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BIA Faces Lean Year Ahead

Mike Winn, president of Sacramento-based land development and planning firm Michael Winn Associates, assumes the chairmanship of the California Building Industry Association at a challenging time, to put it mildly. The ravages of the recession and their relationship with the housing market are of course well known, and they have struck at the heart of thousands of developers, contractors, and architects who were deluged with work only a few years ago. As CIBA contemplates a year of dwindling membership and new priorities, CP&DR spoke with Winn about the organization's outlook on a changing California.

What are your goals this year as CBIA chair?

Our industry has gone through quite a crisis really. Membership in CBIA is down so we've had to pick and choose our battles pretty carefully. 

Going into 2011, the focus is pretty much around the implementation of SB 375 and the various regional plans related to the greenhouse gas targets.  We want to make sure they're as reasonable as they can be for the healthy growth of each of the regions. 

School financing is another big priority for us in 2011. We're doing everything we can legislatively and with the regulators to see that adequate state funds are there for new school construction.  

Construction defect reform is likely to gain some steam next year.  About 5 years ago SB 800 provided for the right to ask homebuilders to repair construction defects and all types of customer service issues.  We're concerned about loopholes that still need to be closed by legislation and abuses that are still going on statewide.

How important are public-sector projects going to be in the coming years?

Very important. The membership of CBIA is very diverse: architects, engineers, builders, developers. Particularly those with the ability to design and build in the public sector--or on public funded facilities--there's definitely a gravitation in that direction. For the conventional homebuilder, those opportunities really aren't too realistic.

What kind of shape are conventional homebuilders--the type who might have been doing subdivisions in the Inland Empire five years ago--in now? How are they riding out this crisis?

Those who are still standing aren't doing much volume. Even the big publicly traded companies � the Pultes, the Lennars, the KBs aren't either. But the large private companies have worked through their debt issues and probably learned how to shrink and be more effective.  They're tackling business plans that might show 50-100 homes per year whereas in the past it might have been 500-600 homes per year. Probably more importantly, their focus is now on infill or in what I might characterize as the inner suburbs or metropolitan areas. Right now there's not a great deal of new master-planned development being initiated.

What's that been like for your members to adapt to this new business and regulatory landscape?

It's interesting that this is all happening at one time: the industry is contracting, the rules for land use development are changing, and commercial banking capital is scarce. So the adaptation has probably been expedited by that combination. The companies that are still standing in the major metropolitan areas are aware that they're going to have to be more diverse and build different product and do infill. I'd say on the whole they're welcoming that. It might be the only opportunity that they have. 

Does that require a totally different attitude towards their business, or can a greenfield developer shift their focus to infill without disrupting what they consider their business to be?

Some have done it very well. I can't say that uniformly the large-scale greenfield builder is going to jump at infill opportunities. Some have made the jump very adeptly and are till working in both types of markets with very distinct products in each. I've seen some hybrid examples too where some of the best examples of greenfield architecture have been brought into infill situations.

On the coast, infill has been big for a while. How are these trends playing out in Sacramento? 

The regional planning agency certainly is. Between the Blueprint that was adopted five years ago and the metropolitan transportation plan, there's a high percentage of homes over the next couple of decades that will be attached and in infill locations. There now are a couple small-scale developments happening � eight homes, twelve homes, sixteen homes on infill lots. That was the type of thing you didn't see at all during the boom.

What would you pursue if you had more latitude to push other policy agendas?

There's a limit to what the state agencies or legislature can do with local building permits or impact fees, but that's always going to be near the top of our list to the extent that we can find equity in the way public agencies charge impact fees. That has an awful lot to do with how affordable houses can be. In some jurisdictions it got to be where $100,000 in impact fees alone was not extraordinary. On the building materials side and on the labor side, it's just an unusual period. Costs of construction materials may be down and labor is plentiful. 

Are you surprised that we haven't hit an equilibrium whereby the cost of construction has dropped and construction would be viable again?

We hoped that that would be the case. Some of the bigger public builders have tried mightily to drive their hard cost of construction down to a point where they reached that equilibrium on sales price that they begin to attract new buyers. But in some cases that involves writing their land cost down to zero if they're able to do so.  That's quite an advantage over a conventional real estate company.

Now that ARB has announced the SB 375 targets for the different regions, what would you like to see happen with SB 375 implementation?

We were part of the 375 collaboration, so I think CBIA on balance is looking forward to implementation but is very concerned that it be done in a realistic way. The targets, depending on the region, are very aggressive. It's our hope that a second look can be taken or other benefits of implementing those targets can go into effect without slowing things down more than they already are.

As these regions begin to roll out their metropolitan transportation plans and sustainable community design strategies�it's really going to be incumbent upon us, the builders, to stay engaged.  It frightens some people and it's confusing. But it's the new rules of the game.

Is there a silver lining to SB 375? Is it going to promote things that are going to be good for builders?

Two elements of that silver lining are important. Local jurisdictions that had been reluctant to approve higher density housing seem less so, with the advent of 375 and the blueprint regional plans. And then of course there are some CEQA benefits that could realistically cut a year off the process at a point where that year makes a huge difference. I think there's real benefit to the way the legislation came out of the mill. We just have to see how it behaves once it hits the ground.

Who are your core members now, what are you doing to reach out, and what are you doing to help them keep their spirits up?

That's probably our number-one objective here. The reorganization is really our focus over the next few months. It's going to be an interesting year whether we have 3,000 members or 4,000 members.

As much as legislative and regulatory matters, we're reorganizing internally. We have a new president, Liz Snow. We're trying to get the organization down so that it's primarily a government-affairs association and we can afford to be as active as possible. That's going to be a big change for the builders who benefited from CIBA's efforts through the revenue that came through our big trade show, the Pacific Coast Builders Conference every June in San Francisco. That model is broken. We can no longer rely on revenue from one trade show. Builders have to reach into their pockets and look at the value benefit of CBIA. We are down in membership, from 5,000 members a few years ago to just under 4,000 now.

Are you perceiving different issues bubbling up in different parts of the state?

It's a good relationship. We have a mission between the local chapters, the state, and the national chapter. The communication is very good. We meet and collaborate a few times a year within California. And whenever one of our local chapters has a real issue of statewide significance, it boils up pretty quickly. If you're building in San Diego or Redding or the Bay Area or Los Angeles, the big issues seem to be common to all of us. Occasionally there's going to be an issue � water, for instance � in which you'd have a Northern and a Southern California perspective.