The Feudal .
Future Podcast .
Hello and welcome to another episode of the Feudal Future Podcast . I'm Marshall Toplansky , I'm Joel Kotkin , and today we are going to be tackling a subject , joel , that we have been railing about for Beating to death , beating to death for years , which is what's the deal with , why we can't build houses in Southern or Northern California , for that matter .
And to help us do that , we've got two wonderful guests with us Gary London is senior principal at London Motor Advisors and a specialist in real estate economics , and Jennifer Hernandez , our good friend . Welcome back .
Jennifer is senior partner at Holland Knight and her focus is on environmental law and on project permitting , and she just shared some very interesting data with us from the Building Industry Association of Southern California that looked at the change in building permits for both single family and multifamily homes 24 over 23 . And the numbers were astounding .
We keep talking about how we need to build more homes and the permits were down an average of 30 percent to 40 percent , and they were at a low level of stock . Yeah , and this is so . What in the world is going on here ? Why is it we can't get our act together ? Joel , you want to ? Yeah ?
I want to start off by , besides these astounding numbers that Jennifer just shared with us . She has a report out now on housing in California and it seems to me we pass a million housing laws and it doesn't do any good . Is that basically the message ?
Yeah , with the exception of making it much easier to build what are called accessory dwelling units or pool houses or granny flats on your own single family lot .
We really haven't moved the needle on housing production , and the only reason it looks like the needle's flat is because we've really increased the number of these small cottage type or converted garage type .
ADUs . Do they count cardboard boxes in downtown LA as part of that ?
Three room tents minimum . No , just kidding .
You know what's interesting about ADUs and I come from San Diego . The city of San Diego and some of the other municipalities down there have been very aggressive about adding ADUs . The problem with it is that most of these ADUs are not being built for people to be housed in .
They're being built like my ADU for people to have their office in or to get away from the kids or to have a guest room or a home gym or something like that .
So it's not really part of the housing picture the way it was expected to be , and UCLA's planning department chair , mr Manville , reported just that to the assembly select housing committee . Onit Reform just about a month ago is ADUs are great but they're not really stable housing units yeah , don't get me wrong .
I like the ADUs . Well , what was the reaction from the legislature after having heard that ?
You know that was a very tough conversation he had . He opened that session on permitting housing because he also made the point that inclusionary housing units , requiring 10 or 20 percent of new apartments , say , to be deed restricted for affordable housing , are also not stable housing units . Nor are they making anything more affordable .
They're making things less affordable .
Well , it comes to economics , and this is what we do in my shop .
Essentially and this has become a big issue in terms of the numbers that you were just citing by having to add 10% or 20% or rising percentages of below market rate housing , you're challenging the very feasibility of projects , the bottom line being is that there's very little profitability in going forward because these are not profit building units and the projects
aren't being built , and so it's basically backfiring as a rule .
Can I unpack that a little bit , or can we unpack this a bit ? You know , this is the professor in me , the economics professor . You know , this is the professor in me , the economics professor .
When you say a project is not economical , you know , I usually think of it in terms of , well , what is the cost of it versus what is the price you can get for it , and you know what's the cost of financing . Do the lines ever cross ?
But my sense is that there are some things in the calculation of costs that are driving up the fundamental disequilibrium of economics . What's going on with that ? And then I suspect , because I'm pretty sure , there's a lot of legislative or regulatory issues involved . I want to hear about that , but let's start with that . Where are the cost out of whack things ?
Well , first of all , it's not just that the costs are out of whack , it's that we've reached a revenue ceiling in most of the higher end coastal markets , in California in particular , whereas we just can't ask for more rent . And so you have that sort of straight line revenue side . And then , when you go to the cost side , every aspect of cost is going up .
All the factors of production , land , labor , materials , money , cost of money they're all going up , and some are going up faster than others .
Obviously , land is more scarce and the biggest factor in terms of the margin of profitability has reduced to the point where , when you couple it with regulations and the time and the uncertainty in the economy right now , you're just not getting housing bills .
And before we go to get Jennifer's take , I think it's very important that the paper that Marshall and Ken Murphy did recently , which is not only , you know , because people talk about affordability , but part of it is that the consumer doesn't have the bucks because we're not creating the high end jobs .
You know , when we were creating lots of housing in , let's say , southern California , there was a huge aerospace industry . Or in the Detroit area with the car industry , or Pittsburgh with steel . Those things are gone yeah .
Well , the last . Just a quick stat from the report that Ken and I just did . Seventy nine percent of the jobs that were created in California in the last three years pay less than the median income for the United States , not just the median income for California , which is higher than the median income , but below the median income of the United States .
So we have a much higher cost .
Yeah , where are you going to do that ? But over to Jennifer on this . I hear you . I hear you say land costs are the biggest driver . But pretty much how big is the regulatory piece of this ?
So I'll answer in two ways . One , the regulatory piece and as a lawyer you can imagine that's the prism that I look through every day is an incredible driver . So we say land costs . Well , guess what ? Only 6% of California is developed , and it's a huge state , and other huge population states run around 10 , 12 , 14% , new Jersey's over 30% developed .
So anytime you put a constraint and this is a regulatory constraint on opening up more land , what happens is the cheapest land available becomes the most attractive for the next wave of real estate development . Who lives on the cheapest land ? The cheapest land is typically occupied by lower income residents and that's the whole gentrification argument .
The other part of the regulatory piece which I talk about quite a bit in this latest article for Chapman is we have decided that human beings need to live differently because of climate change , and California has pioneered that with two demands One , that we live in small rental apartments and two , that we take the bus and we can walk or bike as well .
But less than 2% of us take the bus or walk or bike , and those are in very discrete neighborhoods .
In fact they're in very discrete corridors of very discrete neighborhoods and not available most of the place and then the form of housing that's desired is an apartment project , the cheapest form of which is called five over ones , five stories of apartment over one of structured parking . Cheapest possible form of higher density housing you can get to .
Form of higher density housing you can get to , and with lots and lots of drama the UC Turner Center , uc Berkeley Turner Center stepped in and kind of cut through a lot of rhetoric about oh , it's rapacious developers , it's evil banks , it's terrible insurers or whatever , and they just kind of calmly went through the cost structure and what the Turner Center
concluded is even if you don't have to pay any demolition costs , this is for a new apartment building . Five over one , no demolition costs , no cleanup costs , no infrastructure costs like a new substation because we don't have enough electricity at the moment . No prevailing wages , so no union jobs , no inclusionary housing , no environmental impact report , no litigation .
Even under all those incredible scenarios and capping all in fees at $30,000 or so per unit for all mitigation costs , I'll tell you I've never seen a project like that . I call it a unicorn because impact fees alone run $100,000 . Even with all of those incredibly optimistic assumptions , five over ones don't pencil in almost any housing market in California .
Now Newport Beach , palo Alto people make enough money . They'll spend four or five grand a month in rent , or more . Oalto people make enough money , they'll spend four or five grand a month in rent , or more . Most people can't afford to spend four grand a month in rent .
And once you add another , any number of those normal assumptions back into the equation , you're really designing a product that Californians can't afford .
And that's where our policy is . Well , which is insane , right , you think about it . But the question I have about that is in study after study , we see that people would prefer to have their own single family home . They want the , the Laban's room , right , they want , they want the living room for that . They like the that feel of it .
Are you saying to me that a five over one cost per unit is more expensive than a , let's say , a single family home in a suburban area ?
Absolutely . In fact , some of the studies have shown that form of housing on a square footage basis for construction is five to seven eight times more expensive than building a single family home or a townhome which is attached at the sides but not above and below .
So so people , people out there , this is counterintuitive .
Very counterintuitive , but this is counterintuitive .
Very counterintuitive .
I think if you have a more densely packed area , that your cost per unit is going to be lower . No , that's not the case . And do you think that our policymakers even have any sense of those economics ?
Well , certainly the bureaucrats I work with do and they say we have a climate crisis , we don't have a choice , the world will end .
Yeah . Well listen , I speak to a lot of policymakers , city council people , mayors , and , generally speaking , this is a function of our democracy . I mean , they don't have really the time or the inclination to dig into solutions that are long-term when their re-election campaign is always right around the corner , and I run into this all the time .
I'll give you an example of what we're trying to do in San Diego , right now . We're trying to make a basic change in terms of the minimum lot size from minimum 5,000 square feet , which has been on the books for 100 years in the city of San Diego , to 1,000 square feet .
In other words , cut it down from 5,000 to 1,000 , which we think would invite the opportunity to build what is perhaps the most significant deficit in the delivery of housing , which is family housing in urban areas . Open the door .
This would open the door for townhomes and row home style development which can accommodate families , albeit without a front or back yard , because the land component is so significant , mainly for the reasons that Jennifer cited .
So that's one thing that we're trying to do is create the right kind of density , because it's not just failure in the numbers , it's failure in the type of housing that we're providing .
And to go back to something that you said a moment ago , joe , with respect to the economy , you know when I'm on the rubber chicken circuit , what I always tell my audiences and my clients is that there's not a dotted line or a slash line between the economy and this housing issue . It's a straight line between the economy and this housing issue .
It's a straight line , if you want to know , why our public agents and why our young families , or prospective young families , are moving out , why our lower rung workers are moving out of the coastal markets . It's because of housing .
When you ask CEOs and presidents of companies as we have in surveys , basically the survey research version of what , as we have in surveys what , basically the survey research version of what keeps you up at night , the answer a hundred percent always is our inability to attract new employees or retain the employees that we have .
So ultimately we come to an economic nexus where , where these housing issues aren't just housing issues we're all housing experts around the table here . These really are economic issues and they go to the basis of sustaining our economies , in California in particular .
And two quick points on that . First , to the political question do elected leaders , policymakers , know the cost difference they find out when it comes to financing affordable housing ?
That's , deed , restricted housing available only to low income families or sometimes very low or special needs populations , and these are all publicly financed and that public financing is is transparent , and we've now hit and surpassed 1.2 million dollars in cost per apartment this is like a one wow prisoners are one bedroom , yeah in a five over one kind of in a
five over one context we've just in , and so everybody's . We can't do this . We get what is this ? And you poke at it , and you poke at it and you find exactly the same economics a housing . Here is a christmas tree for everyone to hang their favorite ornaments on , and and that's true for so it's a million dollars a unit per apartment .
Per apartment apartment so you think about that , right ?
yeah , it's it's north of 700,000 or 800,000 . In San Diego at least it's hitting these numbers . I guess these are mostly what Bay Area numbers .
San Diego . Sorry , santa Monica , san Francisco for sure .
The point is they're ridiculous numbers . It is ridiculous , can you think about ?
how ridiculous . That is Just a quick context . Yeah , so if it's a million dollars , forget about financing costs , which is like huge on top of it .
But let's say there were no financing costs and you had $50,000 a year in rent coming in $4,000 a month , which is already high for most people , which is not what these units are , it would take you 20 years just to break even on that . Yeah , I mean , that's crazy , right , and no sane financial source or entrepreneur would build a project like that .
Except that the public sources of financing do you get the tax credit and so forth . It's free money . You know who ? My clients who are prospering are the ones that are in the space of providing this kind of housing , this kind of of public housing , tax credit , below market rate housing .
My clients who are in the strictly pure private sector , having to sort of deal with this reservation of 10 or 20 below rate housing , they're the ones that are on the sidelines right now . Yeah , and it makes no sense at all because we can't provide enough housing .
Ultimately , it's a model that that's broken , but there's a whole ecosystem associated with providing this kind of housing in California .
Well , and you would think that somehow just take Southern California as an example somehow maybe it would be cheaper to build in San Bernardino or in Riverside County .
It is .
But the drop in housing permits , in building permits , was higher in those two counties than it was in LA , Orange and San Diego counties last year .
People are tapped out , marshall . I mean honestly , we just don't have enough people that have the incomes available , or what's left of shredded credit ratings available to to manage California anymore . And it's just brutal . And the people were being brutal too . Are the ones my party , democratic Party , purport to want to protect , and it's just a brutal collision .
I use the example . Is what if , instead of climate change , we were completely obsessed with teenage misbehavior ?
Just as a happenstance , talk about a hopeless cause yeah , exactly , and so answer is to have a child you need a bedroom and a bathroom for each child .
That's just the way it is . That is what we're going to do to avoid teenage misbehavior . Well , someone would say what are you talking about ? That's ridiculous , and we would all have stories of shared bathrooms and fights and whatever . And that's a good thing . You know , you kind of grow up a little bit .
On the one hand , or , on the other hand , our democratic socialists of America believe that there should be a complete redistribution away from current wealth distribution and , frankly , away from capitalism , and once that happens , this will all work out just fine , yeah , and where is the economic incentive to build anything , even under democratic socialism ?
It's not there . Well , it's certainly not there for people alive today , right , exactly ? Well , we do have AI coming in , which is good , so that we can , you know , potentially just have the robots build everything or no labor .
Well , no yeah .
Funny so so let's kind of look at , let's look at some of the answers here . Where can we go to try to fix the problem and what other headwinds are we facing ? I talked a little bit about tongue in cheek , about AI , but technology is obviously affecting where people want to live and how people live , but what are some of the solutions to this ?
Yeah , just one quick thing before we get into that is one of the things that I know jennifer and I've talked about is this vmt business with you ?
know we're going to only studied it right actually we've only going to build in places vehicle miles traveled , as what vmt stands for go on transit .
Well , if it's two percent of the population , it's not really necessarily a smart policy , right ? And the other thing is that with technology now , people have the option of living different places without having to be within a half hour of downtown San Francisco .
So I have a Tesla and I don't subscribe regularly , but occasionally they give me the full self-driving capability , as I have it this month , and it's pretty cool technology . I mean . Basically , if you have the guts , you can tell it where you want to go . Close your eyes , you don't have to put your hands on the wheel anymore , you can't do your cell phone .
It catches you and stops you . But if you close your eyes and pretend that you're not driving , it gets you there and it's very , very efficient . So think about this , think about full self-driving , autonomous automobiles .
This is Alan Berger's argument , absolutely .
Think of it as a train without tracks . So I used to travel . When I was a partner with Price Waterhouse , I used to travel from San Diego to downtown LA a couple times a week . And what did I do when I traveled on that train ? I was on my cell phone . Sure , I was on my computer . I was working On the way back .
Maybe I was drinking , but you know , the point is is that I was being productive . If you think of an autonomous automobile in the same way , whereas people can be productive in a vehicle that's independent of the fixed rail or anything like that , then what does that do with the shape of our urban system ?
It means exactly what I think you were about to infer , which is that people can live further away . People aren't as tied to the metropolitan areas as they used to be . Now that's a devastating comment for downtown LA or downtown San Francisco , places that have invested in sort of the old model of people coming in and commuting every day .
But we're in California and the Western US is vast and empty , and we're entering a world now where we're becoming a footloose society , where people are not tied to where they work anymore in the way that the old cities were formed .
You know , the way cities are formed is , you know , by industry , next to the river , next to the ocean , next to railroad tracks . That's where the city was . All that's out the window now .
So we're in that nexus point , that moment of transformation , and the problem is is that the public agencies local , state , federal haven't got clued into this and they don't know how to deal with it .
Well , I understand , like , for instance , remote work , which is part of this whole equation . When we've asked the state of California , don't they basically say , oh no , remote work is bad for the environment ?
Yeah , sure , and this is the basis of EMT .
Yeah , that's the point .
Yeah , and it's important that , even though VMT regulation was kind of born in the crucible of wanting to reduce greenhouse gas emissions , that structure applies even to electric vehicles legally . It's crazy , right ? No , it's not , because part of the climate regime is not building out anywhere for anyone .
And so if another goal this is the Christmas tree issue , right . If another goal is never to convert another cow pasture next to a freeway interchange to housing , then VMT works fabulously . And VMT , our goal right now is we should drive as a state two and a half times less than the pandemic lockdown and guess what ?
It's okay if we get there because we have fewer people or fewer jobs . It's a very much .
So the out migration of people , out migration , is good . Plus , yeah , even though global warming is a global phenomenon and even though we can't make the state finances Pencil Pencil If you don't have the people here , by the way , much less not just the state finances the locals we're .
We live in this , in orange right , city of orange , 18 million dollar deficit . Why , well , sales tax is down because people aren't shopping in town , they're shopping online . Uh , no metered parking . I mean no tot's done the business model of government is screwed up .
Well , and there are solutions . I mean , that's the tragedy , right ? There's nothing more , I think , dynamic than an evolving city . Brooklyn wasn't born Brooklyn , it was born a cow pasture , and before that it was not even a cow pasture .
You know , we used to have single room occupancy rooming houses that were low cost , that had pluses and minuses and differential quality , but right now we have just floors and floors of high rises that are empty . So why exactly aren't those dorms for people who want to work , just like the firemen and women who bunk a couple three nights a week ?
It's just one of the many ideas , but we've made even adaptive reuse and reconstruction of buildings almost impossible because of building code and other regulatory constraints .
So , on the piggybacking on that , one of my recommendations would be to bring back redevelopment districts , because essentially what we have in the downtowns and we're working in downtown LA on buildings that you know you can only do certain things with these buildings that are empty now or almost empty .
You can demolish them , you can wait till they hit lower rent levels and see who can occupy them affordably , or you can adaptably reuse them and you know , not every building is adaptable , but many are .
So what we need to do is invite the state back into the redevelopment business on a positive basis so that we have the tools in our sort of public toolbox to reinvent the buildings that exist . I think that's really the only next step for a lot of these buildings I have a more radical idea , which is we ought to also allow for development in the periphery .
We have to .
I mean , you know right now , you know , Guy , we all know is building manufactured housing in Riverside at $350,000 , $400,000 a shot shot right I don't understand why we isn't that well , the ultimate solution is we just got to build more housing , right , you know , we got to build the right kind of housing and it has to be in those places , because that's the
places that are supportive of the kind of housing that can be built affordably for the target markets that aren't being , you know , uh , supplied to at the moment well , and especially with land costs , the way you were describing them , although if we see more and more people moving out of central cores , um , maybe the value of land will go down who knows that's
been speculated for a long time not likely not not , has never showed up . Well here's the problem with that . You know this goes back to climate change . Southern California is kind of a climate change Goldilocks zone .
If you go to downtown San Diego and you look at all the luxury high rises that are in place there , about 50% of them are owned by people that don't live in them full time .
Exactly If you walk into affluent communities which is true , by the way , in New York too , yes , if you walk into affluent communities like La Jolla I don't have the stats , but it just feels like one of our every three or four homes is is dark because their own international market . Why is that ?
It's because these markets , these Southern California coastal markets , are attractive from a global perspective to people that can afford to be where they want to be . And because of climate changes you know weather and heat and cold and turbulence and all that stuff our markets actually become more attractive . That may be what's causing it .
It's what our former president , Jim Doty at Chapman , calls the amenity premium . We are providing amenities in Southern California that are just not available elsewhere .
I mean it , just it goes to you know , why are people willing to pay higher taxes ? And you know , put up with all kinds of stuff that we're all complaining about tables because we like it here .
Well , apart from liking it here , it really is pretty stunning . But it's a home , and it's a home for millions of people who grew up here who are now finding they're priced out , and I can't tell you how many parents who've lost kids to other states or you know , we all teach , I suspect , and how many of my students are leaving California ?
how many of the tech employees ? Once they hit 31 , 32 , they spent all their money on rent and they've had a great time . They're , like you know , post-grad dorms really , in some respects , these luxury apartment communities in high wage areas , but they're ready to settle down , raise a family and there's just not a viable option .
Those are the ones that are yeah , but according to the IRS data , that's you know , 35 to 54 , making between 100 and 200 . Well , and .
Wendell Cox just wrote us a note the other day talking about how just the broader demographic trend is toward the south and toward not urban core areas in the south , toward kind of the second tier markets , and that seems to be where the big migration is going .
Absolutely , absolutely .
And the thing is that the country is playing game A and we're playing game B .
Well , but we're playing game B , at least in my judgment , to the harsh detriment not only of people who don't have a place to live who tend to be younger than the four of us and I mean a place that they can attainably afford to buy and start building multi-generational wealth but also the state's focus so far has been to mandate local government approve housing
, and the problem with that is they're mandating approval of a form of housing that Californians either can't afford or just don't want . There was a famous fight in Berkeley , where we live , at a BART parking lot which is in a single family home neighborhood .
Vehemently opposed , finally recognized the need for density , approved a high rise and and with 30 , affordable or something , and , of course , prevailing wage and other benefits and the the pro forma rent for the two-bedroom unit was 8800 bucks a month . Wow my god and if you have 8800 bucks a month to spend on housing you .
You're not in a BART parking lot , right , and there was just this and continues to be this kind of like local government .
It's not .
It's not it's not nothing's broken ground . We find that there's tens of thousands of units haven't started construction .
The fixed rail system in San Diego , the same conundrum , whereas the people who actually ride the rails , which is the incentive to create density along the stations , aren't the same people that can afford to live in the units that are being built there . So the units aren't really being built .
You know , certainly at the moment and it's you know , it's a complete disconnect what we can .
Sorry , but what we can do is just be a little more mindful of what we can afford , what we can afford every day of the week and what my clients in the private sector they're being most successful by far are building townhomes , detached condos which have little spaces between walls but share a parking area and don't have their own big yard or anything .
And you know , we actually have as much of that as we can build . We're selling as quickly as it sells and you can wedge those kinds of communities into odd shaped parcels . You're spot on .
Yeah , and so that's where the market is today .
It's an infill game we can do infill , but we cannot . Connor Daugherty , the housing reporter for the New York Times .
Conor Doherty , the housing reporter for the New York Times , has this great observation , which I think is true , that in a democracy , the only time we've tried to impose this infill only regime , we've wiped out Chavez Ravine or we've wiped out the Fillmore . You have to displace . It's full , not full to ideal , but full and then you end up .
Well , let's find some place . That's not so full and it's cheap . So we have to go out and we can build sustainably out .
So I want to get back to something that you just dropped an interesting point on . So the rest of the country's playing game A , we're playing game B . Is it as simple as ?
playing game A or is there a ?
game C . Well , first of all , there is no such thing as a national housing market or a national solution . Everything we're talking about is local . There are obviously similarities between San Francisco , la or in San Diego , so there's no one solution fits all that .
As long as the price of all those factors of production are higher along the coast , particularly land , because it's a function of scarcity , we can sort of take solutions that are achievable in the smaller markets and the middle markets and sort of put them into our markets . We have to create our own sort of profile of what our housing looks like .
I happen to agree with Jennifer a thousand percent that that profile is a different kind of single family housing which is clustered together . I think the target doesn't have to be just built in the hinterlands , although that's something we got to do , more of it's .
Also we have to look at our old suburbs that were built back in the 50s and 60s and 70s and they're getting old . The people that live in them are getting old , like us , and we can densify those markets with this kind of housing solution .
Well , I think it's a question of how you do it , because you know , if you wipe out single family districts and you make them .
I mean , I know that if my neighbor decided he was going to build a fourplex next door , I'd be looking to move as soon as possible , but your , your , your lot would become more valuable , so you can move more affordably other places .
Well , I mean , but I like where I live , but but I think that that that the I think is increasingly that it's a certain kind of way of life that they want . I think that , if you know , I've been spending a lot of time in the South LA cities .
It's really interesting , like Downey and Lakewood and Cerritos , and they're doing great and they have a lot of single family homes . They are building some density around their downtown . I mean , the transit connection is kind of a joke .
We know that we've wasted God knows how many billion dollars for getting very little , but I do think that there are ways that that . I think one of the problems the cities have is they're so badly managed that there are huge parts of the city that you would never think of living .
I mean , when you drive from koreatown to south korea , it is the third world and not in the best . You know it is really . The streets are cracked , the stores are empty , it just it looks like like Mumbai on a bad day . I mean that's really what it seems like .
And so what happens is there are all these parts of Southern California where there is housing of all different kinds , but who's going to want to move there , you know , and particularly if you have children , because the schools are terrible .
And then there's public safety challenges too . So I mean , I think all of that's true . I also frankly think all of that's been true forever for some cities . Some of the time , and we don't give up on , you know , remaking a city , Obviously in the suburban context .
We've got dead shopping malls , We've got , you know , some pretty adventuresome opportunities to build new communities , and we can purpose build new communities that are much happier in terms of environmental sustainability . That's just designing for that objective . So we can do that . I didn't mean to interrupt that .
You hit on something that we're doing a lot of . A lot of my clients who own shopping centers , or because they bought them from shopping center owners , who realized that their commercial product is vestigial . They can't you know they can't fill them anymore . So what are they doing ?
You know we're working on on regional shopping to regional shopping center projects right now that , uh , the dominant new use will be housing . It won't be the elimination of shopping , it'll be the compression of it .
So we can be very creative in terms of how we adapt to the demand for the , for housing , which we're in such short supply of , by taking what was formerly commercial property , commercially zoned property , like strip properties , and and adapting that , adapting that to well and creating .
I call that the village model right the idea that you're creating an integrated commercial and residential and theoretically , someplace where people maybe drive less because they the ultimate transportation solution is not to ever have to get into transit whether it be public or private .
Don't go anywhere . You can just walk to the store .
But one quick thing , just thinking about the big picture of what you're recommending and what you're recommending , the answer doesn't seem to be in overturning specific pieces of regulation for environmental protection or these kinds of things .
It's really more a question of getting out of the way of the marketplace , getting out of the way of creative entrepreneurs , while still obviously maintaining standards and things like that for safety .
And the other is to make sure that when people are are conceiving of these projects , that somehow we educate the policymakers on new models , and it doesn't sound like that is really happening much . Is that fair as a big picture overview of the you ?
know of the . I'll take the first one . Maybe you can take the second on whether the you know policymakers really understand . As to the first one , there are laws that we cannot overcome .
If , no matter what , we all decide through our elected representatives at the local state level , if we can still tolerate anyone who's unhappy for any reason can sue , even anonymously , we're toast Because as long as that leverage point exists and that's the California Environmental Quality Act for any reason can sue even anonymously , we're toast , because as long as that
leverage point exists , and that's the California Environmental Quality Act , then this stays a Christmas tree , because you live in fear and often futile hope that , oh , if I just put this one more Christmas tree ornament on and put this cost on , maybe the market will be stronger and maybe these people won't sue , is that ? Fixable , absolutely .
Well , since the lawyers control or state level is fixable .
Well , you're the lawyer at the table , since your lobby controls the state legislature .
It sounds like the constant period of endless challenges to environmental reviews has got to stop .
It's just got to stop . We have to have a one and done structure . If you want to sue once , fine but , then we got to build for the next 20 years . The other part of this which I just don't want to walk away from is at the federal , state and local levels we seem to have lost institutionally a notion of hierarchy .
So we had one of the testimony presentations in the housing hearing was from a LA affordable housing developer using only private financing , thinking there's enough Section 8 vouchers to actually make the project pencil right , using prefab housing units in a stacked apartment design , 80 percent done .
An inspector comes by from the city and says , oh , you need a third stairwell .
Yeah .
And there's no governor in place to say to that inspector no , it just is bollocks up at the at the department dysfunctional level .
Same thing with that person had the purview to be able to Absolutely and and shouldn't have , but does , because we don't .
We don't have an ethic of holding people the same thing at the state , the Department of State Fish and Wildlife , which is supposed to , among other things , protect endangered species , there's one person in the state who now is a quote queen bee .
We surprisingly listed a bee for the first time in history through a judicial decision , not through a legislative act a bee as a candidate species for protection , but it's entitled to full protection under our law . And this one person has the entire state by the throat as she thinks about . Well , I don't know , and these bees don't live in the same hive .
Every year they move , and how rare are they anyway ? So we have no alignment between that agency , department of Fish and Wildlife , and the state's supposed devotion to housing . We need a little bit more return to governance order and without that we can write as many laws and get rid of as many lawsuits , it'll still be dysfunctional .
Yes , that's right . So CEQA clearly is an issue and that's something we complain about . My developer clients complain about all the time . We need all the things that Jennifer suggested and more . The other big issue is insurance liability insurance . We're not building condominiums for sale . All we're building .
This is part of the disconnect of what we're building , not just in numbers but in type .
In San Diego and this applies to mostly other coastal markets we're building mostly apartments to one segment of the housing market which has basically been satisfied at this point been satisfied at this point and to the detriment of people that need and want to purchase a home .
My first home when I was a young man was a condominium that allowed me to enter the market and move up into , ultimately , the bigger and more expensive homes later . It's the source of most people's wealth and you have to start out with condos . We're not building any condos at all and the reason for that is because they're not able to be underwritten .
So part of it's financial , but the big part is relative to apartments At least that's been the case over the last 10 years .
Construction liability issues associated with basically HOAs and others that have a 10-year run to sue their builders and their architects and their contracts to the point where no one wants to participate in the delivery of this kind of housing . So that's a huge issue in my industry right now .
So lack of alignment and that can be cured by the state in my industry right now . So lack of alignment , and that can be cured by the state .
Well , it sounds like everything here can be cured . Everything can at some level . And then you have to manage people .
So we need the alignment commission instead of the government efficiency , whatever the doge is that is being done .
We actually need a government alignment initiative and we know that this could work . You know I'm now affiliated with the University of Texas and so I spent quite a bit of time there and we'll be going there . Jennifer's also participating in some of the things we're doing in Texas , austin , about the hottest market in the country in the last decade .
Prices are going down because they overbuilt . That's the way it's supposed to work , right the market . You build too much and then and then it gets cheaper . It's like when when I've almost every time I bought a house , it's because the guy who owned the house spent too much money on something you know and therefore he had to sell and and .
But in in Texas they , you know , they build the housing that they need and some and that gives you , but in California there doesn't seem to be any of that .
Well , and I guess my , as we kind of wrap up here , is that a model for us in terms of government alignment . Does government in places like Texas align itself from state down to local , or is it just luck ?
I think it's less government period State and local is the first answer . The second answer , though , is I think you could go some distance before finding operational cultures that are more different In California . There's a huge section of Californians who identify as environmentalists . I'm one of them .
One of the reasons we like it here is because it's a beautiful environment , but there is a massive subset of the environmental community that wants to de-grow , believes California is over its holding capacity and , as long as this housing market continues in its catastrophic form , they're getting their wish . People are leaving Texas . That would be crazy .
No one in .
Texas would say we're not going to grow to accommodate people's needs .
There are also people moving there in large numbers , particularly young people who want to buy a house .
Young people want to buy a house . Well , I always tell people that the best no growth policy is to eliminate , you know , the opportunity for new growth . But the problem with that is then you become Detroit and the problems associated with a failing economy . I know Detroit is sort of coming back , but I've been using it for so long . I'm going to continue .
I'm not talking about their football team .
The point is that if you ultimately suffer a regional economic calamity , it's far worse in dealing with sort of this no growth issue . The other thing that we didn't talk about , which is sort of what I was alluding to earlier , is the city of Houston was famous for no zoning .
You know , basically zoning is something that's been around for 100 years , based on the philosophy of separation of uses , and everything we've been talking about around this table is integration of uses , the village concept and everything you've and even talking about Jennifer .
So we really need to revisit sort of our philosophical concept of how we govern the regulation of housing . At the very least go to form-based zoning but eliminate the idea that you have to have zoning codes and so forth in place . It would save a lot of time and effort , compress bureaucracies too .
But , by the way , just because I do spend a lot of time in Texas . The city of Houston has what they call covenant , so otherwise it's effectively zoning . They have ways of regulating Right . So what you do is but it's the best of both worlds , there's lots of opportunities to build denser housing .
You know , do all sorts of interesting things with , with with development and , at the same time , protect your single-family neighborhoods .
Because what worries me particularly here in california is we're just wiping out our middle class and that , you know , the middle class will end up being a bunch of us , all the cockers well , you can't ignore , you can't ignore the national trend , right the .
The national trend is toward populism , basically right Toward , in the literal sense of that word . Let's include let's make life focused around the middle class , let's make life focused around everybody .
Well , there is a movement that I have some hope in that's come up now , mostly left , some right , pretty strong kind of libertarian undercurrent , but still , you know , believers in government and whatnot , mostly 30s and 40s age range , and they call themselves the abundance network and the idea is it's crazy to think we can't add a mile to a freeway .
It's crazy to think that we can't improve our carbon footprint . It's crazy to think that we've stopped innovating . That's all it's boomer craziness and it's not for nothing . We all may remember , you know , that kind of me generation . That's us and we've created this amber that we're all stuck in right now .
And the kids are coming up and they're not such kids , they just have kids . Now they're paying attention because they have kids and they're like this is ridiculous . Who set this up ? There's a law professor . He calls it procedural fetishism .
You know the idea that you can sue over anything anytime Came out of Ralph Nader's kind of consumer protection thing , because Nader was a lawyer from Yale . Why not sue ? That's the right answer to everything . There is hope , but it's going to come at a cost a generational war cost , and that's populism .
It wasn't as though the generational change that we were associated with as boomers didn't come at a cost .
Exactly right , it seemed to know .
It's seen to recall a great deal of disruption in the 1960s and 70s , but of course my brain as a boomer is starting to fade , so maybe it isn't true .
Well , it might have been a little cloudy at the time as well .
That's true , that is true .
Well for , the first time , you know , the sons and daughters and grandchildren of us are facing a future that isn't as prosperous as our present is , as our future was when we were that age . To me , that's a catalyst for change .
Yeah , but I think the point that you're making is our parents didn't make it prosperous , didn't create prosperity for us . We created it . We looked at this . What was an ossified world coming out of World War II and said , hey , we want to do things our way . You know , I look at my kids . They want to do things their way .
They have a different set of tools . They have social media , ai , a gazillion different levers to pull than what we had , but hopefully they'll be able to come up with some creative , innovative solutions to win .
So I want to run this hypothesis by you . So when we were coming up I was given in fifth grade their choice between being a secretary , a nurse , a teacher or a mother Catholic school , fifth grade . We blew that up . We totally blew it up .
But what we did when we weren't blowing up social constructs was make it impossible to build that our parents didn't do to us . They never said don't build . That's the evil from my perspective , that we are visiting on the next generation and we need to own Well but by your own argument , by your own argument , it's not impossible to change that .
Of course it isn't . It's easy enough . So all we need is the will . We need our students , who you know may not be entirely tuned into this , to kind of become aware of it Right and understand what the issues are .
And stop being depressed that it's all hopeless because the world is going to end .
Hopefully , hopefully , there'll be something beyond the feudal future .
And speaking of the feudal future , it's been wonderful having you both this has just been a tremendously stimulating conversation , and this is a topic that will come up again and again , and not just in California , but many parts of the country and , by the way , the rest of the world .
I mean , I do a lot of work in the UK and their situation , I would say , is in many ways worse . And so you know , I think , I think this is an issue we'll revisit for sure .
And it's interesting , we haven't touched on immigration homeless you know any of those other big issues that are all tied into this , as well , we'll get to them .
This is the only issue .
Thanks again .
Thank you again for being part of the .
Feudal Future podcast and we hope to have you back soon .
Thank you Thanks .
The Feudal Future Podcast .