What Will It Take to Build a Stronger Construction Industry? : DONALD MOE : President, O.C. Chapter of Building Industry Assn. : GORDON TIPPELL : President, Building Industry Assn. of Southern Calif.

The housing recession is 3 years old, and the problems seem to keep mounting. But the leaders of Southern California’s two most influential home builder groups say that they are confident the worst is over. Gordon Tippell, who is chairman of Newport Beach-based Taylor Woodrow Homes, heads the Building Industry Assn. of Southern California. Donald Moe, senior vice president of the Santa Margarita Co., developer of Rancho Santa Margarita, is president of the BIA Orange County chapter. In separate interviews, the two discussed housing issues with Times staff writer John O’Dell.

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The ‘90s haven’t started off as a great decade for your industry. Is there any good news out there?

Tippell: Well, the slump has probably bottomed out, and we are starting to see some return of consumer confidence. It’s not going to lead us into an immediate boom--nobody is thinking in those terms--but I think we are on our way up.

Moe: I tend to hook my outlook to the predictions from economists at Chapman University. In January (Chapman President James) Doti said that their models show positive job growth by the end of the year. He describes this year as being “less worse than we were before,” and I’d agree with that. After all, we closed more than 5,000 new home sales in Orange County in 1992, and we started (construction on) almost 6,000 houses and apartments, so if you look at those numbers in terms of this being a recession, it shows that a demand for housing is still there.

Many in the housing industry point to the low level of new construction--those 6,000 starts compare to nearly 25,000 in 1986--as a sign that demand, however limited, will soon outstrip supply and return us to a sellers’ market. Care to tell us when?

Tippell: I think the turn already has been made, although the movement is very gradual. But inventories are getting down to very low levels, and with housing starts not being increased because of lack of financing in many cases, the supply is going to shrink even more. And once the supply-demand curve turns completely around, you are going to see the bargaining power that buyers now enjoy disappear.

You say a lack of financing constrains the supply of homes. Are you talking about financing problems for builders caused by government regulation?

Moe: Yes. And those regulations are artificially blocking some development. I think that what has happened is that regulators and bankers have lumped housing in with the riskier commercial and office real estate that got the savings and loans in trouble.

Tippell: If something isn’t done about the credit situation, and soon, well, there are very few builders that can raise the money we need to do the sort of development we need to keep even with the growth of the population here.

Is it facile of me to suggest that whether banks and thrifts ever increase their real estate lending, money will materialize from somewhere once your industry demonstrates it is profitable again to build houses?

Tippell: No. I think that is true. But money from investment funds and Hong Kong and other sources also would change the rules of the game a lot, and it would affect our ability to build large projects. In much of the rest of the United States, they don’t have the large tract developers as we have in Southern California because they don’t have the volume demand we have. But we have a demand that isn’t going to go away. We builders are here because people want to live here, and to build in the volume necessary to satisfy the demand, we need high-volume builders. And they need the large loans that banks and thrifts traditionally have made.

Many area builders are prominent Republicans who expressed shock last spring when developer Kathryn Thompson backed a Democrat for President. Now that Bill Clinton is in the White House and Thompson seems to have his ear on housing issues, has she stopped being a devil and become St. Kathryn?

Moe: She is a very bright person, and she is taking a good message back to Washington for us, so that will be very positive for the industry. I think this is the start of some bipartisan efforts to find solutions.

People are no longer quite so loath to talk to the enemy?

Moe: I think that’s it. I was recently at a two-day conference in Los Angeles, sponsored by Claremont College and the state Environmental Protection Agency, to discuss market-based solutions to our environmental problems. Businesses, environmental groups and government all were represented, and people on all sides talked together about ways to resolve things. We cannot have the wagons circled any longer.

Tippell: We certainly have had enough rhetoric. There have been several major efforts to find solutions, like the Kemp report on barriers to affordable housing (by the George Bush Administration’s Secretary of Housing and Urban Development, Jack Kemp) and the California Competitiveness Report. But both are just gathering dust. I haven’t seen a great deal of action. Now we have the California Economic Summit meetings that (Assembly Speaker) Willie Brown and (Gov.) Pete Wilson have put together, and I just fear we are going to be bogged down in more bureaucratic and political nonsense.

So what can your groups do about it?

Tippell: My goal this year is to ensure that we communicate much better among ourselves. Southern California is a pretty widespread area that covers five counties, and there are BIA chapters in each one, but liaison has not been as good in the past as we would like it to be. Our focus is on government and legislative programs, and we are facing more regionalism in government that affects us all, so builders in each county cannot be parochial.

Is that a call for preemptive strikes? Should the building industry do things such as work with government to pre-plan developing areas so the input of the builders that would be building there is considered?

Tippell: We do that through our individual members who serve on various boards and agency advisory groups, and through associate members who are land planners whose companies do the general plans for government agencies. But it isn’t an institutional thing. In fact, in these difficult times, with companies laying off and cutting back, it is very difficult to get volunteers who have the time to spend on things like this. It is one of our problems right now.

How about the Orange County BIA chapter? What would make your year as president fruitful?

Moe: In addition to the broader issues, one of my main goals is to do what we can to help each other survive. I want to encourage BIA-member builders to use BIA-member subcontractors and associates (affiliated businesses, land planners and interior designers). To make that work, we are asking them to fill out forms that list their qualifications, and we will keep them in a central registry. And one of our members, A-M Graystone Homes in Newport Beach, just announced that it will only do business now with BIA member subs who are in the registry.

How will the building industry proceed once this recession is behind us? Have people learned enough to end the kind of boom-bust cycles that have always plagued the business?

Moe: The businesses that are still here already have learned and changed, otherwise they wouldn’t have survived. I think we’ll see fewer and large builders and we won’t have the huge volume development we’ve been used to. Instead of starting 100 to 500 units at one time, builders will do phases of 12 or 15 or 20.

Tippell: But I think the industry will always go through some sort of boom-bust cycles because we are heavily affected by supply and demand, and which is in front of the other. Although those of us who have been in the industry for a long time would love to see it stabilize. The joy of having lotteries for buyers is a pretty short-lived joy, to be frankly honest.

The Southern California landscape has been shaped largely by the availability of land, so that developers could spread out and not build up. With all of our environmental concerns and traffic problems, is that changing?

Tippell: When you take into account the high cost of transportation, the air quality problems from our commuting lifestyle, the disadvantages of having to travel an hour or more each way to get to your job--all of these things tell us we need more urban development.

But life as we know it is dependent on the single-family home. Builders have told us that for years. Do we need to be re-educated?

Tippell: I definitely think we do. If you look at the demographics, the nuclear family of a husband, wife and two children is less than 50% of the population of Orange County now. Yet the typical Southern California house is twice the size of the typical house in most nations.

So is there a place in Orange County for 30-story condos?

Tippell: I’m a Londoner, so I’m a lot more comfortable with urbanization than a lot of people around here. And in the 16 years I’ve been in Orange County, I have seen a lot of growth. We have an array of fine restaurants and theaters; we have the Performing Arts Center. But I don’t see the kind of high-rise housing you have in big cities. Remember, a lot of people came here to get away from that. I think the kind of development you see at places like the Metropolitan (a four-story condominium complex in Irvine near John Wayne Airport) is what we’ll see for a while yet.

Moe: There are economic and environmental pressures to create more efficient use of everything. To have more efficient land-use, we need to have more units per acre. That is a major factor in providing homes people can afford and in reducing traffic by intensifying housing in central areas near our job centers. Examples in Orange County include the design of newer planned communities like Aliso Viejo and Rancho Santa Margarita. They radiate out from a core that mixes higher-density housing and businesses. The low density development is at the outer edges, and everything is linked by a system of walkways and bicycle paths.