RICHARD L. HALL : HOME ECONOMICS : New BIA Chief Talks Quality, Coalitions, Conditions
Richard L. Hall, 65, has been building houses since 1957. In those 33 years, building in California has become a lot more complicated: Local governments are tougher to get approvals from; there are environmental issues to consider; there’s traffic and the lack of money to build new freeways; there are all sorts of new fees to contend with and an occasionally powerful, if unfocused, slow-growth movement.
Hall has dealt with all those problems as a private builder. Now he has to deal with most of them as a public figure--in November he became president of the California Building Industry Assn., a big trade group and a powerful lobby for home builders. When he’s not in Sacramento for the BIA, he’s busy as president of La Linda Homes in Orange, which has carved out a niche in building big, expensive houses around Southern California.
In a recent conversation, he talked with staff writer Michael Flagg about the state of the home-building industry and what the powerful trade organization is up to these days.
Q. What’s behind this slowdown in the market today, especially for the expensive houses you build?
A. There really isn’t a slowdown as such. There’s actually a shortage of product. Inventories are quite low. There’s a pretty good demand. Things are a little different now from what they were in ’66 and ’74 and ’81 (when the housing market crashed). We’re cyclical; we’re always up and down somewhat. The economy’s just taking a breather now. When the inventory’s gone that’s out there now we’re going to come charging back just like we always have.
Q. But your organization’s own figures show that housing starts have been down the last few years in California. If it’s not a slowdown, what is it?
A. Our figures are going to show that ’89 ended up having about 213,000 housing starts. We anticipate another 200,000 plus this year. That’s not exactly a depressed economy. It’s not too shabby.
Q. What about the couple of years preceding 1989?
A: Well, ’86 was the best year we ever had. We had 315,000 starts. In the last four years starts slowed up somewhat. The last four years of the decade weren’t that great.
Q. Why have housing starts slowed down since 1986?
A: I wish I could answer that. One big problem we’ve had is the artificially high pricing of land. It’s just clear out of hand. We started seeing evidence of that in the last part of the decade. And we’re finding some problems in the savings and loan industry that are affecting a lot of our builders. The medium-sized builder is probably the most vulnerable (in terms of finding construction loans now that many thrifts have left this comparatively risky business.)
Q. What’s their alternative?
A. We’re finding a huge move to more joint ventures than there’s ever been before. Nationwide there might be only 50 savings and loans still making construction loans to builders or even joint venturing. I happen to deal with one of the more substantial ones, Great Western (Bank, in Beverly Hills) and they’re not looking for new partners. They’re being very discriminating. There are a lot of banks now looking at the home-building business and even some large corporations like Weyerhauser, General Electric and others.
Q. Didn’t companies like these once just buy home-building companies instead of doing joint ventures with them?
A. Yes. Before, they were buying a lot of companies because the building industry looked so inviting to them. A lot of those builders that were bought out ended up buying their companies back. Now these companies are joint venturing and putting up the equity capital, and that’s the way most of us can survive.
Q. Does it bother you that there seem to be fewer sources of capital for smaller builders, which could eventually mean less competition in the building industry?
A. I don’t look at it that way at all. The big builders, the master developers, a lot of them are joint venturing too. They’ll buy thousands of acres of land at a time and invite other builders to come in and build, which means there are more people participating in the industry. It enables a lot of the smaller builders to take advantage of the expertise of the master developer in things like marketing.
Q. One hears that smaller builders--people who may have started building while the market was hot--are going through something of a shakeout these days with home sales slower.
A. I think the real small builder is going to have some problems, because they’re probably the ones who’ve gone to savings and loans to borrow money to build. But there’ll always be a demand for a good custom-home builder. Particularly in Orange County, though, smaller builders are going to have problems because of the price of land, which has gone sky-high.
But again, I deal with some of the top marketing people in the country and they tell me there’s a lot of demand. It’s the constraints on the supply that are really slowing things up. One thing that’s happening is that in the mid-$400,000 to $500,000 price range--I’m talking about Orange County now--you can go out and find a lot of product. And there’s really not a lot of difference in the design and construction. I think you will find that if the products have good design, good location and are reasonably and fairly priced, the sales aren’t bad.
Q. When you talk about constraints on supply, I assume you’re talking about zoning and local government?
A. One of the big problems we have in the industry is processing time. It’s not unusual to find a project taking two to three years to get through the government hassles and bureaucratic red tape. One project we’re doing, even though it’s zoned properly and in the general plan, it’s still taken us a year and a half and we’re not even ready to start grading yet.
Q. Red tape may be part of the problem, but isn’t a major problem the fact that home prices have just gotten absurd in the last few years, with builders charging hundreds of thousands of dollars for a big ungainly house on a little postage stamp of a parcel? In other words, doesn’t it seem as if most people can’t afford the houses being built in Orange County today, and it’s hard to see why people who can afford them would buy them?
A. I have to agree. The cost of some homes seems ridiculous when you look at them. But it’s all based on what you have to pay for the land, because there’s a shortage here in the county and land’s very expensive. Construction costs have stayed relatively the same. We’ve had times when they’ve gotten out of hand, and they’re still out of hand somewhat. But they’ve stayed relatively stable. It all comes down to if you build a well-designed product it shows, and people will buy it. That’s one of the things I find when I go out--that there’s an awful lot of sameness. One guy gets an idea and the next thing you know, everybody else is doing the same thing.
Q. Like the Mediterranean style that’s proliferated around southern Orange County in the last few years?
A. That’s probably dictated by what people want. We’re doing some of that in our subdivisions. We’re doing a lot of country French--that had a little spurt--and other types of more traditional architecture. Our marketing people tell us it’s what people want. What matters is how well it’s designed.
Q. One hears construction quality is a big problem these days; that between the haste with which builders threw up houses during the recent sales boom and the subsequent shortage of qualified construction workers, there are a lot of problems out there with shoddy construction. You must hear the same things. What do you think?
A. Oh, believe me, I think there still is (a problem). I couldn’t agree with you more. I was on a project not long ago--you go see what your competition is doing--and I was appalled by the shoddy workmanship. It isn’t just me; there are a lot of guys who feel just like I do, that quality is a problem. A lot of it was caused because in the late 1970s and early 1980s, a lot of the good people left the trade. Workers were in terrible scarcity when we started building again. The subcontractors have a problem getting help and we have a problem making sure our help is good help. It could be a big industry problem: But the good ones weed out the bad ones. It’s kind of a self-policing thing. The ones that survive are the quality ones.
Q. You’ve talked mostly about subcontractors. Don’t the builders share some responsibility for this? Isn’t some of this due to their cutting corners?
A. Absolutely. That does a terrible injustice to those of us who are trying to build a good, quality product. A lot of us, over a period of time, have been perhaps so misguided in trying to get in while the getting’s good--you know the old saying, you make it while you can--that you lose sight of (quality). There still are a lot of builders who are going to take the lowest (bid from a subcontractor) no matter what. That’s something we’ve never done. You like competitive bids, but you want to find the guy who you think is going to be able to finish the job for you.
Q. What do you do to prevent problems like this?
A: The Contractors’ State License Board is overburdened with (complaints about) quality and shoddy workmanship. All you have to do is pick up the little publication they send out and look at the licenses that are revoked every month. There are hundreds of them. So there are ways of dealing with this. And we sort of weed out the ones we don’t want (at BIA).
Q. Let’s shift gears and talk about public policy. One of the biggest issues the BIA’s been involved in is the 9-cent increase in the gas tax that goes before the voters in June. The money will go largely to building and widening roads. Yet you threatened to oppose the measure, which some political experts say is unlikely to pass without strong support from powerful groups like yours. Given the fact builders will be a chief beneficiary of new roads, why did you oppose it?
A. Historically we supported a gas tax. Those funds could help alleviate the problems in our industry. What happened was the tax was coupled with a (traffic) congestion management plan that had noble motives but which just didn’t work. It would have brought construction to a screeching halt. So we went to the Legislature and said we’ve got to have some changes in the bill and the doors were closed in our face. They would not even talk to us. So we had no choice but to come out and oppose it.
Q. Isn’t that like taking all your marbles and going home? That money could build a lot of roads.
A. No, because we felt that time and time again (we were rebuffed). We hired more (lobbying) help than we’ve ever had before to say, “Hey, look, open some doors and let us come and talk to you.” We wanted to compromise but we were just flat told: “Nope. This is the way it’s going to be.” We were the first major trade group to come out in opposition to it, and very quickly the California Assn. of Realtors joined forces with us, the teachers’ association, we had many other groups saying it wasn’t fair.
Q. But one of the reasons the governor and some of the legislators didn’t want to make any changes in the congestion plan was they were afraid the environmental groups supporting the gas tax would bolt. That didn’t happen, and everybody eventually reached a compromise on changing the congestion plan, so will you now support the tax?
A. Our task force agreed with the amendments (expanding the number of alternatives builders have under the congestion plan for improving traffic problems caused by their projects.) We’d just as soon not have it, period, but that’s life in the real world. This next week we’ll be meeting in Sacramento and our legislative committee will be going through the whole bill, and I think they’ll probably OK it and we’ll come out in favor of it.
Q. Well, the $64 question now is: Will it pass?
A: I think so. We feel optimistic it will. Of course, I’ve voted for some losers in the past too.
Q. Speaking of power, how much clout does your organization swing in Sacramento?
A. I’d like to think we rank up there. In terms of numbers, the Realtors have a lot more members than we do. The teachers have more members than we do. But I think we’re in the top rank.
Q. What’s happened to the slow-growth movement? It seems quiescent in many places these days.
A. Yeah, but . . . just because the river’s quiet doesn’t mean the alligators have left. I think what we’ll find is we’re going to be building coalitions between environmentalists, slow-growth people, builders--we’re all going to have to work together. We’re going to have to realize we all have the same concerns. It may not always appear that way because of antagonism created by both sides. This is one of the goals we’re going to be discussing in Sacramento next week.
Q. That may be difficult, since builders have a lousy image with many Californians. How do you change that image?
A. I think most builders are fine, reputable people who go out of their way to do what’s best for a community. We just have to a better job of getting that across. We’re very much aware of the problem, and we’re launching a new program--it’s a huge, very expensive--public relations thing. The whole program is based on letting the average person know what we do and what builders are all about. One rotten apple can ruin the whole barrel, and that’s what’s happened in the past. But any legitimate builder is interested in improving his image, because that benefits our industry too.
Q. How much money are we talking about?
A: In the millions.
Q. Your organization has become a lot more litigious in the last few years, suing local governments and school districts over everything from slow-growth ordinances to the impact fees the schools charge builders. Has that been effective, considering that some of these cases probably don’t do your image much good either?
A. When we’ve sued it’s been because of something terribly unjust, something unfair and inequitable. If you don’t think a school fee, for instance, is justified, you just can’t sit by and say “OK.” If people knew how much fees add to the cost of a house, it would just shock them; it amounts to thousands and thousands of dollars. A lot of cities and counties will blame everything on Proposition 13 (which limited the amount of property tax local governments could collect and forced them to look elsewhere--like at fees--for revenue). I don’t think they’re correct. I don’t know what the alternative (to the fees) is, but there’s got to be one.
