- 21 hours ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Zac Thompson, president of HistoryMaker Homes, about building in Texas and how his company is using AI.
Related to this episode:
HistoryMaker Homes’ crawl-walk-run approach to AI adoption
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HousingWire Mortgage Banking Summit – October 1
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Want more from Sarah? Don’t forget to subscribe!
Related to this episode:
HistoryMaker Homes’ crawl-walk-run approach to AI adoption
HousingWire | YouTube
HousingWire Mortgage Banking Summit – October 1
More info about HousingWire
Want more from Sarah? Don’t forget to subscribe!
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NewsTranscript
00:10Welcome, everyone. My guest today is Zach Thompson, president of HistoryMaker Homes,
00:15to talk about building in Texas and how his company is using AI. Zach, welcome to the podcast.
00:21Thank you. I'm really excited to be here.
00:23I'm happy to have you here. So you are here in person at our podcast studio in our office,
00:27because ahead of the AI Summit, we had a home building roundtable where we had about 35, 40 builders in
00:34here.
00:34Really exciting to see people collaborating, talking about how they're using AI.
00:39And you had a session that I thought was just incredible about how your company is using that.
00:44So I think first off, tell us a little bit about HistoryMaker Homes and where you guys operate, what kind
00:50of size you are.
00:51Just give us a little background. Yeah, no, I'm excited to be here again.
00:54The roundtable is a great discussion among peers and really enjoyed it.
00:58So HistoryMaker Homes is actually this year, 77 years old.
01:02We're the oldest operating production home builder in the state of Texas.
01:06We also have a development company and a build-to-rent company that serve.
01:11That's kind of what we describe that as our family of business.
01:14But yeah, HistoryMaker Homes operates in DFW.
01:16We have experience in operating in other Texas markets, Houston and San Antonio.
01:22But today we operate in just DFW.
01:25And all three of those businesses operate together here in Dallas-Fort Worth.
01:30So HistoryMaker Homes, our build-to-rent company, O&M Living, and then J-Bez Development, our commercial and lot
01:36development company.
01:37Well, you know what?
01:38If you're going to pick a metro, obviously, you know, DFW is it.
01:41I'm from this area and it's incredible the building that's going on.
01:45Yeah, we figured, I mean, part of our, just our geographic strategy over the years was, right, capital is always
01:53a limited, finite resource, no matter what type of market you are or what type of builder you are.
01:57And as we're just kind of sitting down and always evaluating how we utilize capital and where we invest, at
02:03the end of the day, we feel like DFW is big enough and that we can hit our growth goals
02:08and our profit goals here.
02:09And so it also is, is HistoryMaker Homes was founded in DFW, actually in Fort Worth in 1949.
02:15And so there's, our legacy is here in Dallas-Fort Worth.
02:19And so, but yeah, it's a great market.
02:21It's dynamic.
02:22It's hard these days, but we're certainly grateful to be here.
02:26Well, let's dig in a little bit.
02:27So you've been president there for two years, a little bit more than two years.
02:30And I would love to know, like, one of the things you talked about in your session was how you
02:34guys have pivoted in the kind of home building you're, the kind of home builder you are and what products
02:40you're doing.
02:41Maybe tell us a little bit about that.
02:43Yeah.
02:43So just a little bit of context is I actually came into the family of business in 2019 to start
02:48O&M Living, our builder-rent company.
02:50So I transitioned to run HistoryMaker in January of 24, but the previous five years before that had been in
02:56the building, had been in the family of business.
02:59The president before me announced his retirement at the beginning of 23.
03:03And so we had a transition of leadership.
03:06And in the middle of that transition, so this would have been mid-2023, our owner and CEO, Nelson Mitchell,
03:12posed a question to our executive team, kind of our strategic suite of, hey, what, at the time we were
03:1875.
03:18What got us to 75 years old, will it get us to 100?
03:22And that's a really hard question to answer, and there was a lot of anecdotes and subjectivity, but at the
03:27end of the day, through a couple different variables that I can unpack, and this took months to discover, but
03:34we came to the conclusion that what got us to 75 would not or could not get us to 100.
03:40Wow.
03:40And so, yeah, and just real briefly, what that means is, for really 75 years, HistoryMaker Homes was a low
03:49-cost provider.
03:50We were almost exclusively targeting entry-level housing.
03:55And so to some extent, like other builders in that space, it's a commodity.
03:58You're providing shelter.
04:00The value you create for the customer is being the lowest cost.
04:04That was what we were.
04:05That had been our identity.
04:06It's what we were known for.
04:08The decision we made, for different reasons, was that that won't get us to 100.
04:13We cannot survive being a low-cost provider in this space anymore.
04:17And so we decided to pivot and create value in other ways.
04:22Well, let's talk about that.
04:23What did it mean to go from that to really focusing on, would you call yourselves a luxury builder?
04:28No.
04:28Yeah.
04:29Like, where do you sit?
04:30Yeah, so I think we, you know, at the risk of sounding academic in this, we, there's really two types
04:38of businesses.
04:39Most live somewhere in the middle, think they're one thing, act like another.
04:43But you're either, in terms of thriving business, you're either a low-cost provider.
04:47That's how you're creating value for a customer.
04:49Or you're a product differentiator.
04:51And so we knew we couldn't be a low-cost provider.
04:54It was a decision we made.
04:55And so we said we want to be a product differentiator.
04:58We want to create value for the customer through offering a different experience in different places with different floor plans.
05:06So that changes everything.
05:08But, yes, so we don't describe ourselves as a luxury builder.
05:11Really, practically, for home building operators out there, this means that we go from, you know, 90% of our
05:18backlog being first-time, really budget-conscious buyers, to 80% to 90% of our buyers being first and
05:27second move-up.
05:28We define our customer today as a growing family on a flexible budget.
05:34So it's family in their high-growth formation years.
05:37So they're going to have kids in, you know, trending towards elementary school, elementary, middle school.
05:45And they also, we specifically worked hard to come up with a flexible budget idea, meaning it's a family that
05:51still operates on a budget.
05:52Like they're measuring their monthly expenses, but there's discretionary income there.
05:56They fly on vacations.
05:58They get their coffee from Starbucks.
05:59And so that's different.
06:01And so in some cases, that is a first-time buyer.
06:04It's just a different profile of a first-time buyer.
06:07I love how you're narrowing in on the persona there because as somebody who's bought quite a few new homes,
06:13right, I like new builds.
06:14There is a profile, right, because if you're going just for value, there's definitely some things that if you're a
06:19move-up buyer or like me and Empty Nestor, you're like, no, no, I like the nice things.
06:23I just need it in this package or whatever.
06:25So knowing very specifically what that, you know, what that home buyer is like has got to make all the
06:31difference.
06:32It is.
06:32And I think as a part of it, we talked about this downstairs a little bit, but as a part
06:36of our strategy shift, we also know that we needed to change our operating model.
06:41So you can't now call yourself a product differentiator but still day-to-day operate like a first-time or
06:46a low-cost provider.
06:48And one of the things, probably the biggest impact to our business was when you're a low-cost provider, at
06:56least in our context, you're the manufacturing and your costs.
07:02So like how you build your house, the practices of that and constantly squeezing cost out is the center of
07:08your universe, right, because that's how you create value for the buyer is getting cost out so you can offer
07:13it to them at a lower cost than the competitor.
07:15But when you're a product differentiator, that's no longer the center of your universe.
07:19It's not that cycle times and house costs don't matter to us.
07:24They do.
07:24But if we have to choose one thing that lives at the center of our universe, it's now the customer.
07:29And it's obsessing over what they're willing to pay for.
07:33So it's not giving them everything they want, but it's really understanding what is our customer willing to pay for
07:39and offering that to them in a unique experience
07:42so that they will find a little bit more to pay for it.
07:47Boy, that resonates with me so much because, like you said, it's like, what are they willing to pay for?
07:52And that's your differentiator is what you're delivering for what they're paying for.
07:56Correct.
07:57Really interesting.
07:57Well, you know, we're doing the AI Summit.
08:00That's, you know, what we're hosting here.
08:02And you guys were doing a home builder roundtable about AI and home building.
08:06And I was just so struck by how your company has really, I mean, from an operational standpoint, and it
08:13seems like, you know, the timing was great.
08:15You guys are making this pivot right when we have these tools that can make a big difference.
08:19So maybe walk us through, like, what that looks like very, very different from the way that you guys used
08:24to operate with AI now.
08:25Yeah.
08:26I feel, I told some folks downstairs earlier, I do feel a little bit silly being, like, talking about AI
08:33because the reality is, is my teenagers probably know more about AI than I do.
08:39But I do think that we've kind of fallen into, some of it was because it was planned, but most
08:45of it's because we just kind of stumbled into some opportunities that do, are changing the way we think about
08:51operating.
08:52And so, you know, one of the things that, I think one of the big benefits of AI and home
08:58building today, at least in our shop, is the speed and accuracy of which we can access information.
09:04And so, this is market research.
09:08This is just web research that ordinarily we would have a market analytics person, their job is to search competitive
09:14website.
09:15But this, just at a really simple level, over the last really few months, maybe this year, to see just
09:22by integrating, we use Claude Cowork into our business, the speed at which we can access information.
09:29And I do believe that speed is a competitive advantage.
09:32It is part of our value proposition, is that we are going to know and understand our customer faster than
09:40our competition will.
09:41And so, that's really practical, something that we've seen a benefit from.
09:47I think the other piece for us is as we obsess over the customer and we narrow in on product.
09:53So, this is the floor plan configuration and elevation, the elevation, so what it looks like from the streetscape.
10:00That is probably the place today where AI is most influential on our business.
10:06And how we got there is something that I think is important, at least for businesses like ours, that we
10:12don't have, we're not public, we're not national.
10:15We don't have the scale and maybe access to capital to go spend on testing these things like others do.
10:21And so, we need to find really efficient, affordable ways to do that.
10:24And we decided to find companies in our space, technology-based companies that had already invested.
10:30They'd raised the money and they were investing in AI.
10:33And let's go contract with them through professional services agreement.
10:37And so, we have done that on the architectural side.
10:40And so, that company gets to spend the resources and do all of the research.
10:48But we get, through professional services, just access to it.
10:51I was so struck by the time savings that you're getting through AI.
10:56And it really actually reminded me, because you were talking about floor plans.
11:00You were talking about elevation.
11:02And I think it's the difference.
11:04I don't want to compare what you're doing to fast fashion, which has a negative connotation.
11:08But when you think about meeting your customer where they want to be and how, if you can do that
11:15in six months instead of however long it used to take years before that, it feels like you're going to
11:20be able to connect with them in a different way.
11:22Yeah, totally.
11:23I think, so a hallmark of a low-cost provider home builder.
11:27So, I won't name names, but we all know who they are and they're phenomenal operations.
11:32But a hallmark of that is kind of having the same floor plan and elevation set that lives in their
11:39ecosystem for years, if not decades.
11:42And part of that is because every year that that lives in their ecosystem, they become more efficient at building
11:48it.
11:48So, it lowers cost.
11:50And so, a hallmark is there's not a lot of new design or plan turnover in low-cost provider home
11:56builders.
11:56And we were that case.
11:57We were building floor plans in communities in 2022 that were designed in, you know, great, maybe pre-Great Recession,
12:05but certainly in that timeframe, 2004, 2005, 2006.
12:09And we were lowering cost every year.
12:12Product differentiator model, we can't do that.
12:15In some cases, we need to be able to design a product lineup that fits a specific land deal.
12:22And that is, like, antithetical in a low-cost provider home builder.
12:28Well, our architecture team, the systems we used to design that, they were all built for that old operating model,
12:34which took years.
12:36If I walked in and said, hey, we need to design five new floor plans with four elevations each, and
12:41I need it tomorrow, the team exploded.
12:43And so, we had to find.
12:44And so, the platform that we went with now allows us to do this.
12:47We're actually about to start a model here in the next few months in a new community that was investment
12:52committee approved three or four months ago.
12:56And it is an entire new lineup at a price point that we have not sold houses at ever.
13:02It will be the highest price point we've done.
13:05So, kind of concept, so idea, new deal hits our portfolio, to starting a model with floor plans will be
13:13done in months where I think historically, or quarters, where historically that would have been years and would have just
13:20wrinkled our system and the way people do things.
13:24That is so exciting.
13:26And especially as you think about, like, the land that is available is different.
13:30You know, I mean, like, if you don't want to go super far out, right, if you're in the DFW
13:34area.
13:35So, anything that's flexible, that gives you that flexibility to meet the land deal where it's at, seems like that's
13:40great.
13:40Absolutely.
13:41Yeah.
13:41We, land and even targeting land is an important, is something that has changed in our world that's really important.
13:47And we're on the kind of edge of figuring out how AI can even expedite that.
13:52But, yeah, I mean, in our world, and we'll be able to scale product lineups across multiple land deals.
13:58So, we're definitely not going to design new product lineups for every deal.
14:03But, again, as a product differentiator, when stuff comes across your desk, you don't want the pace at which you
14:10can design new product to be a governor on why you would not do a great deal.
14:14And so, the service that we use, who is built on an AI platform, allows us to understand customers' needs,
14:24understand what competition is designing in the area, understand what elevation trends are really important based on public data, multiple
14:32listing service data.
14:33It takes all of that, provides recommendations on things to design.
14:37It even provides questions to ask if you're going to host a focus group.
14:41Wow.
14:42All of this stuff that allows us just to, you know, go from a marathoner's pace to a sprinter's pace
14:49in terms of designing new product.
14:51So, where does the efficiency come in?
14:53Like, you were talking about, like, it's not just the plans, right?
14:56It's like knowing, you know, the supply chains or whatever, everything that goes into building that house, you get more
15:00efficient every time you do it.
15:02So, how does AI help you get that efficiency faster, even once you start building?
15:07Yeah, so this is where we are, we're early stage, and so I don't want to over promise or over
15:12commit in terms of what the outcomes are.
15:14But the service that we use, plus our own use of, frankly, clawed co-work in our own ecosystem and
15:21enterprise service, we are able to take, because in the architectural service we use, your plans are not, it's what
15:30they were describing downstairs.
15:31And I don't want to say High Arc is the company.
15:33I haven't said that name yet.
15:35They want me to give them, they would want me to give them a plug, but High Arc is the
15:38service that we've contracted with.
15:40So, when you design a plan in High Arc, it's not a two-dimensional drawing.
15:44It's not lines on a piece of paper.
15:46It's data.
15:47And so, if it's data, we can then extract that data, and either through a High Arc tool or our
15:52own tool, can use it to generate takeoffs, even POs, if we need it to.
16:01And, again, we're just, we're early in this, but I've seen enough to be really optimistic that not the speed
16:08will continue through the cycle.
16:09So, it won't just be speed to design, but how AI will, these tools will impact us.
16:14It will be speed to purchase.
16:17I don't necessarily think, I haven't seen anything that makes me think that it'll make construction cycle times faster.
16:23That's what we have great field managers for.
16:26But, I think that the benefits that we're getting out of this will continue to work itself through our kind
16:32of life cycle of home in our ecosystem.
16:34One thing that really struck me when you were talking about how this working in your company, right, this, not
16:39only are you pivoting your business model, but, I mean, you're really pivoting what happens inside your company, right, with
16:45the operations.
16:46And, you were talking about how, if you looked at, like, who is using AI and who's really doing that,
16:53if you, how do I say this nicely?
16:57If you're in an industry with which mortgage, appraisal, home building, a lot of, there's an older demographic, right?
17:04They're my age.
17:04And so, it's like, sometimes it's the second level down, right?
17:08It may not be the C-suite, it's the second level down, that if you give them the tools and
17:12if you empower them, that's, you're going to have a better outcome.
17:15Yeah.
17:16Absolutely.
17:16What we were talking about down there and what I said was that, you know, one of the things in
17:212024, when we rolled out the new strategy to the organization and to the marketplace, was we said that we
17:28wanted to be known as innovators.
17:29And as a low-cost provider, you don't really have to do that.
17:32We certainly weren't known as innovators as a family of business.
17:36But to be a good innovator, you have to hire curious people.
17:40And so, we actually, we value curiosity and we know in our business who that's a natural gift to.
17:49And so, they're just naturally more curious or who people you have to kind of poke and prod.
17:53But we kind of, we don't score people that way necessarily or keep a list.
17:57But we know because we talk a lot about curiosity being a value, a core value or a character or
18:02trait that we want.
18:03And so, as we were rolling out AI and trying to figure out who could be on a task force
18:08or who could be a power user or who could even sit in a room and help us daydream about
18:11how this could be, we specifically targeted the most curious people.
18:15In some cases, that is a, you know, somebody's been doing this for 20 or 30 years.
18:21I mean, I'm 22 years into the industry.
18:27Oftentimes, though, it was the younger folks in our workforce.
18:31And so, I think what we tried to do is balance, hey, there's the experience and the institutional knowledge.
18:37And so, let's get some of those folks in the room.
18:39But they may not be the power user or the person that's constantly coming up with ideas of how this
18:45can automate or make more efficient our business.
18:49Oftentimes, it has been middle management or individual contributors that are analysts who, to be honest, spend eight hours working
18:56on some tool that I want who just want to do it in two hours.
19:00And they have figured out how to do it faster.
19:03And so, it's, in some ways, self-serving to them.
19:08But I love it, leading an organization, because that person just freed up six hours to go do something that's
19:15more valuable than building an Excel file with a bunch of VLOOKUPs for me.
19:19Claude now can do all of that in a matter of seconds and minutes.
19:23You know, we hear so much, like, AI is not going to take all the jobs.
19:26It's just going to replace the people who don't use AI, right?
19:29But I think this is a really good use case.
19:31I mean, an example of this, it's, like, people who know how to use the tools that you have and
19:37get to a better place.
19:38I mean, those are very valuable people.
19:41Absolutely.
19:42Again, I would go back to even pre-AI.
19:44I've always, even in my own career, thought that curiosity, like, having the ability and the willingness to daydream, like,
19:52literally calendar that out.
19:53That is a competitive edge.
19:55In this space, now that AI is coming in and technology is starting to work itself into home building in
20:00a meaningful way, it's even more of a competitive edge.
20:03And so, absolutely, those folks have an advantage.
20:07We are not thinking about it.
20:09Or as I'm seeing these things come out and, like, whoa, that's an awesome tool that was created in seconds.
20:14I'm not thinking about it in context.
20:17Oh, this is going to replace somebody's job.
20:20The market today has already forced us to reduce force.
20:24Homebuilders have done that.
20:25We're all doing more with less.
20:27So, today, I'm trying to free up really smart people's time where they can now go spend in, like, actually
20:35analyzing the information, thinking about it, applying it through some test cases, and then making a recommendation versus spending all
20:41of their time synthesizing it and building the actual graphs and charts.
20:47So, again, that's really simple.
20:48That's practical.
20:49Anybody with a, in our case, a Claude usually in the password can do those things.
20:53But it's, it has, I mean, I gave some examples downstairs, but just some really practical things where I'm like,
20:58wow, that, we've been doing that the same way ever since I've gotten the business.
21:03And, and every builder effectively does that the same way.
21:06And now, all of a sudden, that's automated, and you don't have to do that anymore.
21:10That's incredible.
21:11Let me ask you a couple of timely questions about, you know, the policy.
21:14So, we had the Road to Housing Act passed.
21:16Finally, such a long-term commitment from people across the aisles and, and also throughout the housing industry.
21:24It, it has particular, I think, importance for builders.
21:27So, let's first talk about the, the Build to Rent and the Carve out there.
21:30How did that affect your, your business?
21:32Yeah.
21:33So, our Build to Rent company, O&M Living.
21:35So, the, the predominant product of our business there is, it's cottage, but it's kind of horizontal multifamily.
21:43And so, it's multiple units planted on one lot.
21:47And so, we, through the passing of, of the bill, made law, we're like, quote unquote, safe.
21:55But in that interim period, however many months that was, I think the uncertainty in the capital markets, it froze
22:02capital for deals.
22:04And so, we were sitting on the sidelines just waiting for either a tweet or a signing to know, like,
22:09what is going to happen?
22:10And so, we were super thankful on our Build to Rent side that what got passed, got passed more than
22:15anything, less because we think there's something inside of the bill that makes things easier or makes things more affordable.
22:22It's more, it's just reduced uncertainty for our stakeholders.
22:27And anytime there is uncertainty, especially in the capital markets, it's not a good thing.
22:31So, for us, we were mostly tracking it and interested in the bill for its impact on capital for our
22:38Build to Rent.
22:39And we feel like, we're confident that we came out on the right side of that, that our horizontal multifamily
22:45is green light.
22:46Capital is not scared to invest in it.
22:49And so, we're excited about getting to close some of these deals that we've just kind of been sitting waiting
22:53for the bill to get resolved.
22:56Really interesting.
22:58I think when we talk a lot on this podcast, I talk with our lead analyst, Logan Motoshami.
23:03There's a lot of noise out there, especially in consumer media, where it's like, we just need to build more
23:08houses.
23:08We don't have enough houses.
23:10You know, and different politicians, Biden, Trump, whoever it is, is like, we need millions of more homes.
23:16And, you know, he always makes points, like, if there was the market for millions of more homes, the homebuilders
23:21would be the first people to be building that many homes.
23:24But, in fact, you guys are very careful about your margins.
23:28Yeah, I don't, at the risk of making a political statement, I, builders are really good at, historically, about controlling
23:38supply.
23:39We're really good at overbuilding, but then we're also really good at correcting.
23:42And so, I agree that if there was, right now, demand for millions of more homes, and it could be
23:51done profitably, builders would be doing that.
23:54Right.
23:54I think for us, ultimately, my understanding of kind of maybe a primary point or interest in D.C. around
24:02the bill was how do we fix affordability?
24:05And I'll speak for the customers that we interact with every day.
24:08The customers come in, even in this product differentiation move up, they're still incredibly monthly payment conscious.
24:16And today, the largest, the biggest input to impact monthly payment is what is your financing rate?
24:23What is your interest rate?
24:25Right.
24:25And so, again, there's people way smarter than me who influence the outcome of that bill.
24:31But, to me, it's a lot of this, in terms of fixing affordability, is noise until we can address what
24:39it costs to borrow today on a 30-year FHA loan.
24:42And so, today, the builders are fixing that through builder-forward commitments and rate buy-downs, which is killing, whether
24:50you're a public builder or a private builder, it's killing your margins.
24:52Right.
24:53That drug is not sustainable.
24:56And so, again, I think, I don't know if the market's oversupplied or not.
25:00Well, I do today know from a housing perspective the market's oversupplied in DFW.
25:05But, again, builders are really good about fixing that by just slowing starts.
25:09We started to do that month over month.
25:12But if the market, if there was demand for significantly more houses in the market, we're also really good at
25:18filling that demand.
25:19And we will do that.
25:21Challenge today is how you do that profitably.
25:24And I think there's a lot of builders, a lot of my counterparts, sitting in their office every morning, every
25:29Monday morning, trying to figure out, like, how do I generate more sales?
25:33I need more sales volume.
25:34I need more traffic.
25:35But I also need to make money.
25:36And that's a challenge.
25:38Well, and some of the places that are the most constrained on supply, it's because it's very hard to build
25:43there, right?
25:43Correct.
25:43So, if you could fix that, you would.
25:45Totally.
25:46If I, if we could, and this is where the bill does, of course, it's at a federal level and
25:50entitlements and inspections all happen at a municipal level.
25:54And so, we need cities to get on board.
25:57But, yeah, there are some cities that makes this really easy and there are some cities that make this really
26:02complicated and expensive.
26:03And, you know, frankly, unfortunately, I think the cities that overcomplicate their construction services, their development services, and make it
26:10really expensive through impact fees, they're going to get looked over by us builders.
26:14Because, again, we're trying to lower our cost input to make money, and we're going to go find cheaper places
26:21to build.
26:22Zach, thank you so much for coming on the podcast, giving us the builder's perspective, and especially a builder who's
26:28doing so much with AI.
26:29It's been, it's been fascinating.
26:31Yeah, thank you for having me.
26:32I always enjoy doing this, and I appreciate it.
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