BUILDING A FRAMEWORK FOR STEEL FRAMING
WESTERN METAL IN ARCHITECTURE MAGAZINE - December 1995
A builder, framer, and engineer discuss where the steel industry is headed in the housing market.When the price of framing lumber headed through the roof in 1993, more than one steel industry executive wanted to adopt the Spotted Owl as its mascot. Indeed, the rare bird has been a great friend, as efforts to save owls and protect old growth forests made lumber prices more volatile than the stock market.
The stability of steel prices, on the other hand, played a huge role in turning shiny studs into a contender for a share of the residential construction market as the number of houses framed with steel rose - from 500 in the entire nation during 1993 to more than 50,000 in 1995.
However, wood prices retreated to 1992 levels in the past 12 months, and the tidal wave of builders who became early users of steel has slowed to a trickle. As builders remain content to wait for the next spike in wood prices, the steel industry's tantalizing goal of a 25 percent share of the housing market by 1999 seems frustratingly far off on the horizon.
Recently, Western Metal in Architecture spoke with three building industry experts who have a great deal of experience in the use of steel framing. We asked them for their individual perspectives, and for their advice on what steps the steel industry can take to dislodge the use of steel from its current plateau and prod it on to the next level of growth.
"The steel industry has a unique opportunity to create a new market that could add millions of tons of demand for their product," says George Richards, president of BORM Associates, an engineering firm that has designed a sizable percentage of homes in Southern California some of which were framed with steel. "They need to try harder, and respond to what the market truly needs."
Richards believes that a rational evaluation of the housing market is in order, which would include a realistic appraisal of the commitment required to achieve the industry's goal.
"They just have to determine if it's worth the investment," he says.
Scott Shaddix, president of Nicholas Lane, a contracting firm and industry leader in residential steel framing, says that the place to invest the effort is in helping ensure that builders who use steel are successful. "We need to keep the developers in the game because they're the engine that pulls the train," says Shaddix.
"Before the home buyer can put a down payment on a steel-framed house, the developer must first choose to go with steel. Steel must be a good economic alternative for the builder."
He adds that the word about a builder's success ripples through the market. "If one builder sees that another is making money on a development, he'll tell his people to find out what this guy is doing. On the other hand, people find out about unsuccessful projects, too," says Shaddix.
"The steel industry should focus on the objective of lowering the cost of building with steel," says Sheryl Palmer vice president of sales and marketing for Blackhawk-Nunn. The 2000 unit tract development 4 miles east of San Francisco has been using steel framing exclusively for two years.
Lowering the 'gap'
Palmer has been able to narrow the price gap between steel and wood framing from a range of $2,500 to $1,500 per house, to $1,500 to $500 per house. Despite the time and effort, achieving savings and parity in costs remains elusive.
Palmer says her experience is shared by other builders. "With today's lumber prices, steel framing costs the builder between $1 and $2 more per square foot," he says. Even though most builders have not written off the possibility of using steel in the future, not many are willing or able to undertake a venture that offers more risk than reward."
"You have to recognize how slim the builder's margins are," says Richards. As an example, he points to a development he is currently working on that features 3,000 square-foot homes with an average price tag of $400,000. "The builder's profit margin is only 6%-or $24,000 in this case, and a couple of thousand dollars can make a big dent."
Richards explains that builders look at the bottom line, but they're also able to look at steel framing for its long-term potential. He notes that they accept the fact that in some cases they won't make a profit, but they might make up the difference on another development. "But somewhere it has to pencil out," says Richards. "A lot of builders have shareholders to report to, and if they can't make money building with steel in the long run, things like resistance to termites' or straighter walls, won't matter."
Says Shaddix, "This doesn't mean that the steel industry needs to scrap everything it has done up to this point. They've done a lot of good things."
But he adds that they are not servicing the most important aspect of the industry: development.
He believes that what's missing is a solid understanding of how the market operates and what builders want. "American car companies have had the same problem penetrating foreign markets for the same reason," Shaddix says. "Here they were, making cars with steering wheels on the left side, trying to sell them in countries where the steering wheels were always found on the right side."
Proper positioning of steel for the residential market will take some research so the steel industry knows what it's competing against. "They have to get down in the trenches and learn how wood is handled, priced and distributed, then apply those lessons to steel," Shaddix says.
He adds that his company went through a similar process when it first began to learn steel framing. In the end, Shaddix says the work paid off because he now can talk with a builder about wood and steel in the same terms, and knows that his company can build steel framed houses on time and at a competitive price.
Palmer also recommends that the steel industry set some priorities so they can make more effective investments. "It's not the price of steel, it's the cost of the subcontractors that make steel framing more expensive. Fasteners are the number one opportunity to lower the cost of building trades, and the steel industry needs to spend more time perfecting tools and fastening systems that are faster and easier to use," she says.
Both Richards and Shaddix agree that tract builders should be given the lion's share of attention, because custom builders won't generate the kind of momentum that steel framing needs.
"If you can get enough builders in a region like Orange County to build 2,000 houses per year, the demand will help create a network of suppliers, framers, subcontractors and manufacturers," Richards says. "And when you have sufficient competition, prices come down. This makes steel framing more attractive to builders. Before you know it, a critical mass has developed. And if wood prices go up again, steel framing looks even better."
Richards thinks that keeping the tract builders involved in steel framing may not be cheap. "In some cases it could mean outright subsidies of tool manufacturers and builders. More engineering data is needed, and research costs money. Awareness programs will also keep builder interest up and on top of developments that could help them lower their building costs," he says. Palmer adds that educational programs for the subcontractor base, and campaigns to make consumers understand the benefits of steel, would also prove to be extremely valuable to builders.
"If the steel industry is serious, it must also do some of the obvious things-such as helping safeguard against damaging government regs," says Richards.
For example, a recent reinterpretation of California's Title XXIV, which regulates a new home's energy efficiency, will force builders to use 1 -inch thick foam board as a thermal break on a steel-framed house exterior. According to Richards, this single item will probably cost builders $500 per house. "Government regulations can make or break a product, and here is an instance where a new rule that might have been passed with good intentions will undercut the product.
Ultimately, steel industry efforts to carve out a niche for their product could benefit by taking a lesson from the aluminum industry, an old nemesis that wrested the beverage can market from steel makers.
Although aluminum was used to make only 2 percent of beer and soft drink cans in 1964, aluminum companies believed this market offered tremendous growth potential.
They made a decision to capture the market and devised a comprehensive strategy that hinged on the recognition that consumers were becoming more environmentally conscious.
Their first step was to build a recycling infrastructure so efficient that, in just a few years, half of the aluminum cans they produce came back as scrap. At the same time, many recyclers were not accepting steel cans from the public for recycling because no system had been devised for handling returns and there was little economic incentive for the effort.
Next, they took their case to the public, spending millions of dollars per year to promote awareness of aluminum's recyclability and the benefits to the environment. By 1977, aluminum cans had seized 50% of the market, and by 1983 aluminum was used to fabricate more than 92 percent of the more than 80 billion beverage cans produced in the United States.
If the industry is to replicate this feat, it must decide that it really wants to participate in the housing industry and that it will make the necessary investment. Its efforts need to be focused on reaching the right segment of the market, develop an understanding of what that segment needs, and then be willing to provide the appropriate support structure and initiatives for the longterm.
Palmer is hopeful that the steel industry can respond to the needs of
the home building market. "The steel industry is in an early stage of
making steel cost competitive with wood framing. More important, it
recognizes that this is its chance to take steel framing to the next