The New Home Buyer Multiplier Effect And Why Silicon Valley Is Gunning To Own It – Wire Real Estate

The New Home Buyer Multiplier Effect And Why Silicon Valley Is Gunning To Own It




Jul 23, 2019

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Last September, Amazon’s Alexa Fund anted up to participate in a $6.7 million capital raise for startup Rialto, Calif.-based Plant Prefab. The comparatively itsy-bitsy investment fanned flames of speculation in new-home construction circles. If the universe’s dominant retailer and purveyor of IoT home technology takes interest in an off-the-radar off-site factory custom modular home builder, many observers wondered when—not if—Amazon may launch an end-to-end in-house residential design, development, engineering, and construction strategy.

Fact is, tech giants focus disproportionately on a mere niche of U.S. homes—the 627,000 or so households buying newly built houses in new neighborhoods in 2019—versus America’s already-existing 120 million homes. By marketing home living tech solutions from the outside in, they’ve made overnight inroads. A smart home technology beachhead in kitchens, great rooms, and other living areas now networks one out of every three U.S. households, according to Statista, with revenues upwards of $30 billion.

Could it be that Silicon Valley has discovered that the ones who’re making homes smarter from the inside out represent a proverbial treasure map of those new-home buyers? From a high-level view, they’re a proto consumer set, a kind of test or pilot marketplace for technology companies. New construction buyers tend to be 39-years-old or older, more educated, have higher-earnings, fewer younger children, and are ever more technologically sophisticated than resales buyers.

Per Zillow’s 2018 New Construction Consumer Housing Trends Report, “the median age of today’ s new construction buyer is 47 years old — which is somewhat older than existing home buyers (40) — and thus they are also more likely to be repeat buyers, financially secure, living without kids in the home, willing to move farther and are more likely to be retired than existing home buyers.”

As such, they’re super consumers of the next decade or so, as well as the present. From existing homes and traditional bricks-and-mortar and online retail channels, in other words, tech companies learn what smart tech products and services households will buy. Within five years, over half of American households are forecast to turn to IoT solutions for security, privacy, room air comfort, lighting, entertainment, noise-reduction, and health and wellness solutions.

 

Annual revenue growth, averaging 12% between now and 2023, will make it a nearly $50 billion business. In contrast, from newly built home buyers, tech firms expect to learn far more about how and why people consume, period—what they want, prefer, aspire to, need, and will pay for. That’s worth trillions.

“Even the biggest builder lacks the kind of sheer scale necessary to materially impact sales of technology products and services through our channel, but these tech companies very much want access to the new homes and new communities for a reason,” says David Kasierman, president of Lennar Ventures.

In his role, Kaiserman drives tech and IoT integration between the nation’s No. 2-ranked builder and the likes of Amazon, Google, Samsung, Lutron, and Allegion, and others on lighting, security, doors, appliances, and room comfort, etc. He’s a big reason WiFi and an Amazon Alexa smart home technology suite—with locks, doorbells, lighting, and thermostats—comes standard in every new Lennar home, as part of the builder’s signature Everything’s Included baseline offering.

“We, as an industry, look reflexively at engaging with technology from the inside out. We tend to view tech partners as manufacturer vendors or suppliers of services. But, when you look at new home building from the outside in, from the perspective of the tech companies on the relationships builders have with customers engaged in their particular buyers journey, it changes the opportunity enormously. It gives home builders a seat at the table as technology peers that we’ve never had before.”

What makes new-home buyers such a special breed of consumer? In calendar 2019, new-home consumers are on pace directly to pay home builders roughly $236.5 billion for 1.52 billion square feet of new homes. That comes out to an average of about $155 per square foot of new residences. By virtue of purchase decisions they’ll make this year, National Association of Home Builders data calculates their multiplier-effect will account for the new addition of just shy of 4 million local jobs, upwards of $180 million in wages and income to local workers, and $225 million in tax revenue for local municipal coffers.

Moreover, their impact doesn’t expire after a 12-month period either. Rather, their particular brand of economic bounty is a gift that keeps on giving. Data here shows they’ll generate annually-recurring direct economic effects of $25.7 million in local wages in metros around the nation, $62.7 million for local tax rolls, and sustain nearly 450,000 local jobs with their purchase of the largest, most expensive durable good they’re likely to buy ever: a newly built home.

What’s more, this overachieving class of consumers, on a per capita basis, will spend about $12,000 on appliances, furnishings, and property alterations in the current 12-month period, according to NAHB data. That’s more than double that of other households’ spending plans and patterns on just those household product categories.

That’s exactly why executive strategists at Alphabet, Amazon, Apple, and Microsoft are so keen to get close to home builders at the land-planning and blueprint stages these days.

James (Jamie) Siminoff, ceo and inventor at Amazon-owned doorbell-security IoT solution Ring, affirms as much. “The home builder is interesting to us at Ring, but not just from the tactical side of being one of our product channels,” Siminoff says. “Lennar is a company that shines and stands out as a builder because of a holistic approach they take to understanding consumer behavior, not just at the unit household level, but at the community level. We’re a neighborhood company, and we’re strong believers in benefits and value that accrue to all when we get data, learn from it, and improve people’s experience of security, safety, and peace of mind.”

Safety is a core promise of Allegion, a company that manufactures Schlage locks, but has also ventured into the area of sensors that map to individuals’ biodata to gauge and manage people’s sense of security, sanctuary, and well-being. Rob Martens, futurist and president of Allegion Ventures at Allegion, speaks to where an enterprise home builder’s importance trumps the channel’s financial metrics as a bellwether of both strategic direction and growth trajectory.

“What the [home builder] space is missing is what Lennar has been doing, and focusing on, which is how—by letting us engage earlier on in the design and development process and integrating the desire for security into the holistic home product—we can together make a demonstration platform for how to do that right,” says Martens. “Lennar [and the builders] are experts in customer experience, and they’re experts in getting the tech peers to collaborate.”

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