Home Tech's Role In A Mix Shift From Price To Value Positioning
There's demand and there's demand.
Demand is strong, and demand for new homes is strong, and all the models that compare low, low supply and future demand support reason to believe it will remain strong.
So, how about that mix shift that must be coming?
Just saying.
If interest rates and inflation continue to break forecast models as they've been doing, then what could play out over the next 12 to 24 months could swing homebuilding's product and price pie-chart focus from overweight entry-level volume towards higher price tiers. Those move-up products for less price- and mortgage qualification sensitive homebuyers, would target more discretionary new-home buyers at the mid- to higher tiers of the market, including 55-plus.
This is not to say that 2022's demand cohort of new home buyers won't be sufficiently robust. Nor will the interest and inflation gyrations necessarily shrink 2023's million-plus strong pool of buyers capable of absorbing the stresses and shocks of mortgage rate increases and price pressures. Most builders will continue to sell what they succeed in building.
Still, prospective buyers on the monthly payment and mortgage qualification bubble – and they're out there – will see their ranks swell.
Which will call for a pivot among a lot of builders who've focused heavily on an entry level juggernaut ignited by Millennial households that finally activated the market in the past 36 to 60 months. For the better part of a decade, the nation's homebuilders worked like the dickens to shore up a pipeline of entry-level new homes that would price in within 20% to 30% higher than median-priced existing homes in their respective markets and be worth it.
Builders streamlined and standardized floorplans and elevations, new product and brand lines positioned and value engineered for that first-time buyer, that rental refugee, and that move-down household looking to simplify and enjoy the experience of owning a new home. Rationalized plans, fewer SKUs, square footage efficiencies, slightly higher density, etc. enabled builders to price in a growing group of young adult households.
Now, don't be surprised if a return to the "value buyer" gains momentum. However, builders don't flip a switch and, like that, achieve a mix shift that refocuses their customer segmentation and product positioning overnight. In that light, some of that mix shift repositioning might begin not at the floorplan and elevation structural level, but with some canny finish spec level details, and at the home technology and IP value level of new homes that allow builders to elevate the value appeal with technology versus sheer square footage, design, and structural changes.
We'll likely be on about this mix shift for months to come, but what better place to start on the topic of value-vs.-price positioning than in home technology – connectedness, devices, apps, and routine solutions – which is virtually standard fare among new home offerings these days. What differentiates smart home technologies as holistic, whole-house, and integrated-with-living solutions sets some packages apart from others in perceived value.
This conversation between Kohler director of builder sales Brian Humphreys and Felicia Ratka, who is president for Toll Brothers' TBI Smart Home Solutions group is instructive insofar as it marks a value-oriented builders' view of the evolved and evolving function and role of home technologies in a post-pandemic new normal.
We've transcribed and slightly edited the conversation, as it can offer both builders and their partners a playbook on how home technology solutions have taken on a life of their own as drivers that impact a property's value to its owner-occupant.
Brian Humphreys: How do you begin to evaluate home technologies and decide which ones are going to make it into Toll Brothers’ homes?
Felicia Ratka: Smart home control is personal. What I value in a home is not necessarily the same as what my neighbor would value in a home as far as smart home technology. We’ve built curated packages and options that give our buyers the ability to personalize their smart home technology. But in order for us to create those packages, we along with our home technology partners – the 50 plus integrators that we work across the country to sell and install our locally available options – we’ve spent thousands of hours with our buyers over the years, discussing and trying to understand how our buyers see themselves living in their home after they move in.
We ask a ton of questions. For instance:
• Do you like to entertain?
• Do you work from home?
• Do you have children?
• Are your children gamers?
It’s part of their lifestyle but it all goes to what type of home network do you need? What technology is best suited to support those functions. For us our smart home approach has always been to offer an open and non-proprietary platform. That’s been a key to our success in offering a holistic approach to whole-house technology. We try to educate not only our buyers but also our manufacturing partners that there’s a big difference between a connected home and a truly smart home. Everything has an app these days. Today, having 15 different apps on your phone is the equivalent of having a slew of remote controls on your living room table.
But every smart home device operates independently of the other. So while they’re connected devices and they sit on your network, a home truly becomes smart when all those connected devices can speak to each other and can trigger various events.
For example, I come home and open my garage door, and my alarm system automatically disengages, and my app automatically turns my lights on for me. So, as opposed to having just one app that turns on your lights or opens the garage door for us.
BH: Over the next three to five years, Felicia, how do you see the market shifting? How do you think smart home technologies will adjust to that?
FR: There’s a lot to answer. One of our partners mentioned to me that smart home options are no longer an option. It’s just about how much the buyer wants. I definitely think we’ve reached mass exposure with this category. Everything has an app these days. The options will continue to grow, but I also think the connectivity is key. If you have a faster home network, you can certainly have a smarter home.
I see internet of things devices benefitting tremendously from 5G, with wireless, low-power requirements and more bandwidth. In the home you have more support for devices that are connected. That will help with the speed with which our connected devices communicate, and then that turns into a better customer experience. In high density populations, that becomes critical.
We can’t really exclude power from this conversation. I’m starting to hear a lot of our low-voltage integrators talking about the shift of lighting moving from electrical into the low-voltage trade. So, do I think that DC power will be the future of residential lighting within 3 to 5 years? Probably not, but it’s definitely on the horizon.
BH: How does the future of smart home technology and all the new tech that’s out there integrate in with this new work from home transition we’re seeing?
FR: We like to say here at Toll Brothers that your home is your sanctuary. But there were more people in that sanctuary for more hours during the last year and a half. Within TBI Smart Home Solutions, we’ve always looked at home networks as the backbone of every home. We’ve offered robust, advance home wifi solutions, but the work-from-home landscape really put a stress test on networks and connectivity with so many households having to support work from home or virtual learning. And then you add to that the average US household has something like 25 connected devices, which smart home control is just one category.
The need to provide our buyers with solid and reliable smart home solutions, beyond what, say, your internet service provider may offer has really grown. Enterprise networking, we’ve seen take a huge leap. Buyers are realizing that the value is there for the added cost beyond what they can get from their internet provider. We’re seeing that grow, and technology’s becoming more and more important in that vein to support how people are living in homes.
So, on the building side, we’ve actually started to integrate audio/video closets into our floor plans in some markets which basically provide a centrally located space where all of the homeowner’s wiring can be centrally run, that will house all of their home network equipment, and their routers, their switches, as well as all of their audio and video equipment, cable boxes, game consoles, things like that.
When it’s centrally located, you know that you’re always going to have the signal strength. You’re going to be able to access your equipment faster and easier.
That’s a big thing on the builder side, because real estate that’s in the home equals dollars. So, it’s exciting because for us it means that technology is finally being recognized as an important category within the actual construction of a home.
BH: There’s a lot of talk about aging in place with all the baby boomers out there. Where does smart home technology play into that? How can that be a solution for them as they look at building the house?
FR: Technology and smart home solutions can play a huge role in the aging in place conversation because it allows families to stay connected to those that they care about. But also gives the homeowner the ability – it empowers them to have safer and smarter independent living. It can really provide that resource where an active adult today can stay in their home for years to come because it gives them that freedom and independence to live their life at home, while also giving their loved ones the relief and the peace of mind, knowing that they’re safe and comfortable. They don’t have to be expensive systems, or complicated.
It can be through a handful of sensors that can monitor activity patterns when someone is supposed to be taking medicine every day, and a loved one can get an alert that a medicine cabinet hasn’t been opened. Or, for elderly parents, you might want to get a notice for when the front door opens at an odd hour of the night.
The wellness value proposition is there for care providers when it comes to using smart home technology in this space.
BH: For Kohler, smart home technology is about making moments better. It’s how can we improve those human interactions. How do you home your homebuyers are improving those interactions?
FR: I look at technology and I think that it shouldn’t be intrusive. It should be behind the scenes. The moments I think about are where technology makes one of our buyer’s days better and more convenient. They don’t even realize that it’s the technology that’s helping them live easier in their daily routines because it’s in the background. It’s seamless. Those are the moments that I hope we can continue, where we make their interactions with smart home control seamless so that they’re able to go on and live their lives and go about their day with technology helping them in the background without it being an effort for them. So, yes, seamless control that makes their day more comfortable.
BH: Something as simple as taking a shower, and you go in and you have to adjust the temperature… and now you go in and tell it to turn on to the temperature setting you like... you don't have to think twice about it.