Over the past couple of weeks, I have spent a decent amount of time on the road.   When I do that, I come back with my “Voices from the Road”.   Kind of a poor-man’s Charles Kurault.   The voices this time have me thinking about the past 25 years, the current state of affairs, the next 25 years, and whether our current “big players” will be around then, or not.   Will cottage industries starting up now be the new “big players” a couple of decades from now?

 The first set of voices were those of you who read and commented on my recent article “Fannie Me, Freddie You; The Final Turn of the Mortgage Screw”.   

One set of themes for comments was that in order to retrofit existing lots for multigenerational and rental uses, local zoning and NIMBYism would be the main constraint.   The other set of themes involved the financial markets.  

With regard to the zoning issue, I kind of felt like the scene in “Ghostbusters” when they think about Mr. Stay-Puff (the Marshmallow Man) and he shows up.   In this case, a couple of weeks after my article, there was a front page article on backyard cottages, the zoning issues involved, and the drivers of demand by Judy Keen in USA Today (“Seattle's backyard cottages make a  dent in housing need”; May 26, 2010; http://www.usatoday.com/news/2010-05-25-cottages_N.htm.)   Seattle, Denver, Portland (OR) and other cities are trying the idea.   It is not big, but they are providing good laboratories for what works and doesn’t. 

More interesting are the comments to the article on the USA Today site for the article.   Many think the idea is good, but many also don’t want it in their neighborhoods.   Just send the population growth problem someplace else.   Sounds familiar.

The essence of the financing commentary was that, with the government effectively backing mortgage lending directly (FHA/VA) or indirectly (FNMA/FMAC) and then having to eat the losses from the downfall, we all had become inadvertent purchasers of the “B-piece” of mortgage portfolios through that government involvement and there would be a while before we wittingly did it again.   Yet FHA and the GSE’s are the mortgage market, still.

The fall off in sales after expiration of the new buyer tax credit was not unexpected, but the inability of private alternatives to government supported mortgage lending is still a major concern.   More people just seem more comfortable renting right now and that is not good for the industry, at least in the short term.  The population is voting with its pocketbooks that there is not enough confidence in jobs, the recovery, the desirability of the product, or the political/economic environment in general to warrant diving into the home ownership pool without significant incentives.

Bottom line: it will be a slow drag out, most likely.   But in that slow drag, there is opportunity to maybe do things differently, both from a production standpoint and a financing standpoint, too.

I shared an airport van ride with a fellow after Memorial Day.   A Border Patrol agent in his early 30’s, he had a decent income and continuing employment prospects (at least here in Arizona).   I asked him whether he owned or rented.  Rental was his option.   He didn’t think owning a house was such a good deal and preferred the flexibility that renting provided.   I asked if he lived in an apartment complex and he responded in the negative.   He lived in a casita attached to a home, so his landlord was the homeowner.   He said he liked that better than the impersonal complexes.   When he was away, the people looked after his place. 

 He also told about his folks with their farm outside of Brunswick, ME and how they didn’t want to move, but the house was bigger than they now needed.   They were thinking about building a cottage on the property and moving in and then renting out the main house to a family.   That way they could stay in the town, not sell, and remain part of the community.   They were just held back by thinking about having to design, permit, and build the cottage.   Seemed like a lot of work.

Sounded just like Judy Keen’s article to me.

One night this past week I was clicking and flicking through the TV channels and came across a movie from the 80’s.   In the movie, people in a car were making a call on a car phone.   Remember those?   The big brick in the trunk or under the seat and the phone that kept you tethered to the car.   It was better than a pay phone and at least you could talk while you drove (no commentary on whether that is a good thing or not).  

I then thought about where we are 25 years later: cell phones, iPhones, Blackberries, Droids , email, text, Twitter, and all the other ways we communicate.   Wow, we have come a long way.   Most of the companies providing that hardware or software did not exist 25 years ago.

Then I drove by a couple of new homes being built (yes, there are a few going up) and I thought about how little had changed.   It is still built on site with subcontractors, concrete, studs, and drywall.   A superintendent from 25 years ago would understand the process.   Sure, he would have better communication tools and maybe a computerized schedule, but the building process and materials were still the same.  

In the same time period, cars have gone from metal to composite and plastic.   Airplanes have gone to more and more carbon fiber.   Faxes are disappearing and scanned PDF attachments are in.   Software has gone from DOS on an IBM compatible to either Mac or Microsoft, in whatever their current iteration is, and onto desktops, laptops, notebooks, and ever smaller hardware at ever less expensive pricing.

Why hasn’t the building industry adjusted in such a compelling and parallel manner?   Maybe it was too easy to stay the same when all the profits came off of land trading.   Will that still be true?

The other day, I had the opportunity to look at a cool concept.   Ten by Ten by Ten cubes made of composite sheeting on aluminum framing with super insulation.   No bolts, no screws, just a form of 3M super glue holding the pieces together.   Very modern looking.  

One cube was fitted out as a 100 sf kitchen-dining area.   Another was set up as a convertible den with bath.  Put together they formed a little backyard cottage.   More could be added if needed.   They were light weight; easily moved with a forklift or crane.   But definitely a different approach.

I am sure that there are a million reasons why these cubes and their construction innovations might not work.   Nothing is easy.   But I know it was the essence of what the Border Patrol agent was looking for and what his parents were looking for, too.   I also know that it was a radically different way of assembling living space.   Different materials, different labor, different look.  

It felt, well……modern.

If the industry is going to change, cottage industries are a key to making it happen.   Facebook and LinkedIn didn’t come out of Microsoft.   Steve Job’s genius could never have imagined the panoply of apps that have been created by small software developers to run on the iPhone.   His genius was to give them a platform to exercise their creativity.  

Just because you have size and scale does not mean that you have the culture to create radically new products or processes.   In fact, history shows that the reverse is most likely true.

So, as we continue to try to figure out what the “new world” might look like, I want to offer encouragement to those cottage businesses out there.  They will most likely be the ones to break the mold.

 I would also encourage the more established companies to think about how they could reorganize to include a cottage industry partnership and funding model that works on radically new ideas.   I think that would be a better investment right now than the next subdivision using the old business model.   It might also be the reason they might be around a couple of decades from now.

I would hate to come back 25 years from now and find that the industry still looks the same.   Once is enough.