Business is never easy, even for an award-winning homebuilder STRATEGY:
The homebuilding industry has been booming, but it faces several challenges in the years ahead, including rising mortgage rates, the difficulties involved in developing affordable homes, and an ongoing labor shortage. John Johnson, CEO of Houston-based homebuilder David Weekley Homes, recently spoke with Texas Inc. about how he’s meeting these challenges. His company is one of the largest privately held companies in the nation.
Q: Could you tell us briefly about David Weekley Homes?
A:
We design, construct, market and sell single-family homes through a variety of product lines. Since David and Dick Weekley founded the company in 1976, we’ve sold over 90,000 new homes. David is currently chairman of the board. I began working at the company in 1990.
Our “customer first” business strategy prioritizes customer satisfaction, and that includes providing a strong workplace culture. We’re very proud to be known as a great place to work. This year, DWH was named to Fortune magazine’s “100 Best Companies to Work For” list for the 12th time. We were the first builder in the U.S. to be awarded the “Triple Crown of American Home Building,” which includes “America’s Best Builder,” the “National Housing Quality Award” and the “National Builder of the Year.”
Q: How’s the homebuilding business in Houston?
A:
The housing market is good in Houston, and nationwide, and we’re experiencing fairly stable markets. Houston’s our largest market. We’ll build about 1,000 homes here this year. That’s about 20 percent of our business.
The new-home business is really driven by consumer confidence. Someone’s not going to buy a new home and take on a 30-year mortgage unless they feel confident about their job and the future. Consumer confidence is largely dependent on employment, and the unemployment rate is low. Job growth is good. Consumer confidence is the highest it’s been in years. Our sales results are right on plan, and we look for a good finish to this year.
Q: Is a weakening housing market affecting your company?
A:
We certainly are not immune to market downturns. Our company attempts to stay really close to our customers and recognize trends and market changes quickly.
Q: What is your company’s biggest challenge right now?
A: Affordability is a big challenge for us and our whole industry. Demand should be higher than it is because the demographics are positive and the economic indicators are strong. We should be building and selling more homes, but many people cannot afford the homes that we’re building. So, we’re trying to bring the price point down. At the same time, many of our costs — labor and materials — are rising, and interest rates are bouncing.
To address this issue, we recently introduced lower-price homes for first-time buyers under our “Imagination by David Weekley Homes” product line. We’ve done this before during the last economic downturn — building and selling lower-price homes, mostly to first-time buyers. The homes are typically on smaller lots. Instead of 70-foot lots, they may be on 50-foot lots. The home itself may be a little smaller.
With the housing market humming, David Weekley Homes works to counter pressure from rising costs
We are fortunate in Houston to have lower land and building costs than in many parts of the country. I believe homebuilders here are well positioned to continue to meet the needs of the market.
Q: So, demand is high, but it’s for the less costly house?
A:
Yes. And it’s harder to deliver that less costly house, so there aren’t as many of them. This is a big challenge. “We are fortunate in Houston to have lower land and building costs than in many parts of the country.” — John Johnson, Weekley Homes
Q: Are higher interest rates having a significant effect?
A:
Yes. Rates have been rising a little in the last few months. Not a whole lot, but mortgage rates are close to 5 percent now. They were around 4 percent to 4.25 percent a couple months back. Anytime interest rates go up, it takes some percentage of buyers out of the market, because a home purchase boils down to the monthly payment. And when interest rates go up, monthly payments go up. So, we have to bring the cost of the house down.
It’s not just increasing interest rates; costs across the board are also rising and have been for the last couple of years. The entire industry faces this trend — increasing costs for lots, materials and labor. Our challenge is to find ways to deliver well-designed, desirable product at affordable prices. We continue to work with our trade partners and vendor supplier partners to keep our costs down and deliver great products.
Q: Are tariffs affecting prices of materials you need?
A:
That’s coming into play. Many of the materials that homebuilders use, that we use, are from China, Cambodia, Vietnam or over in that area, and the tariffs that are in place now, and additional tariffs projected for January, will increase our challenges.
Q: How about immigration? A:
That is certainly another
challenge for our industry here in Texas and the Southwest. There has been a shortage in labor for several years, even before the immigration laws.
We act as contractors. We subcontract out with different trade partners, and some of our trade partners have a hard time filling their crews. That increases our costs because we cannot build as quickly. We could use more labor and more subcontractors in all of our cities. However, the uncertainty around immigration reduces the supply of labor and accentuates the problem. I think we handle it very well, but that’s another driver of increasing costs.
Q: Is Houston’s economy still strong?
A:
Yes, the Houston economy has made a strong recovery since Hurricane Harvey, and I am positive regarding the city’s future. Houston has many great things going for it. Oil prices are coming down a bit. Employment numbers look good. Houston is a great place to do business — the city has a very proactive, positive work environment. I’ve been here for 22 years and can’t think of another city I’d rather be in.
Q: What advice would you give to other CEOs about running a company?
A:
I believe it all starts with the people. So, my advice is to start there — getting the right team, the right people, and training them properly. And then everything will work out fine.