Going Mobile: What Can Southwest Airlines’s Success Teach Housing?

Real Estate

Herb Kelleher completely disrupted the airline industry when he founded Southwest Airlines in the 1970s. Kelleher was trying to democratize airlines – an industry that had previously catered to the wealthy and glamorous “jet set.” His goal was to make flying affordable and attainable for everyone – regardless of their economic conditions.

As the housing industry in the US continues to wrestle with the issue of affordability in nearly every market in the country, there are some parallels to be drawn with today’s housing market and lessons to be learned from the airline industry in the 1970s when Southwest’s first flights took off.

Kelleher was successful and based on his success, there is an underlying message supporting the growth of prefabricated housing. He points out on an NPR episode of How I Built This, the mobility of your capital assets can be a major advantage.

The principal capital asset of an airline – an airplane – can move from place to place in hours at speeds of more than 500 miles per hour. As Kelleher says, you can’t transport a business that fails in one city to a new city within hours, but you can move a plane to a new location in a matter of hours.

Sean Geehan is an entrepreneur and the founder of Slate Homes, a luxury prefabricated home builder based in Cincinnati, OH and has been practicing Southwest Airline’s strategic model by moving his product quickly and easily around the country. “Being a prefabricated builder means our biggest asset is mobile and agile,” says Geehan. “Slate Homes can go where the gap in the market is quickly.”

Geehan has been approaching opportunities with a formula that takes into consideration labor availability, housing demand and shortage, price and margin, the market’s propensity for density and forward thinking, along with what he calls “two special sauce variables.” For example, in Cincinnati the average price per square foot is $175. In Chicago, it is more than $250 in a similar neighborhood. Geehan factors in the only additional cost, which is shipping, and it is less than the $75 per square foot delta between the two markets.

“Our labor and costs are fixed, yet our assets are mobile, just like an airline,” he says. “We also don’t care about market share, we care about profit and margins, which is how Southwest dominated and was the only profitable airline in the world for 30 straight years.”

Slate Homes focusing on providing a small but comfortable living space with high-end luxury finishes.

Slate Homes

Plus, Slate Homes doesn’t need to achieve critical mass in any one location to gain economies of scale. Slate Homes can take advantage of small projects in remote locations that other builders wouldn’t be able to. For instance, taking on a 12 home pocket community in a small resort town in North Carolina will help Geehan ramp up scale. Some builders take the work to the market, but Slate takes the home to the market.

Using this mobile philosophy, a builder can maximize yield per square foot, give the buyers more options, have faster build times, and build more inventory to be at same or lower prices.

“For developers, we eliminate 80% of the subcontractors,” Geehan says, speaking of the additional benefits. “For instance, in one town we serve, we work with a builder that has built up to six homes per year. Now that we can produce and ship to their market, they can leverage relationships with the municipality to develop and do site work, which is a highly available sub. Now they can sell and deliver three times the number of homes in a market with significantly low inventory. All without adding headcount.”

Modular and offsite construction are helping merge capital and operational expenditures in single family and multifamily housing, at the same time that they also help the assets become more mobile, providing more opportunities for builders like Slate.

Marianne Cusato, developer at Cypress Community Development Corp., spoke about the importance of mobility for her project with Habitat for Humanity of Sonoma County, CA. The organizations are working together on a project with nine homes for households that were displaced from wildfires.

The project is a concept to test four different types of offsite prefab for optimal mobilization and to showcase different strengths including time to site, energy efficiency, fire resistance, ease of installation and cost. The homes will be used in this critical, emergency situation, and then will be relocated somewhere else after a couple years.

Sonoma Wildfire Cottages by Habitat for Humanity of Sonoma County and Cypress Community Development Corp. Buildings by Homes for Sonoma/Wolf Industries and Connect Homes

Cypress Community Development Corp.

“We have a very static view of what temporary housing is,” Cusato said. “This project is made of homes that can be used and then relocated so that it is a sustainable asset and so we don’t throw away money on a temporary solution. We can put the asset in initially and if it moves to another location or another person moves into it, then we haven’t wasted that investment.”

While the delivery of housing is becoming more mobile, so are other parts of the process. For instance, designers are using artificial intelligence and virtual or augmented reality to create more effective designs and to make the design process more collaborative, breaking down geographical barriers for stake holders.

In addition, advances in transportation technology have changed the procurement process. Autonomous vehicles are changing the scheduling landscape to be more on-demand and drone deliveries are removing geographic challenges.

Ali Wolf, director of economic research at Meyers Group, points to increasing mobility for Millennials because of lower homeownership rate; more frequent job switching, especially in a strong economy; fewer children; lower marriage rates; and a more freely available flow of information.

“At Slate, our goal is to make Housing as a Service (HaaS) a reality,” says Geehan. “So, not only the assets are mobile, but how it’s bought, paid for and resides are all agile. Just as your music has mobilized from vinyl to iPod to the cloud.”

Another strategic advantage of Southwest Airlines, not related to mobility, is that it owned 100% of its planes so that it didn’t take on debt and wasn’t threatened by debt payments in bad times. This would be an obvious advantage and a major strength in the cyclical housing market.

What else can housing learn from the disruption of other industries? We can build the housing industry of the future by learning the lessons of the past.

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