If KB Homes Is Leaving L.A., What Does That Say About California?
- Josh Stephens
- 10 minutes ago
- 4 min read
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Since 1956, KB Home built over 600,000 homes in California, from San Diego the Bay Area and many places in between. That’s more homes than are in many states.
KB and other mega-homebuilders made suburbanization happen and created one of the biggest building booms and population shifts in modern history. They specialized in what we would now call sprawl—vast truck developments of hundreds or thousands of largely identical homes that spread outward from cities like Los Angeles and San Diego, in the Bay Area, to create entire suburbs and entire lifestyles.
KB Home, formerly Kaufman and Broad, has been based in Los Angeles since 1963. Last week, the company announced last week that after six decades, it is moving to Phoenix. Why? “To reduce costs and place its employees in a more affordable housing market,” according to the Los Angeles Times.
Ponder that for a moment: At the same time that many California families can no longer afford homes in California, home builders can no longer afford California.
The longtime KB Homes headquarters in Westwood
Of all the corporate flights that have taken place recently—including poignantly, that of Occidental Petroleum, which was based literally two blocks from KB's building—this one hits hardest. I have a vaguely personal connection to KB Home. As I wrote a few years ago, I grew up a mile and a half from its headquarters. I passed by its building on a regular basis. I went to school with descendants and heirs of the founders. The company seemed just as unbeatable as other corporate giants like MGM, Lockheed, and TK.
KB will maintain a presence in the state. It still has projects underway. But, it’s hard not to say that the company has given up on California--with little reverence for the riches it earned here.
However much KB has paid in dividends, the costs faced by its employees and company are probably enormous--certainly compared to those in Phoenix. And, the business model doesn't work in California anymore. We've become a stagnant state, and we are losing population. You don't need a Ph.D. in real estate economics to know that developing real estate business in a place that is shrinking is probably not the best move.
There are still places where sprawl works, and KB is still making a go of it, at least for now. Think about places like the high desert—Hesperia and Lancaster. It’s the same model they’ve been using since the Eisenhower administration.
We've been talking big game for at least 20 years about smart growth. And yet, smart growth has proliferated in only minute increments. We have a few high-rise districts, like LA's South Park and downtown San Diego. A few mixed-use apartment buildings, like those in Sacramento's Midtown or maybe Santa Ana. Those are fine. We still haven't built any new places. I can't think of a new city district, or a substantially expanded city that is more pleasant, more humane, or more livable than something built a hundred years ago.
Given KB’s capital and know-how, KB could have turned to infill. It could have built places that resemble its own hometown. In fact, they tried. For a hot second, there was something called KB Urban, launched in 2005. Several other homebuilders tried the same. Unfortunately, they came along at the very moment that the Great Recession hit—which was, of course, a creation of companies like KB Home. It wasn’t a great time to get into infill, and KB Urban’s web page lists all of six multifamily developments.
What's ironic about KB, of course, is that its founders were very urban. Particularly Eli Broad, who's known as one of the great benefactors of Los Angeles. He loved this city, and he loved making it better through museums, theaters, and all sorts of charitable donations. At the same time, he was building places—the exact opposite of the place that he lived in and that he nurtured. Now, Eli Broad is gone. And so is his company. (As an aside, I fear that his style of philanthropy, for all the wealth in Los Angeles and California, may be a thing of the past.)
Infill developers need big banks and other financiers to be willing to fund some weird new thing that doesn't have a lot of parking or that has ground-floor retail. And that's really hard.
But, if you're KB and you have access to capital, do you want to tie it up in projects that take years, that are uncertain, complicated, and do little but raise the wrath of politicians and city staff? The most successful developers in places like Los Angeles and San Francisco are those who have superhuman patience and put in tremendous effort—you might call it an old boys' club. But, really, anyone would grow old trying to get stuff done in Los Angeles. So, you go to Ontario, Hesperia, and, yes, Phoenix.
So here we are now—a shrinking state, shrinking in part because of high housing prices caused by shortage, caused in part by the reluctance of companies like KB to build homes and communities, which has been caused largely by regulatory and political indifference and indeed resistance. I don’t want to disparage tract homes; they serve an important purpose, and they were of their time. But I will disparage California’s failure to produce communities pleasant and/or affordable enough to make California worthwhile.
If ever there was a sign that California needs to change course, this is it. Or, maybe KB’s departure means that all the new laws passed in Sacramento -- which seem quaint compared to the vitriol and chaos surrounding the current race for governor -- are too late.
Once there’s a new sheriff in Sacramento (and I sincerely hope it’s not an actual sheriff) and possibly one in Los Angeles, this state needs to make a new land use ethos its top priority. By “ethos,” I don’t just mean new laws and plans. I mean a collective, communal set of beliefs and goals.
I don't have a stake or stock in KB. I'm not going to wish them well in Phoenix, but nor am I going to bid them good riddance. What I do know is that someday they may leave Phoenix, too. Probably not because of over-regulation or lack of demand. But, they may find that the sun that shines there is a lot hotter than the one that shines on Westwood.