in. The s elected categories were: single family detached; residential mis cellaneous; residential alterations and additions; as well as commercial alterations and additions.

PAGE 31

31 Figure 4 2 P redicted demand for new housing units This data and the following predictions are based on permits pulled for construction. According t o the US Census Bureau, historically, for single family unit construction, starts are 2.5 percent greater than permits. In addition, completions are 4 percent less than starts. For the purpose of simplicity, this research excludes these two factors due to the relatively small sample size and a negligible difference between the previously stated two rates (1.5 percent). 95,570 97,426 99,587 101,197 102,701 104,614 106,753 108,449 109,562 110,539 117,774 80,000 85,000 90,000 95,000 100,000 105,000 110,000 115,000 120,000 125,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Number of Housing Units Year Predicted Total Housing Units Total Housing Units Predicted Housing Units Linear (Total Housing Units)

PAGE 32

32 Table 4 4 Total permit values since 2000, by permit t ype

PAGE 33

33 Figure 4 3 Total value of permits pulled each year by type in Alachua County. Figure 4 4 Total value of permits pulled each year by type in A lachua County (excluding single family detached). $ $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 $18,000,000 Total Permit Values Year RESIDENTIAL MISC. RESIDENTIAL ALTER. / ADDN. NONRES. ADDN./ALT & CONVER $ $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 $180,000,000 Total Permit Values Year SINGLE FAMILY DETACHED RESIDENTIAL MISC. RESIDENTIAL ALTER. / ADDN. NONRES. ADDN./ALT & CONVER

PAGE 34

34 Quantity of permits pulled Figure 4 5 s hows the total number of single family residential permits on record for each month from January, 2000 throu gh September 28, 2009. The dramatic increase in demand for new homes is clearly illustrated by the spike on March, 2005 where 331 permits for new homes were awarded. The sub sequen tial drop in demand is also shown where in March, 2008 only 8 permits were awarded. A 6 month moving average has been applied to these monthly totals to smooth out differences in months that saw significant change. A six month average was chosen to lessen the effects of seasonal demand as well as to level out spikes in demand caused by impending permitting changes. The highest six month average was the period ending in March, 2005 where the average monthly permits awarded was 152 per month. The lowest poi nt was the six month period ending in September 2008 where the monthly average was 13 permits per month. It should be noted that the average amount of permits pulled each month since January, 2000 is 61.8 per month and the most current six month average is 21 new permits per month. Figure 4 5 Single f amily r esidential permit totals per month. 0 50 100 150 200 250 300 350 Jan 00 Apr 00 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Total Permits Total Permits Pulled Each Month for Single Family Residential Total 6 per. Mov. Avg. (Total)

PAGE 35

35 Sales Trends Single family residential sizes In order to better understand trends in sizes of homes being purchased this research populated a list from the Alachua sales in Alachua County from the year 2000 to current. The lists are large enough that from the years 2000 to 2007 we can calculate the median home sizes with 99 percent confidence and a 2 percent margin of error For the years 2008 and 2009, all home sales on record were taken into account so that we could produce the median figure with 100 percent confidence. From these populations changes in the median size of all homes sold in Alachua County were tracked. Thi s data is important to better understand trends in home sales because of its direct relationship with demand of desired homes. Next, the annual median size of all new homes built since the year 2000 was determined. All medians up to the year 2008 were tak en from the Shimberg Center for Affordable Housing. For the year 2009, the median size for new homes built was found by looking at all permits pulled for that year to find the true median. The data is shown in Table 4 5 and illustrated in Figure 4 6. Tab le 4 5. Median s ize of n ew h omes s old c ompared to m edian s ize of a ll h omes s old

PAGE 36

36 Figure 4 6 Comparison of the sizes of new homes b uilt versus a ll h omes s old As clearly illustrated by Figure 4 6, there has been a significant difference between the median sizes of homes being sold each year when compared to the median size of homes being built. It was only in the year 2008 when the median size of newly construc ted homes began to decrease to match trends seen in the overall market. In 1,815 square feet. This is the same time period where overall demand for new home construction sig nificantly dropped as shown in Figure 4 5. Single family residential p rices The median size of homes sold had dropped consistently in the preceding few years, in conjunction to the median sales price of all homes sold in Alachua County. This data comes fr om the same data set used to calculate the median size of all homes sold, thus giving us the same confidence levels. As illustrated in Figure 4 7, shortly after 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 Square Feet Year Median Size of New Homes Built by Year Median Size of New Homes Built Median Size of All Homes Sold

PAGE 37

37 the peak and subsequent plummet in demand for new homes, the median sales prices began to fall as well. Both of these outcomes are the results of the housing bubble. Figure 4 7 Median s ales p rices of a ll h omes s old versus the t otal n umber of permits per year. When the average growth rate in prices leading up to 2007 is compared with the average annual growth rate of household income from 1999 to 2007 there is a large difference. The average annual growth rate in income was found to be 2.26 percent (Table 4 2) where as the average annual growth rate in home prices from 2000 to 2007 was 11.09 perc ent (Table 4 6). This data supports the hypothesis that home prices continued to rise drastically higher than what people could afford. 0 200 400 600 800 1000 1200 0 50000 100000 150000 200000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Number of Permits Pulled Per Year Median Sales Price of Homes Sold Year Median Sales Price of All Homes Sold Number of Permits Pulled

PAGE 38

38 Table 4 6 Median s ales p rices per y ear versus m edian i ncomes When the data in Table 4 6 is compared to median household incomes, as shown in Figure 4 8, it becomes eviden t that over the years homes have become more and more unaffordable. Also, the last column in Table 4 6 shows the ratio of Median Sales Prices to Median Household Income Levels. In the year 2000, m edian homes prices were 2.99 times the median incomes for Alachua County. In 2006, home prices rose to 5.32 times the median income level for the area. Figure 4 8 Median household i ncome versus m edian h ome sales p rices $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 $220,000 $240,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Values in Dollars Year Median Household Income Median Price of Homes Sold

PAGE 39

39 Interviews Builders Still Buil ding New Homes After researching building permit data, interviews were conducted with the some of the largest builders of new homes in Alachua County for the first three quarters of 2009. The builders were chosen based on the total amount of permits for re sidential construction granted in the year. This was done so that the results would better represent the total population of new homes being built. Of the builders interviewed, their work accounted for about 22 percent of all new home permits granted in 20 09. The interviews covered areas such as: changes to the size of the company; trends in sizes of homes being built; trends in amounts of homes being built; demand for new homes; shifts in business strategy; and other changing business strategies. Among th ose companies that are still building new houses, similar trends were observed. The average size of new homes had decreased since the peak in the market. One leading company reported that their average size of homes being built was reduced from 2,242 squar e feet in 2005 to 1,998 square feet in 2009. Along with the reduction in h ome sizes have come lower sales prices and lower quantities of sales. The same company reported that the average sales price of a new home in 2007 was $359,000 and in the first three quarters of 2009 the average has been $265,000 The two most common needs expressed by buyers to the builders were affordable and energy efficient homes. Both of these results fit into the trends seen in the national market. As prices continued to rise d uring the bubble, homes became more and more unaffordable. Along with affordability, comes energy efficiency. With unpredictable rises in future energy costs, buyers are looking to purchase homes as energy efficient and sustainable as possible.

PAGE 40

40 Unfortun ately, in most cases these companies have had to reduce the amount of full time employees. Because of the decreases in demand for new homes, revenue is significantly down since the housing peak a few years ago. One leading company was forced to reduce thei r full time employees from 31 to 13 in just the past year. This ability to adapt is perhaps the only thing keeping these companies afloat. Another company interviewed began business in 2006. Because the company started after the peak in demand for new homes in 2005, they may be best positioned for the future. This company has only three employees yet has pulled 8 percent of all new home construction permits this year. By keeping their overhead low, they have been able to deliver homes at prices competitors are just beginning to be able to meet. Perhaps the most si gnificant commonality found in the builders that are still currently building and selling new homes is that they are mostly building speculative homes. These speculative homes however are not priced at higher the end prices as seen in the past. These homes are being priced and marketed towards first time home buyers. This is because of several factors. First, being the $8,000 first time home buyers are not stuck in home s which they cannot sell. One interviewee stated that in order to take advantage of the new home buyer market that they must build affordable homes and have a stock of them ready so that people in immediate need will buy. Builders Not Currently Building New Homes This research also conducted interviews with builders who have not pulled any permits for new home construction this year. These builders generally were custom home builders before the housing collapse. Unfortunately, many builders contacted have either gone out of business or are waiting until the market rebounds to work again.

PAGE 41

41 Of those builders still working, many have shifted their business models to incorporate more remodels in both the commercial and residential sector. Common remodels includ ed restaurant and bar remodels, home remodels, home additions and energy efficiency upgrades. Though the work is helping to keep business going, these builders, like those still building new homes, have experienced lower revenues, and reductions in the siz e of their workforce. General Observations In general, it has been observed that business is down for almost all home builders in Alachua County. The only builders who have been able to continue some levels of success are those that are willing and able t o adapt their business models to the changing market conditions. The local home buying market is smaller and is demanding less expensive, more efficient homes. In order to keep costs low, builders are lowering their overhead by decreasing their workforce, and using building materials which can reduce overall cost of construction. The remodeling business continues to be somewhat of a safe haven for builders who are not building any new homes. The transition has not been easy for all builders, but with prop er execution, the amount of work available might be great enough to carry builders until the housing market bounces back.

PAGE 42

42 CHAPTER 4 CONCLUSION AND RECOM MENDATIONS Conclusions The bursting of the housing bubble has had substantial effects on home builde rs in Alachua County. Currently, home builders are being faced with a decrease in demand for new homes that is unprecedented. Along with the decreasing demand has come a reduction in home and property values, and substantial decreases in revenue. These cha nges in the market have had dramatic effects on local business causing some to close and many to lay off multiple employees. Without either a change in the market or Pr ior to the bursting this bubble, local home prices and sizes grew at rates far greater than the increase in income of local households as show in Figure 4 8. For too long, home builders were able to build and sell homes at higher prices than what people co uld truly afford. Once the demand took a dive, builders were forced to make a change. It is no coincidence that in 2008, the median size of new home construction drastically decreased at the same time that demands for new homes decreased (Figure 4 7). Thi s was a response from local home builders adapting to a shift in demand. Not all builders were able to make the adaptation resulting in many leaving the market. For the year 2009, about 53 percent of all new home permits were applied for by only four build ers. The median size of all new homes to be built in 2009 is 1,792 square feet as shown in Table 4 5. In the year 2007 the median size of all new homes built was 2,356 square feet. When we compare this figure to the median size of all homes sold in 2007, t he median size was 1,598 square feet. That difference of 758 square feet is

PAGE 43

43 substantial. It shows both, how much the expectations of home builders and home buyers differed, as well as a lack of adaptation by builders. For the year 2009, the median size of all homes sold thus far is 1,530 square feet, leaving us a difference of only 262 square feet from what is currently being built. It is evident that builders have begun to recognize the importance of building for changing markets. Some builders were better prepared for this market shift than others. Those that recognized the need for affordable homes early have been able to remain relatively healthy and continue to build homes. Those that did not are now focusing on other segments of the market such as remo deling and renovating. There is work for these people; however, the competition may be greater than ever. Recommendations Speculative Building The strategy of building speculative housing has been a technique being used by home builders throughout the hou sing boom. This strategy is useful in that it allows builders to create a stock of homes for sale so that they can take advantage of home buyers in immediate need of new homes. During the boom, financing for these types of homes was relatively easy for bui lders to get. Many builders accumulated large stockpiles of homes and lots without any specific buyers in mind. One local builder With the current stock of homes for sale in Alachua County being so large, buyers now have many choices. With so many options available, buyers are less likely to need to build a custom home in order to get what they want. The builder must be able to omes ahead of time so that they are ready when the buyers come calling.

PAGE 44

44 With the passing of the American Recovery and Reinvestment Act of 2009 came a significant tool for new home buyers, an $8,000 tax credit. Builders of speculative homes are banking on this tax credit to help boost home sales. In order to receive this credit, the home buyer must be a first time buyer. This is why it is important that builders in the speculative market understand the demands of first time home buyers. Since lending markets have tightened up, it has become increasingly difficult fund speculative built homes. The companies that are positioned best to take advantage of the buyers in immediate need are those builders willing and able to fund the projects themselves. Most builders do not have the capital or risk tolerance to take on these types of projects in the current atmosphere. Though the market is not what it was in 2005, there is still opportunity for builders willing to build these homes in anticipation of first ti Affordable Housing As illustrated in multiple figures above, there is a significant need for affordable housing in Alachua County. It can be easily seen in Figure 4 8 that builders have been building homes larger and more expensive than e xisting homes being resold in the area. It is also shown in Figure 4 6 that builders are changing their practices to satisfy this need. With the median home sales price in Alachua County dropping to $170,000 in 2009, the market seems to be shifting. As ma de evident by the changing sizes of homes being built, the builders that have made this change are the ones that continue to build and sell houses. One of the largest barriers to entry in purchasing a home continues to be the ability to get financing. Fe deral Housing Administration loans currently are some of the least demanding as far as financial requirements go. For the Alachua area, these loan

PAGE 45

45 limits can go up to $271,050. Also, they only require as low as a 3.5 percent down payment. Constructing home s that take advantage of these types of loans would be a strong strategy in a market that where funding has become so difficult to get. High End Construction The high end construction market in Alachua County has seen significant lows. In fact, of the 1,2 19 home sales on record for the year, only 45 of them were greater than $500,000. Those 45 accounted for 11.72% of the total dollar value of home sales. When we look at homes sold for less than $200,000, there were 571 sales. Those 571 sales accounted for 40.67 percent of the value of the market. The average size of all the homes sold for more than $500,000 was 3,454 square feet. After looking at the contract sizes for the ten largest homes being built in Alachua County this year, only one, which is 9,025 square feet, is valued at over $500,000. The contract value for that home is valued at $610,945 and therefore the cost per square foot is about $68 per square foot. In fact, the average cost per square foot for the ten largest homes being built is about $6 7 per square foot. When we compare the cost per square foot of the high end homes to the median home price for 2009 (Table 4 6) and the median size of homes sold in 2009 (Table 4 5), you get a cost per square foot for the median home in Alachua County of $111. Therefore, it is very clear that not only is demand for luxury homes extremely low, more affordable homes are selling for significantly more per square foot. This research suggests that it would not be in the best interest of a builder to currently f ocus on the high end market in Alachua County.

PAGE 46

46 Energy Efficient Housing Demand for energy efficiency in construction is being seen by across all segments of the construction market. Buyers are demanding energy efficiency in most all residential and comme rcial segments. The residential market in particular has seen significant interest. As energy costs have continued to rise, so have the concerns of energy efficient. These ty pes of homes have transformed from a trend to the standard. Many of the builders have even gone through the steps of having their houses certified through Energy Star, Build America, and LEED for Homes. Building energy efficient homes in Alachua County has with these standards will set you behind. Remodeling and Renovation Work A common strategy that many home builders in Alachua County have adopted is shifting their businesses more to the renovation a nd remodeling market. In recent years, this market has seen little change. As shown in Figure 4 4, the total commercial remodeling work actually has continued to rise despite decreases in home sales. A similar trend has been seen in home remodeling as well In 2007 there was about $10,200,000 in permit values for residential renovations in Alachua County. There has already been $7,000,000 in permits values for 2009. Both the commercial and residential renovation markets have remained strong. These numbers s hould be encouraging to contractors. The renovation market is taking advantage of the fact that many people are stuck in their homes due to overvalued mortgages. Many owners do not have the option to sell their homes so they are staying settled longer, up grading and adding on to what

PAGE 47

47 they already own. This type of work has become common for many builders that tare traditionally custom home builders who are adapt to ever changing home styles and building for very specific demands. Also, many custom home bui lders are not currently building speculative homes and may not be positioned well for the changes in the new home market. With many new entries into this market, remodeling and renovation getting this type of work has become increasingly competitive. Howe ver, experienced builders who are proven quality contractors should be able to get enough work to get through and survive the recession. Closing Though the market is seeing some of the most turbulent and challenging times in history, there are opportunit ies for those businesses willing and able to adapt. Whether it is changing the types of homes you specialize in or changing the type of construction you do all together, adaptability to adapt is the key to staying successful. After the extreme inflation i n home prices over the past few years, a market correction was inevitable. Those builders that became too large and bloated to change may be left behind. It is the builders who have been able to adapt their business strategies that will succeed. If builder s are to stay in the new home market they must shift their efforts to building affordable, energy efficient homes. If builders cannot do so, they might be best suited taking advantage of the renovation market which has seen little or no decrease in demand in the last ten years. Either way, current demand cannot support the building practices that were seen in the first half of this decade.

PAGE 48

48 APPENDIX: HOME BUILD ER INTERVIEW SCRIPT: The purpose of this interview is to collect data on the current housing m arket in Alachua County, Florida. By collecting this data, I hope to identify and better understand trends in the local home building industry. After identifying these trends, I plan to identify potential homeowner demands, market shifts, changes in constr uction techniques, and niche markets that builders are entering to stay competitive. All of this will be part of my Note: The privacy of each builder is my priority. No personal data such as company or employee names will be used in reporting the results. All data such as earnings and other financial information will not be linked to any specific companies. No contract amounts will be linked to specific projects without the General questions 1. What is the name of your company? 2. When was your company established? 3. What part of Florida do you operate in? 4. How many full time employees do you have? Currently ______ Before Downturn ______ 5. What was your estimated volume for: 2008 _______ 2007 _______ 2006 _______ 2005 _______ 2004_______ 6. What was a typical amount of homes you would have had under construction at any given time before the economic downturn? 7. W hat was your estimated average contract size before the downturn? 8. Have you been forced to shift away from new home building? If so, where to? Questions about current projects 9. How many new homes do you currently have under construction? 10. How many new homes are you currently bidding or have under contract? 11. Less than $100,000 ________ $300,000 $500,000 ________ $100,000 $200,000 ________ Greater than $500,000 ________ $200,000 $300,000 __ ______ 12. many?

PAGE 49

49 13. Are consumers more concerned with building energy efficient homes or building less expensive homes? 14. how many? 15. 16. Are you focusing more on higher end contracts than you were before the downturn? 17. Are you doing more renovation projects than before? If so, what is your mix compared to new construction? 18. perform? 19. Do you see a demand for energy efficiency consulting in the home renovation market? 20. Is energy efficiency more of a concern for the lo w end or the high end of the market? 21. What are some other typical renovations that you are engaged in? 22. Are there any niche markets you are taking advantage of? 23. What is the most common theme new home owners are requesting?(green, high end, low cost, etc.) 24. Ha ve you adopted any new construction techniques that have helped you stay more competitive? 25. Are you currently building any spec homes? If so, how many? 26. How has the economic downturn affected your mix of spec homes versus custom homes? 27. What type of projects are you as a company most focused on now? 28. What actions do you feel have helped most to keep your company successful? 29. Lastly, are there any homes under construction that I may visit and photograph that illustrate your efforts over the past year? May I repor t the contract size of these projects?

PAGE 50

50 LIST OF REFERENCES Bounds, G. (2008, Feb 19). For this niche industry, foreclosures bring a b oom. Wall Street Journal, pp. B.1. BOWERS, B. (2008). Finding real estate niches that keep housing's slump at b ay. New Y ork Times, 9. Cocheo, S. (2009). It's Not All Gloom and Doom. ABA Banking Journal, 101 (2), 14 43. Coleman IV, M., LaCour Little, M., & Vandell, K. D. (2008). Subprime Lending and the Housing Bubble: Tail Wags Dog? Journal of Housing Economics, 17 (4), 272 290. Hamilton, J. (2008). Did Fannie and Freddie cause the mortgage c risis? http://seekingalpha.com/article/85146 Imme rgluck, D. (2009). Core of the crisis: Deregulation, the global savings glut, and financial innovation in the subprime d ebacle. City & Community, 8 (3), 341 345. Lyon Collis, L. (2009). Energizing the Affordable Housing Market: Current Incentives for Integrating Energy Efficiency and Solar Power in Mixed Finance Projects. Jou rnal of Housing & Community Development, 66 (4), 6 13. Mullins, L. (2009). Sol diering through the h ousing s lump; Pulte Homes Chief Richard Dugas s ays w e're b eginning to s ee the b ottom(interview). US News & World Report 146(6). Nahmens, I., & Ikuma, L. H. (2009). Discovering the Variables that Influence New Home Buyer Service Satisfaction. International Journal of Consumer Studies, 33 (5), 581 590. National Income and Product Accounts Table 1.1.5.Gross Domestic Product (2009) Retrieved September 8, 2009, from http://www.bea.gov/national/nipaweb Ody, E. (2009). Buy builders, if y ou d are. Kiplinger's Personal Finance, 63 (5), 46 46. Schuetz, J., Been, V., & Ellen, I. G. (2008). Neighborhood Effects of Concen trated Mortgage Foreclosures. Journal of Housing Economics, 17 (4), 306 319. Strand, R. (2009). Signs of Housing Recovery. ABA Banking Journal, 101 (8), 36 36.

PAGE 51

51 BIOGRAPHICAL SKETCH Greg Schlaffer was born in Los Ang eles, California in 1983. He is the youngest of three children of Sandor Schlaffer and Debbie Merelo. He graduated from Mainland High School in Daytona Beach, FL in 2002. After receiving his Associate of Arts d egree from Daytona Beach Community College in 2005, he transferre d to the University of Florida to study business. He graduated with a B.A. in Business Administration in 2006. He later returned to the University in Florida in 2008 and earned his Master of Science in Building Construction in 2009.