The B&D Interview: Dan Dunmoyer, President & CEO, California Building Industry Association

Dunmoyer discusses the homebuilding market’s current trends and where the industry may be headed from here

Builder & Developer: What trends have you noticed that are shaping the West Coast housing markets differently than those in other parts of the country?

Dan Dunmoyer: We have a tremendous interest as a state and as a region on environmental issues. From a housing perspective, we’re seeing a lot of focus on solar power because it’s going to be a mandate in 2020 for us. We’re seeing, therefore, more focus on energy efficiency. Because of the impact of regionally powerful fires, we’re seeing a focus on hardening homes. From a California and West Coast perspective, we’re seeing more of a focus on energy-related efficiencies, water-related efficiencies, and more secure homes than we are anywhere else in the country.

That also then colors the floor at PCBC. You’ll see a lot of energy technology and efficiency being included amongst a whole list of other key players.

 

BD: Have you seen any effect of the decisions being made for resilience and efficiency in the CA market affecting markets outside of the West Coast?

DD: Some of our builders will build a similar home no matter where it’s located, so they will take some of those efficiencies and usually offer them as consumer choices. In California you have to have higher levels of efficiency, so they’ll offer it as a benefit or consumer option for a homebuyer in other regions. Instead of it being mandatory in Texas, or Utah, or Arizona, or any other state, builders will say, “Hey, we do have a solar power mechanism. We have batteries and other things. Would you like to opt into this and pay a little bit more, but have these resources available to you for your home?”

In California its mandatory; in other areas, they’re using it as a consumer choice. People are accepting it and opting into it, especially in the Sun Belt states. It’s an opportunity.

 

BD: How have you noticed the housing market in the West change so far in 2019?

DD: This is one of our slower quarters, so compared year-over-year, we’re down for 2019 versus 2018. For 2019, we’re starting to trend back up to numbers we were in in 2018, and 2018 was a bit better than 2017. We’ve been in a growth mode of housing permits pulled.

These numbers are from a group that has the Construction Industry Research Board (CIRB)] Report. This is an independent study that we use regularly to determine how the housing permits are really working.

We saw increases over the last decade from 2009 to 2018, and then in 2019 we started to see a slowdown, which compared year-over-year to 2018. Then, in the first quarter of 2019 – although it’s a slowdown compared to 2018 – March is better than February, which is better than January.

We’re hopeful that the winter was just a quieter quarter for us, and that we’ll see things start to pick up in spring of 2019. For the first time in a decade, we’re starting to flatten out, if not decline a little bit. That’s one of the bigger things we’re seeing here in California and the West, as compared to what we’ve seen in the last decade. Now the question is, will spring pull us out of the first quarter slow down?

As an association that represents homebuilders, you really want to be in a place where your members are doing well and are able to sustain their levels of engagement. As things slow down, even if it’s a modest slowdown, it puts pressure on everyone to find ways to do more with less.

 

BD: What economic factors do you think are having the largest impact on the Western home markets and how so?

DD: The challenge in cost and complexity of California is growing the markets of Nevada, Arizona, Oregon, and Texas. We are seeing, interestingly enough, a lot of activity in California. But per size of population and per capita, housing in the neighboring states is growing far faster and far more powerfully because of the fact that it takes so much more time and costs so much more to build in California. But it’s a twofer, as it gets more costly and complicated in California to build, and it takes more time.

We’re seeing regional markets grow faster as people exit the state. Or they just find that, from a retirement perspective, it’s an easier place to locate for tax and cost reasons in a neighboring state. That’s been one regional impact.

As far as California itself, we built about 118,000 homes last year and probably 117,600 is our estimate of permits pulled for 2018. We still saw one of our better years since the Great Recession. The number of housing starts in California is still not keeping up with its population growth. California has 40 million people now, and our roads and infrastructure were built for basically about half that population.

 

BD: What is your forecast for what to expect from the homebuilding market for the rest of 2019?

DD: We’re going to go positive here. Even though we started out slower, we’re seeing this trend, and that part is factual and came from CIRB – it went down in the first quarter but it’s starting to climb out. Based on the climb from February to March, if we see a similar progression, we at CBIA, as well as at CIRB, are going to project 2019 at 124,000 total projected housing units. This is both multifamily and single-family. Last year, we were at 117,600 permits pulled, and we’re going to project 124,000. We are seeing a trend to move up.

We’re also still seeing Federal Reserve Rates that are lower than they were a year ago. It appears there is no pressure to raise rates. If we can get another two to three quarters of lower interest rates with a slow but steady climb, for 2019 we’re going to project 124,000 permits pulled.

 

BD: What advice would you give to industry professionals at the halfway point of the year in regards to land and finance?

DD: We’re really bullish. We’re hopeful, because we do have a governor who ran on addressing the housing crisis. Governor Gavin Newsom has made housing supply a priority for him. For us, it’s taking advantage of that energy and support from the highest official in the state of California to look for ways to improve the process of delivering housing more affordably.

As an industry, you kind of get the, “Woe is me” mentality, especially when you’re building in California. But when somebody is asking, “What does it take to build more affordably?” we as an industry need to (1) support the governor, and (2) come to the table and create a solution that can be helpful in addressing this ambitious goal of his.

On the finance side, we need to make clear that keeping interest rates down is a great tool for us to keep more people in the marketplace. We know that for every $1000 in added costs to a home, it takes 10,000 families out of the homebuying marketplace. These statistics come from the National Association of Homebuilders. For California, we want to make sure interest rates and financing are still very competitive and keeping at the current place as opposed to where it was nine months ago is helpful.

The industry does need to be creative and show a path for the homebuyer and show there are ways to build. I think building both multifamily and single-family will keep prices at a good place. We’re almost evenly paired in both those markets and for those who are renting, the more we build on the multifamily side, the more opportunities we have to keep rents stable – if not even lowered a little bit – when competition steps in.

It is being active at the table and looking for solutions, because there are very few politicians who run on building more housing.

 

BD: Do you have any additional comments?

DD: We really do have a situation where we’re asking ourselves this question for our families, our future, and our children, “Should I make California my home because of the cost of housing?” It speaks to the challenge we have.

We talk a lot as a building industry about finance, numbers, and energy efficiency, but the most compelling reason we talk about all those things is the impact on the individual person — the consumer, the family.

For us, the American Dream and the California Dream is having a place to call home — hopefully to own, but at least to rent. We’re very hopeful that the industry stays focused on making homeownership a reality and by being a partner in policy solution discussions ahead. For me, there’s a lot of discussion on all the big issues, but it really comes down to individuals having a place they can call home and making sure we keep that as our focus as we focus on all these other important finance, regulatory, and energy-related activities.

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