Builders Look Ahead, See Hope, Obstacles
About this time of year, economic forecasters prepare to put on their best front and tell us what they see ahead for the coming year.
Some of them hope no one remembers what they said a year ago. This time around, Wall Street’s devastating nosedive on Oct. 19 should get all of them off the hook. Who knows what the aftermath will be?
Last week, in the comfort of Palm Desert, four of the housing industry’s ranking builders participated in a lively discussion on the immediate future of their industry during the 21st annual convention of the Building Industry Assn. of Southern California.
And another impressive panel is gearing up to offer its predictions at UCLA’s “Real Estate Forecast Insight: 1988” at the Biltmore on Nov. 17, delving into what the new year might bring for real estate investment and development.
Robert H. Smith, president and chief executive officer of Security Pacific National Bank, will deliver the keynote address. Other principals will be Robert T. Parry, president of the Federal Reserve Bank, San Francisco; Larry Kimbell, UCLA’s economist and director of forecasting; Bruce Karatz, president of Kaufman & Broad, major home building firm, and Norman Coulson, president and chief executive officer of Glendale Federal Savings & Loan, among others.
The forecast session will be presented by the combined forces of the Center for Finance and Real Estate, the John E. Anderson Graduate School of Management, the university’s Department of Business and Management and UCLA Extension.
Karatz, one of the principals at the earlier BIA conference, in preparing for the UCLA program, said, “The stock market’s roller-coaster ride in October serves to reinforce why consumers will continue to make homeownership their most important and valued investment.”
Kimbell expects a substantial drop in interest rates, back to single-digit and 9% for conventional loans. Parry will address the need and challenge for changes in the nation’s fiscal policies.
At the BIA’s conference, such industry standouts as Ray Watt, William Bone, Richard Fore and Karatz, all bravely addressed the probable consequences of the wild gyrations of the stock market.
Watt, who heads Watt Industries Inc., a multifaceted development corporation, took the media to task for overreacting--they ought to “back off,” he said--to the tumbling prices on Wall Street. That activity, although of a great magnitude, is still a part of the cycles in the nation’s economic life, he said.
As for housing, he pointed out that 97% of the nation is well-housed and that Sen. Alan Cranston is leading the way for needed legislation to improve federal involvement in housing, an arena long neglected by the present administration. He also expressed concern for the lack of new infrastructure. The existing quantity is aging and wearing out and “we aren’t replacing it” fast enough, he said.
Bone, chairman of the board and chief executive officer of the Sunrise Co., major desert area developer, was critical of some industry colleagues who complain about the status of the no-growth movement but who do very little about it except complain. Talk directly with those who make the decisions at local and state levels, he urged, be realistic and “seize the initiative,” no pun intended.
After a short-term decline, and if the nation’s long-neglected debts are addressed, there should be greater economic prosperity all around, he added.
Fore, partner in Lincoln Property Co., national residential builders specializing in multifamily construction, said Southern California is still the best housing market and will weather the current economic storm better than other areas. But Alan Greenspan, chairman of the Federal Reserve, is “no friend of housing,” he said, no doubt recalling Greenspan’s previous governmental stints.
Fore coupled moratoriums with “gang-plankers,” those who have moved into an area and don’t want any more housing there, and declared that such controls and attitudes, along with rent-control movements, must be resisted by the industry and its friends for not only self-serving reasons but for the industry’s consumers.
Karatz, citing the recent strong housing market and his firm’s record sales, said the industry will have to adjust now to the fluctations of the marketplace and will have to live with government-assessed developer fees. He expressed pessimism over immediate solutions to alleviating fees--passed along to buyers--which pay for roads, libraries, fire stations and parks in many new housing projects.
The president-elect of the National Assn. of Home Builders, Dale Stuard, Southland builder, had called attention to those fees in a series of press conferences throughout the state, citing a recently completed NAHB survey’s findings that:
--Fees and utility charges add $11,807 to the cost of a typical new single-family home in California. The fees have doubled since 1983, when they added $5,792 to the basic cost.
--Fees charged builders to pay for schools and other public facilities and/or land dedications can add another $6,819 to the cost of a typical new home.
--Fifty-five percent of builders surveyed said the cost of a developed lot now accounts for at least 30% of the sales price of a new home.
--Sixty-five percent said the cost of developing a lot has increased 30% or more since 1983; 28% said it has increased by 50% or more.
--Eighty percent said at least 20% of the increase in lot preparation costs since 1983 was because of government policies and regulations; 59% said that more than 30% of the increase was due to government action.
And that kind of government involvement in housing, in the wake of Proposition 13’s tremendous impact on revenue-raising by government jurisdictions, is not the kind the builders had in mind.
