00:11I'm Allison LaForgia, the Director of Multimedia at HousingWire, and on this episode of 10
00:17Minute Talks, I'm joined by John McManus, VP of the Builders Daily at HousingWire, to
00:24get his perspective on where AI and home building intersect, what trends builders should be
00:29paying attention to, and where this technology could have the biggest operational impact.
00:35John, thanks for joining me for an episode of 10 Minute Talks.
00:39Great to see you, Allison. Thanks for having me.
00:42John, I want to start with talking about some trends where coming out of several conferences
00:51and heading into fall conferences, so I want to lay some foundation work. When you look at the
00:59home building industry today, where do you see AI and technology having the biggest potential to
01:06change the way that builders operate? The short answer starts with home builders are facing
01:17challenge in their businesses. That's not different from any other going concern that has to make good
01:28customers, make a profit, and continue to be able to deliver products and services to the economy.
01:37Home builders have a marketplace in which the challenges have to do with multiple forces that
01:44are pretty much headwinds these days. They have to do with the cost of living challenges that
01:54households are going through. They have to do with policy framework that puts very, very big challenges on
02:04the immigration population, which is an important part of the home building workforce. There are economic
02:15issues that have to do with both the flow of goods from other countries into the U.S., so trade
02:24aspects that are in dispute and cause disruption, policy around mortgage rates, and then the issue of
02:35being able to have a customer that thinks that now is the right time to buy a new home. All
02:46of these things
02:47are the context that we're trying to answer this question. The first filter of impact related to your
02:58question is that everything a home builder does these days has to do with their balance sheet and what they
03:04invest in and what they commit to has to make sense in the time period that they're operating so that
03:12they can
03:12continue to be net profit margin positive. When we talk about AI, we're not talking about something that is
03:25anything except a business decision, a business improving decision or a business investment decision or a business
03:36commitment. So everything is not about AI hype. It has to be about AI being able to do something so
03:46that their
03:47operations, their strategies, their investment in land and other resources can
03:55be more efficient, smarter, more matched up to what the home buying customer would be looking for. So that's where
04:10we
04:11create the kind of context of our conversation, Alison. It's really about how there's no separation
04:18of AI from the fact that the business owners and chief executives and operations leaders need to consider every
04:29capability, every new capability, technology or operational in the context of how is it going to help my business
04:37now. So that's the starting place. I think that we are moving now beyond AI experimentation.
04:48to applied operational uses in the companies. And these companies have many workflows. They have workflows that have to do
05:00with being in the retail business, selling to consumers, manufacturing business, the finance business, the land speculation and real estate
05:10business, the supply acquisition business.
05:16So all of these different kinds of skill sets at a macro level are baked into what a home builder
05:24is.
05:25And so AI can play a very important role in all of those workflows and operations. It's just that it
05:33needs to represent being able to
05:38ultimately expend less of precious resource money, people's time and land and actually
05:50so expend less and improve more in terms of matching to that ultimate goal of
06:01a home buyer's home buyer's wherewithal and the household's wherewithal and the product that the home builder brings to the
06:10market.
06:11Now, John, you just touched on several points that are so important and I really think we could talk about
06:18this for 24 hours.
06:20Like there's no shortage of insight that you have about some of the operational wins across all of the different
06:27individual pieces that go into the very complex machine that home building is.
06:33And when you mentioned in your answer that a lot of the conversation really should be about working faster, making
06:42better decisions.
06:43Now, we know that AI is moving very, very quickly.
06:48What do you think that home building leaders need to understand about that technology now so that they can be
06:56prepared for where the industry is heading next?
07:00Another great question.
07:04And I think there's two parts to it.
07:06What do they understand?
07:10They understand that many of their operations require two important steps here.
07:21And one of them has to do with all of those workflows that I talked about in the first answer.
07:29There's so many concurrent workflows that are occurring pre-land purchase and pre-development through the design of the homes
07:43into the construction,
07:45the construction, start to completion cycle, all of the products and building materials and resources that need to be brought
07:57through some distribution channel to the job sites, the community sites,
08:03and then into this selling funnel and reaching consumers who are of different economic means and desires.
08:17So the intelligence around the customer right into the warranty and follow up relationship with the customer.
08:25So all these different workflows have ways that the home builders are in the last fairly recent period of time,
08:3610 years or so, recognized that they're all made of data.
08:40So that there's a plumbing to all these workflows that is made up of data, which is a relatively recent
08:48recognition on the part of many of these operations.
08:51They haven't thought in the past about their workflows being structured around data points.
09:01So the first step they have to go through, and this is the same with many other kinds of organization
09:07and mortgage and real estate and mortgage technology,
09:11where the company has to understand itself from the standpoint of a data system and recognize conventions and practices around
09:23what the data should be called.
09:26Is it synchronized so that everybody, even something like a window, a window means something from the standpoint of a
09:35home part and a product.
09:39But we know Windows have other meanings when it comes to software and other applications.
09:48So having a common data recognition for all these different things that can go by different names, that's the first
09:59job that the home builders have.
10:01The second job has to do with that other part of your question, which is where AI starts to have
10:09opportunity to impact those workflows.
10:13Once you have the plumbing where you have a sound understanding of the data, then you can start to understand
10:22where you can make improvements in either duration or access to less expensive, say, lumber or a land tract.
10:36So the data, once it's recognized and seen in its place in the system, you can start to see where
10:44there are opportunities where velocity, which is a big capability around AI, precision around certain kinds of characteristics, repeatability and
10:57things like that.
10:57That's where AI starts to come into play when you have a very rigorous, disciplined look at how data is
11:07the underlying aspect of the company.
11:10And one more thing that I think relates to your question is not only is AI galloping along, it's hurtling
11:20along in terms of technological development.
11:22We're talking about capabilities now in AI that were unimaginable 24 months ago.
11:30So that's changing very fast, but so too is the mindset of the user of the technology.
11:39So our ways of using AI, our ways of using chat GPT or any of the other ones, Claude, we're
11:52making it so that the product changes because we have needs that then go in and become part of the
11:59training of what the capabilities are.
12:02So what's changing exponentially is the way that the home builder team members at the strategic and operational and management
12:14and directorships, every part of the silo of finance and field construction and purchasing, all of these different users are
12:27part of an exponential change in how they use technology.
12:30So those two things are changing rapidly at the same time.
12:35Now, John, you touched on something that I think is so important and often something that gets glazed over in
12:43this conversation, and that is that the mindsets of the users are also changing.
12:48And it gets to a point where I think as an industry, people are really looking at actually adopting and
12:59furthermore implementing this technology into their workflows, like you said, to see some of those operational efficiencies and some of
13:09that velocity that people are hoping to have positively impact both their margins and their production time.
13:18And to improve their customers and to improve their customer experience overall.
13:23So what I want to pick your brain about next and sort of wrap up today's interview in is there
13:31are a lot of technology options that have a range of quality, right?
13:37And what I'm interested in your perspective on is how should people look at separating the wheat from the chaff?
13:45What trends really should builders be watching?
13:48And what do you think will separate the companies that successfully implement technology from those who struggle to keep up?
13:59You know, we had a great example with us when we had the AI Summit in Dallas a few weeks
14:06ago.
14:08A couple of great examples.
14:09One was a company, History Maker Homes.
14:12They're based in Texas.
14:14They were a home builder that's been around for almost 75 years.
14:18The strategic management had a question that was a business question, really asking, you know, will what made us successful
14:31to the first 75 years make us successful to 100 years?
14:38Okay, so they were asking a business question, and that led to very rigorous and holistic transformation of the answer
14:54of the question, who are they?
14:56So they had previously been a price-based home builder with great operations and production and ability to produce homes
15:09at a low price level, and that was their calling card competitively.
15:15They began to recognize that if they looked forward, that was not necessarily going to make for success.
15:23Yes, being an entry-level, low-cost provider, because competing at the low level is harder and harder these days
15:32because of the, you know, realm of competition from much larger companies who can be more efficient.
15:40They have cheaper capital and stuff like that.
15:43So in order to compete for the next 25 years, History Maker had to kind of take a look at
15:48what they were doing,
15:49and they decided that the customer that they were looking for was going to be the center of their world.
15:56And the customer they sort of fastened on was one that wanted quality and wanted value and wanted a more
16:07of a distinctive home and livability than a box that was very, very kind of standardized.
16:15So that really fundamental change in the answer to the question, who are we, led to the question, I mean,
16:25to the answer to the question, what do we want to produce?
16:28And so the homes were going to be different.
16:30And when we reached that answer, it meant that they had to change all of their processes, all of their
16:37systems, everything that was an operation that had to do with high-velocity, low-cost materials,
16:44all the ways that they were very competitive at the low price.
16:51Now they had to relook at and retool their whole operation.
16:56So that's where technologies, software that had to do with their resource planning and their workflows and operations and their
17:06connections from the finance department to the construction department to the customer relationship and the design of the homes,
17:15all of these things, all of these things, all of these things had to be connected in a holistic way.
17:20And to make those connections, they looked at technology and software and what we call tech stacks, where you would
17:27have layered solutions to the kinds of workflow systems that needed to be integrated and interoperable.
17:36And this is where we started to see AI have an opportunity to have an opportunity to have a great
17:43difference.
17:44That's where they got to where they were working with an AI provider, HighArc, which allowed them to design product,
17:53architecture, home plans that were the kind of product that they wanted to bring to market.
18:01So the ability to do those designs in a very sped up, but high quality way had not been out
18:11there before.
18:12And so that now they have the ability to generate those designs and then all of the data that goes
18:18into the design of the home is mapped back through the construction documentation to the products and materials that are
18:30acquired.
18:31To the specification of all of those materials.
18:35So you can get a complete data set with pricing on home instantaneously.
18:43And that allowed them to kind of reflow their operations so that they could do this on an elegant and
18:53systematic way, as opposed to being kind of a Rube Goldberg of people trying as hard as they can, but
18:59not always kind of being on the same page.
19:01So we get to this notion of a single source of truth where everyone is looking at the same document,
19:08whether you're in the home office, in the finance department, or out in the field on the construction site, or
19:15selling in the home sales model.
19:18Everybody has the same information now, and so everyone not only shares that and has synchrony with the sharing of
19:29it, but they're also feeling like they're more accountable because they're accountable to each other.
19:35Every single thing has to mesh in order, every single person has to mesh in terms of accomplishing goals.
19:41I know I'm going on long, but if we look at builders like that and they say, who are we?
19:48We want to be a customer-centric organization.
19:51We want to have products that reflect that and value that reflects that.
19:57Then we have to change how we do things from the inside out, and so that case is an excellent
20:04one of a strategic pivot that led to an operational pivot and a business pivot, and then that's where AI
20:11plays a very big role.
20:13On the other example that we had was in land.
20:17Chris Coakley, who is the VP of land for affordable housing at Century Communities.
20:24They have many, many communities across the country.
20:27They're looking for the locations where land would be for sale that matches up to the product spec and the
20:37pricing spec that they have for that Century Complete model, which is the entry-level model.
20:43What Chris talked about was that his team are very balkanized.
20:52They're entrepreneurial, and they work not as an operationally controlled group.
21:00They're sort of sparked on doing a lot on their own, and so AI has played an important part in
21:08their being able to get the greatest information they can in the marketplace they're operating.
21:13And then part of the aspect of buying land is having a relationship with sellers who prefer some builders over
21:24others, and what they prefer are builders that are going to understand what the land is about and have researched
21:32it and have understood what the –
21:34everything from the geographical and soil basis and land and entitlement and permitting and zoning, they want people to come
21:46to the purchase that understand what the land is about.
21:49And this is where AI can give people that kind of information when they're doing the research on how the
21:56land will fit into the product set, and it can improve the relationship between the builder who wants to buy
22:05the land and the land seller because they want a builder that understands how to value the parcel or the
22:13lots in the best way.
22:15So it makes it makes it so that the seller has the choice of dealing with the preferred builder, the
22:21one that is going to be the strongest builder.
22:25Those are two examples that we see, and we see similar in new home sales and marketing where sales associates
22:35have far more information.
22:37They're more strategic operators than order takers that they used to be.
22:43They have to have an understanding of the customers in the area, the competitive set in the area, the ways
22:49that people get information on all the different homes in the geographical area.
22:55And so AI is playing a really, really important part in the under the hood aspects, the plumbing, and the
23:02data that I was talking about earlier.
23:04John, I think I could ask you a million questions about the intersection of technology and home building and some
23:13of the operational trends that we're seeing and the development or even M&A to my audience.
23:20You can read all of John's coverage on the builders daily.
23:25He's genuinely one of my absolute favorite authors to read.
23:28He's so knowledgeable and his articles and his coverage reflect that John was on stage at the housing wire AI
23:36summit, and he will be back on stage again at the home builder summit in Dallas, Texas.
23:43John, thank you for giving me your time and for letting me ask you questions.
23:49Also for everyone who's listening in.
23:51I didn't send these to John in advance.
23:53This is his first take.
23:55He's that he really is that knowledgeable on all things home building.
24:00So John, thank you for a great conversation.
24:02I can't wait to listen to you more at the home builder summit in Dallas.
24:11We're of course.
