Look online for a single-family home and there are very few listings for under $350,000 left in metro Denver. Most are either decades old or in need of significant repairs.
But in Green Valley Ranch, Oakwood Homes has launched a new line of stand-alone starter homes called On2 starting in the low $300,000 range. The goal is to eventually push starting prices to under $300,000, or less than half the $600,000-plus new starter homes now command in metro Denver.
Granted, the two-story homes aren’t spacious, about 1,100-1,200 square feet and they have crawl spaces and no basements. Customization is minimal. They take up most of the lot they are on and neighbors are close — really close. Garages cost extra and are detached under current designs, but the plan is to eventually to include a three-story model with an attached garage on the first floor.
But the two- and three-bedroom homes are solid, energy efficient and nicely finished. They come with granite countertops and higher-end vinyl flooring in the kitchen. All appliances and window treatments are included in the purchase price, as is a hookup to charge electric vehicles.
Above all, they promise to offer more renters a path into home ownership, without the use of a time machine. Even at current interest rates, mortgage payments on a $325,000 home would run about $1,800 a month. That’s below the nearly $3,000 a month mortgage payment on the typical home being purchased in the metro area and below the $2,000 a month in average rent paid in the area, according to Zillow.
Oakwood Homes is initially making 96 of the homes available for sale, said Kristen Nelson, president of the On2 Homes division. The homes, as expected, are generating strong interest from first-time buyers looking to break into the market — singles as well as young families with a child or two, she said.
The eventual goal is to provide 1,000 or more of the low-cost homes a year depending on demand, which would make them a dominant share of the 1,700 homes that Oakwood Homes now sells a year, said Pat Hamill, chairman CEO of Oakwood Homes, on a tour of prototypes of the new On2 Homes.
While On2 Homes is going into master-planned communities initially, the reduced time needed on site would allow the homes to drop into small parcels in existing neighborhoods and in-fill areas with much less disruption.
For years, builders have complained it is too difficult and costly to construct a single-family home within reach of the typical first-time buyer. With land and labor in limited supply, and water tap and other government fees on the rise, many have chosen to focus on the move-up or luxury-end of the market instead.
“This price segment has been shut out of the market forever. My personal mission is about affordability,” said Hamill, adding that On2 Homes represents the company’s future.
For 15 years, Oakwood has worked to take costs and inefficiencies out of the home construction process and reduce the number of workers needed on site so that teachers, firefighters and other essential workers can afford to live in the communities where they work, he said. The company also has built several prototypes based on feedback regarding features that consumers said they want in a starter home.
Visit any home construction site today and little will have changed since the 1950s, other than hammers being replaced with air guns to drive nails, Hamill said. Productivity has soared in many industries, but not in home construction, and that has kept costs higher than they need to be.
Oakwood Homes tackled the productivity problem through a division called Precision Building Systems, which has a 200,000-square-foot facility near Interstates 25 and 70. Initially, PBS focused on pre-building components such as roof trusses, floors and entire walls for entry-level homes. But with On2, those components are now assembled into entire floors, which are shipped out on flatbed carriers. A crane places the first floor on the foundation and the second floor, with the shingled roof already attached, is placed on top of that.
All the electrical, plumbing and HVAC systems are included, as are windows, insulation and drywall. The stairs are added on site, as is siding. Drywall taping, painting and other finishing work is completed at the location. About four workers can assemble and finish a home in a few weeks, depending on inspections. That’s much faster than the waits of up to a year that some new homebuyers are now experiencing.
“It’s taking builders on average, about double their typical delivery time for homes. What used to take five months is now taking 10 months, on average,” said John Covert, who tracks the Colorado housing market for Zonda. “Supply-chain disruptions, cost containment, and trade shortages have really slowed builders down, especially when demand was intensified by the pandemic.”
Hamill sees the day coming when building, assembling and finishing an On2 home will happen before the mortgage can get underwritten. It will be lenders, not builders, who are the bottleneck.
Currently, PBS can build about two to three On2 homes a week at its current facility, said Barry Kunkel, director of design and modular building at the company, now part of the Clayton Portfolio of companies, as is Oakwood. But a push is on to speed that up.
Clayton Homes, a national builder of modular housing, has lent its expertise to help PBS become more efficient as it assembles components into entire floors. A new factory planned in Brighton will be dedicated, and not retrofitted, to constructing homes, allowing for the integration of more automation.
The goal is to scale the manufacturing process up to four to five homes a day, but Kunkel acknowledges more innovations will need to take place.
Kunkel points to one example of a change that has saved on time and materials — replacing wired light switches with wireless ones. Rheia, the supplier of HVAC systems for On2, has made floor registers specifically for the company, eliminating the need to cut into ceilings.
More component providers may follow, but PBS is trying to build as much as it can in-house, with about half the items, such as cabinets, now done within the plant or by related Clayton companies. That has helped with supply-chain problems and also lowers costs.
A factory provides a much safer and worker-friendly environment. Homes can be built day and night and deep into the winter. Building horizontally greatly reduces the need to go up on ladders. And for many of the tasks, skilled tradesmen aren’t needed. Plumbers and electricians are becoming harder to find, and the manufacturing process allows for more efficient use of their time. For example, wire boxes for recessed ceiling lights aren’t put together by licensed electricians, but on a workbench by assembly workers following a design.
Building an On2 home in a factory saves about $100,000 in costs compared to building that same home using traditional methods, a major contributor to the lower prices, Hamill said.
The homes are technically considered modular or manufactured, which comes with a set of baggage in consumer perceptions. The company is documenting the manufacturing process to put buyers at ease about how their home is being built. The new plant will include elevated catwalks so people can watch the process as it happens, not unlike how they will visit construction sites on weekends, Kunkel said.