Infill Opportunity

In the winter edition of Canadian Contractor, we anticipated that concern for inflation was going to trigger an increase in borrowing costs for both contractors and their customers. Sure enough, that is what is happening, which is hardly an indication of my forecasting skills. It was kind of a forgone conclusion. The take-home from that article was to position yourself to serve the most resilient segments of the residential construction market. Borrowing costs would lead to a downdraft on construction markets, but the effect would not be uniform across all segments.

It was all pretty general stuff, and other than to suggest you get ready for change, there wasn’t much offered on how to do that. So what’s my point? Well, as with any disruption, along with risk comes opportunity. That January article suggested you position yourself for a new reality in the business. Here’s how I read the tea leaves.

For the past 10 years or so, many established neighbourhoods have been dominated by infill housing and redevelopment. Nice homes on underutilized lots have more value for redevelopment than as resale homes. While residents might have enjoyed the sense that their property increased in value, they also discovered that effectively they are living in a building lot. With a high likelihood that the house will be torn down and replaced the motivation to invest in renovations or upgrades evaporates. Oh, we know all the arguments that renovations should be for the owner’s own enjoyment, and it is unrealistic to expect a 100 percent return when the property is eventually sold. But if you are looking at recovering zero percent on that upgrade because it adds nothing to the value of your “tear-down,” it changes the math.

My own plans for a $50- to 60,000 ground floor refresh are back on now because the redevelopment frenzy in my neighbourhood has cooled off, maybe for good. I don’t plan to sell any time soon, but I also realize that when the time does come I may be selling into a balanced market. Buyers will include people looking for a house to live in and they will have choices. My house will benefit if it is more up-to-date and I will see some return on my renovation investment. I won’t recover 100 percent but it won’t be money down the drain either.

The short form of all of this: there is a segment of the renovation market about to emerge. If you are concerned that your traditional market is softening, then do some homework and make some cold calls. Find the neighbourhoods that are more than 40 years old. Especially those that have seen infill redevelopment. Those properties are not simply building lots now. Like me, many residents are ready to consider home improvement as long as it offers some enduring value.

Finally, let’s look at why these newly motivated home owners might change their outlook. Like anyone selling into a balanced market, you want an edge. Whether or not you can get a higher price, you want to give buyers a reason to prefer your product. When a property is being sold as a place to live, rather than as a building lot, then the advantage goes to the home that offers something special. The same goes for you and your business.

You may be heading for a balanced market, where it takes more than answering the phone or simply being available to secure the next job. If you don’t want to be chasing business at any price, then customers will need a reason to prefer your product. As much as you might believe you have that edge, you need to be objective about how prospective customers will know that. Pretty much everyone claims quality and service beyond compare, so you need something more than promises to convince a buyer. Marketing jargon calls this your value proposition.

Steve Ryan is managing principal of MMI Professional Services.