LivingHomes Builds Prototype for Eco-Friendly Architecture

Your ambition appears to be to create a company that weds profit and purpose by developing homes that make great design, functionality, and sustainability both practical and affordable. Tell us about LivingHomes and about how you are trying to achieve your goals.

We believe that there is a group of people who care deeply about design and the health and sustainability of the products they buy. These people are variously called "Cultural Creatives," and they are the folks who are driving the Prius sales, the Whole Foods and organic market, Patagonia, Dwell Magazine, and they shop at Design Within Reach, do yoga, etc. Those folks can't easily buy a home that reflects their values unless they have the time, money, and stress tolerance to do custom development.

We are trying to create products that reflect great design, that are built with healthy materials in a sustainable way, and that offer a great price value. Our formula is to we identify leading architects-Ray Kappe was our first, Russel Witten, David Hertz-and create a line of homes with them. So we standardize designs and integrate a comprehensive environmental program, perhaps unprecedented for a production homebuilder. Then we use volume, through prefabricated production, to simultaneously reduce cost, reduce production schedule, increase quality, and reduce ecological footprint.

Not many housing developers rely on your business plan. What challenges have you encountered as a pathfinder in the arena of housing development?

Step one was in building our first model, which I consider a prototype. We learned a lot of things along the way that, frankly, we won't do again. We're doing a lot of things for the first time and, I funded this myself because I knew I couldn't sell this plan to any smart investor because there are just too many risks.

We have a team composed of people who haven't done some of the things that we're doing-partly because they haven't been done, but partly because they came out of the commercial area and we're focusing on residential. Given our long-term focus, trying to standardize, commoditize, and segmentize, I felt that the commercial guide was better than the residential guide. We worked with an architect who hasn't done the kind of sustainable design that we wanted to do. We worked with a manufacturer who had never built a home before. But we created a project that people seem to dig a lot, and I have been living there for going on four months. It's a great home. It works on all the levels that we need it to work on from a functionality standpoint.

Describe the LivingHomes house; what special features does it include?

It's 2,500 square feet. Three bedrooms plus loft space, which converts to a bedroom. It has an open first floor. The second floor has movable walls-a number of elements that allow you to reconfigure the space. It has a roof garden and a roof deck.

It is the first and only LEED Platinum certified home in the nation. We're using the LEED program to keep ourselves honest about what we are doing and why. We built it on an infill lot in Santa Monica, and it took us 12 months from breaking ground to getting temporary certificate of occupancy. Twelve months is fast for Santa Monica. It was a difficult lot; we had to get two variances and do a number of other things.

You want to standardize cutting-edge design, integrate environmental programs, and create a model that can scale up. How does your prototype pencil out?

I want to correct one thing. The notion of "cutting-edge" is not important to us. We have no problem winning design awards, but we are clear that we are homebuilders and we are also doing development. These homes have to be functional and appealing to our users. That is our business. Someone else might describe it as cutting-edge, but that is not what we aspire to; it is not a styling exercise.

To the second question, very few architects are trained in how to build. And when you go through architecture school you are definitely not trained in how to manufacture things. The general mindset in architecture school is, "I need to a create a specific solution, for a specific customer, at a specific site."

That mindset is anathema to how an industrial designer approaches the design process. They think about target markets and about getting clear on the problems that they need to solve and, ultimately, generating the biggest bang for the buck in terms of features. They think about manufacturing from day one. That is an inexorable part of the design process, not only the form and function, but also how the thing gets built. The architecture process is likely to come up with something that suits a particular client, site, and need. A successful industrial design process comes up with a product that you can build for a particular budget again and again. We're trying to do the latter. We view homes as products.

We're using the consumer product management process that is akin to what I did at Apple and Idea Lab and startups I have been involved with. That's why I set out targeting markets by lifestyle and trying to create features that meet as many of those needs as possible but that allow us to create a standard model. Because if you want to bring down cost, you have to build things in volume. That's why the production homebuilders-the KB Home, Lennar, Pulte, Centex-can build things so much cheaper than the custom home guys.

We're trying to treat this more as a production homebuilder would, while bringing in a design process that allows you to create great form and functionality. Look at what Apple did with the iPod; look at what Audi and BMW do, or Ikea, which is probably the best example. You can do great design, and you make it manufacturable at a good cost and with high quality.

What environmental features does the prototype house include?

Our customers are pretty literate when it comes to environmental issues and design. We knew, when we set out, that we had to create a comprehensive program. And we needed an objective third party to verify what we're doing, which is where LEED comes in.

Many people claim that they are doing green homes, but when you get to the details, they are just using low-volatile organic compound paints, maybe offering bamboo floors or Energy Star appliances, or maybe even photovoltaics. Those are all great things, and it's good that some of the production homebuilders are starting to do that.

But if you really care about minimizing your ecological footprint, you can do far more. It gets into levels of detail like: where do you source your materials? How does this thing get deconstructed in the end? And what about ongoing operations? You'll spend one or two years in the production, but then this thing has a 20–30 year operating life and if it's not energy efficient, you'll waste resources in its operation. What about the building materials? Do they off-gas? Do they promote mold growth or other things that might impact health? What about water efficiency?

First and foremost, we are about great form and functionality. The health and sustainability is integrated into that, but if I had to pick priorities it comes second. We make no claim like when Business Week called us, "The Greenest Home on the Planet." That is absolutely not true. The most sustainable home would be underground. If it had any walls they would be straw bales. It would have minimal windows and be very small. Before you do any of that, you are going to use an existing space; you are not even going to build new.

The fact is, however, that with native population increase and economic growth, the existing housing stock will not get you where you need to be. New homes need to be built and we don't think that underground and/or straw bale homes are mainstream.

We have chosen an approach to design that we think is consistent with our environmental agenda. We're practicing the kind of modern design that tends to "form and function." This is definitely not Frank Lloyd Wright, "don't do anything just from a form standpoint," because that adds materials, and "be authentic to those materials"-express them without having to dress them up because all that does is add extraneous material.

From an environmental agenda we'd say the same thing: don't dress things up; do what you have to do, and think carefully about what you are doing and how you are doing it, but don't do things just to make them a style exercise. That's why we are taking the approach we are and that is why we spent the time we did to develop our environmental program to be as comprehensive as it is-because we think people care.

Price point is obviously one of the reasons you went pre-fab. What have you learned from building your protype about price point?

Our initial line of homes is definitely higher end. We are working on both single- and multi-family, lower price-point products. We think we can get to a workforce level pretty quickly. We'd love to do affordable, but that is going to be a harder problem given our environmental goals. At the level we are-we said we'd only do LEED Silver-you are going to pay more. The home came in for about $250 per square foot for the structure and $130 per square foot for the foundation. So, $380, closing in on $400 per square foot.

If you were to do this stick-built, those guys will tell you $450 to $500-plus, so we think we did this probably cheaper than stick-built. Again, you have to compare this "apples to apples": leading architect, steel frame, 72 percent glass or polycarbonate, with a platinum level environmental program. We think we probably came in a bit cheaper. We think our next set will be even cheaper to manufacture-particularly if we do things in quantity-and certainly we'll be able to do them much faster. We're telling customers that we're selling for about $250 a square foot. That's a similar price, but of course now hopefully we'll get some margin in there.

If you presented both your prototype and business plan to a panel of seasoned housing developers, what feedback would you expect? How would you respond to them?

The big issue here is cost. Most people who see the house think that it is great design and great functionality. The questions that a production builder would have, and our customers as well, are, "Can you deliver this in six months? Will the quality remain? And, can you make money at the price you're doing?" In other words, how does this thing really scale? We're just not in a position to talk a lot about that. In 2007 we'll build a bunch of these things and prove that this model does work and can scale.

For our long-term focus, we don't want to deal with end users. Right now we have 11 homes under contract, which doesn't include the four we're doing for our own community in Joshua Tree that we haven't yet offered for pre-sale. Longer term, we want to deal just with builders and developers and essentially create franchises.

We'll create lines of homes, and we'll have builders who want to do our projects in Austin, Raleigh-Durham, Portland, Seattle, and other parts of L.A. They'll do the foundation, and we'll essentially hand them the marketing playbook-we'll get the leads because we have a national awareness already and we'll do things to build a national name. I have no problem telling people that we don't know yet, because I am aware that all we've shown is that we can do something pretty cool once. And we've shown that there is a market. We have thousands of people who have written and filled out extensive forms saying that they want a home.

What comes to mind is the movie Tucker: an innovative car manufacturer tries to build and sell a better mousetrap, in the way of a new car, but he is defeated and chewed up by existing manufacturers. Do you sense that you are a modern day Tucker facing similar competitive forces and market realities?

It goes back to the pioneers and the settlers: pioneers get killed; settlers make money. In my own track record with companies, I'm either early or very early. Very early you don't do so well, early you do well.

But the Tucker comparison actually doesn't work because the automobile market is extremely consolidated. Real estate is extremely fragmented. The top ten production builders last year did maybe 22 percent of a $300 billion market. Small- and medium-sized developers, who do, on average, 30 homes a year, build the majority of homes. So, I am confident that we can make a good run of this.