Editor's Note: The following article is based on conversations with marketing executives from some of the largest North American forest products industry companies. It summarizes the executives' assessments of major home building trends that might affect the forest products industry in the future. This research was conducted in connection with an article the authors prepared for publication in the Forest Products Journal.
New housing and residential remodeling historically have been critical to the North American forest products industry, consuming more than two-thirds of structural lumber and panel products. Forest products companies need to be aware of trends in new home construction to stay "ahead of the curve." Housing trends could affect decisions ranging from investment in forests and plantations, forest practices, rotation age, product mix and distribution channels.
Construction Market Labor Shortages
The first concept discussed with key industry marketing executives was that demographic trends may continue to cause shortages of skilled labor in the home building industry. The North American population is aging and there could be a shortage of skilled labor at a time when the demand for new homes and remodeling is strong.
There was general agreement among those interviewed that labor shortages should lead to more home fabrication or component part fabrication off the jobsite in a way that may reduce skill requirements or provide a more attractive work atmosphere for employees. There was recognition that younger people entering the workforce have the perception that craft-type or manual labor is not as exciting as working with automation and technology. Rapid economic growth and technological advances in the 1990s have given younger workers more choices for employment.
At the same time, geography may play a part in the rate of technical change. Some believed that regions such as the South still contain an abundant supply of labor willing to work on the jobsite and they have the skills necessary to support "stick building" for some time to come.
The second trend discussed was the seemingly large amount of jobsite wood waste associated with on-site home construction. Some means of reducing waste would mean that builders could purchase less volume and the cost of disposal could be less. Some builders are operating on thin margins and reduced wood waste may be growing in importance.
While the executives realized that jobsite waste is not desirable, they didn't expect to see builders or the distribution channels asking manufacturers to solve the problem. But most believe that wood products are still relatively low cost and a good value. There was recognition that any wood waste will mean lost utilization of forest fiber and this is not good for the industry.
There was also recognition of the growing concern about "green building" and sustainability of construction materials and any product with significant jobsite waste could receive a poorer "green rating" than another material that didn't have a waste stream problem. Some were quick to point out that waste could be managed more effectively in a factory environment.
Home Building Consolidation
The third trend examined was consolidation of builders and the potential impact on suppliers. The largest 100 builders in the U.S. sold 28 percent of all homes in 2001, according to Builder magazine. Builders are consolidating and becoming larger for several reasons, including the ability to have better access to capital and to have the financial flexibility to inventory more building sites for the future and to lock in customers for the "starter," "move-up," "custom" and even "retirement" selling sequence.
The marketing executives were quite aware of recent trends in builder consolidation. They recognized that large builders want to drive cost out of the system and that builders know that the use of wood components and systems can often speed the construction schedule. However, there was a wide variety of opinions about what this will mean for primary forest product manufacturers. There was a bit of skepticism about how fast consolidation will happen in the future.
Some had the opinion that large production builders would have a difficult time supplying the need for custom homes since custom homes are generally not suitable for mass production. Others gave examples of custom homes being built by large builders using mostly component wood systems. It was recognized that consolidation increases the buying clout of large builders. Large builders now ask for rebates when they use one product brand in all of their homes.
Most thought that geography would always be a problem when it comes to obtaining large quantities of materials for a large number of homes. Regional builder offices still tend to be operated by autonomous managers who choose the products they want from the nearest pro dealer or contractor yards–building supply businesses that cater to professional builders and remodelers rather than to the do-it-yourself trade. Simple logistics still make it easier to obtain wood products from the nearest pro dealer and these dealers are still providing a valuable function for large builders.
Most thought that the current channels of distribution were already well developed and if builders attempt vertical integration, it will be a slowly evolving process with failures along the way. The executives said that some large builders have set up their own retail yards in an attempt to supply their own company and other builders in the same geographic area, but this is not yet considered a significant trend. Other large builders have purchased framing companies in an attempt to control the speed and quality of home production.
For the vast majority of transactions most believe that the historical supply chains have not been broken. Most executives thought that contractor yards would most likely move forward first to simplify the delivery system. Many contractor yards already make roof trusses and more are beginning to offer fabricated wall panels as a way to provide what larger builders want.
Previous research by the authors suggested that labor shortages, jobsite waste and builder consolidation would lead to more industrialized housing. Many observers have speculated that housing would industrialize by manufacturing the whole house in a factory.
The executives interviewed understood componentization to mean manufactured items such as structural insulated panels, fabricated wall sections, fabricated roof trusses and pre-hung doors. Those familiar with northern and western markets recognized that the use of factory-made wall panels is growing, while those more familiar with southern markets didn't see much use of panelized walls. Most did not see the growth of factory-made components affecting their business today. However, most thought that as componentization emerges, there will be an increasing number of larger stand-alone component businesses, large builders with their own component factories and pro dealers all making components.
Some executives believe that we are now in the early stage of evolution where builders and all parts of the distribution chain are thinking about manufacturing components and some are trying it for the first time. Even primary lumber manufacturers may try to make components. It will be an evolutionary process to see who will be more efficient and who the winners and losers will be.
Pro dealers are beginning to see builders consolidate and buy larger quantities and some dealers are beginning to make components like roof trusses for the first time. Other dealers who are experienced at making roof trusses are adding wall panels to the mix. It's typical for long-time roof truss companies to add wall panels to their business. Some executives thought that more large builders would try to manufacture components, but they didn't believe builders have the "core competency" to make it profitable. Others cited a few examples of custom homes already being manufactured by large builders using mostly component wood systems that are made in their own factories.
At some point, primary lumber and panel manufacturers may reconfigure products for component manufacturers. However, component manufacturers will need to grow and be viewed as an industry with buying power before primary wood product manufacturers will be willing to "cut-to-size" or provide other services for component manufacturers.
Pro dealers and stand-alone component manufacturers are growing and competing and while some builders are making components, it's not yet clear how the delivery channels will develop in the future. The marketing executives recognized that buying power is slowly shifting toward the builder. Component manufacturers, large dealers/distributors and the mills hold less power to simply manufacture and supply what they want. They said they expected more "supply chain linkage" in the future, with large builders having a more direct influence on what mills manufacture.
One executive speculated that consolidation of builders and members of the distribution chain could even contribute to more consolidation of forest products companies. If forest products manufacturers remain regional and fragmented they will be less likely to properly service home building.
Executives suggested other trends also will affect them in the future. They said some builders are pushing for more "installed sales" beyond just windows and doors. Some are asking pro dealers for installed floor systems or complete framing packages. Builders want to spend more time with financing and customer relations and less time finding and training jobsite labor. This will push labor away from the jobsite and into factories.
In addition, when discussing the trend to componentization, most of the marketing executives voluntarily brought up the subject of product quality. They said that component manufacturers will want improved quality products delivered to their factories. With automation and assembly lines comes the need to minimize defects and waste. On the jobsite, framing crews are accustomed to culling some pieces and trimming out defects and this won't be tolerated in a factory atmosphere. Some simply said that componentization will force mills into better quality and reconfigured products. Component manufacturers will also want more properly dried and precision-cut parts with tight tolerances.
Builders want to drive cost out of the system. This is leading to more efficient distribution channels and delivery of components made with higher quality products. All of the executives agreed that many changes have taken place and that these trends will ultimately affect the way everyone does business. ·
Craig Adair is director, market research at APA–The Engineered Wood Association. He can be contacted at 253-620-7418 or by email at email@example.com.  Al Schuler is a research economist with the US Department of Agriculture Forest Service in Princeton, WV. He can be reached at 304-431-2727 or by email at firstname.lastname@example.org.