'Luxury' Homes, Built Cheap

Behold the house of the future. It’s just like the house of the past, only with some subtle nip-and-tuck work. Across the country, home builders are redesigning houses using a set of strategies they call “value engineering”—the art of building a house on the cheap without making it look cheap. The new designs are smaller, but their clever layouts create a spacious illusion. They feature high-end finishes, but only in high-profile areas. And they can offer interesting surprises.

After watching demand for new homes plummet 75 percent from the market’s peak in 2005, builders are asking architects to revise boom-era home designs in ways that cut costs without diminishing what pros call “perceived value.” Translation: Keep the high-profile amenities, but skimp everywhere else. And apparently, the strategy works. KB Home says its new Open Series, “affordably priced to compete with resale and foreclosure homes,” helped spawn a 59 percent spike in new orders in the second quarter of this year. In Fresno, Calif., McCaffrey Homes brags that its modestly priced 231-unit Madison Place development is almost sold out. Even the luxury stalwart Toll

Brothers says it has been tweaking plans to keep overall costs down, and with good results: the first gain in new orders since 2005.

Indeed, at an open house at Madison Place, it looks like boom time all over again, as shoppers wander dreamily through the sumptuous model homes, checkbooks ready. The homes certainly recall a bygone era, with their “Tuscan” facades, granite countertops and walk-in closets big enough to house a rhinoceros. But there’s a reason the prices start at just $199,000—and builder Karen McCaffrey is on hand to show off some of her artful economies. The massive “wooden” beam above the garage door, for one, is actually painted foam. Inside, the expensive wood-burning fireplace has been downgraded to a gas-burning model. And that big picture window in the dining room? Sliding panes were replaced with a fixed piece of glass. “You can’t open it,” says McCaffrey. But heck, it looks positively fantastic.

As buyers creep back into the market with tighter budgets and less generous financing, builders think they’ll be looking for these trimmed-down versions of overblown, overpriced boom-era construction. KB Homes, for one, says it does extensive research in every community to devise a precise mix of cutbacks and amenities designed to suit local tastes. Some strategies, like basing the home’s dimensions on standard lumber lengths, save builders thousands without any adverse effect. But even the shrewdest compromises can’t produce a mix that appeals to all buyers. And since these modifications typically adhere to local building codes, a homebuyer usually has little legal recourse—even if he or she feels cheated after discovering that the “double garage” isn’t actually wide enough for two cars. “There aren’t many cost-cutting measures that are good for the homeowner and the home builder,” says El Paso, Texas, housing inspector Mark Eberwine. “That’s a rare bird.”