THE EFFECTS OF GROWTH CONTROLS ON THE HOMEBUILDING
INDUSTRY
by
Alan Harris Loving
Bachelor of Arts in Sociology
University of Denver
1975
Masters of Urban and Regional Planning
University of Colorado
1977
SUBMITTED TO THE DEPARTMENT OF URBAN STUDIES AND
PLANNING IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF
IN REAL ESTATE
OF MASTER OF SCIENCE
THE DEGREE
DEVELOPMENT AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER, 1990
@Alan Harris Loving 1990.
All rights reserved
The author hereby grants to M.I.T.
permission to reproduce and distripu eublicly copies
of this thesis docurn in w]eoi in part.
Signature of the author
- v -,
ain
n
s5
ijoving
ning
Department of Urban Studies and
9PntamhPr
qO
by
Certified
Michael Wheeler
Lecturer in Urban Studies and Planning
Thesis Advisor
Accepted
by
___
__
_
___
_____
uieria sichuck
Chairperson
Interdepartmental Degree Program
in Real Estate Development
MASSACHUSEFT SINST IU
OF r-~~
SEP 1) 1990
LIBRARIES
THE EFFECTS OF GROWTH CONTROLS ON THE HOMEBUILDING
INDUSTRY
ALAN HARRIS LOVING
Submitted to the Center for Real Estate Development
on September l, 1990 in partial fulfillment of the
requirements for the degree of
Master of Science
in
Real Estate Development
ABSTRACT
This thesis will investigate the impacts of residential
growth controls on the homebuilding industry in southern
Orange County, California.
As a result of rapid population growth, communities
across the country and in California in particular, have
implemented growth control plans
in an effort to
maintain the quality of life of the community as well as
to minimize the impacts of rapid growth on both existing
and future services and facilities. Growth controls
have contributed to a more regulatory environment with a
longer approvals process that exacts large impact and
permit fees.
These fees, in combination with the high
cost of land, result in the highest median price for a
single family home in the nation.
This thesis examines the types of homebuilders that can
survive in this environment and the business strategies
they use.
Examples of the costs a homebuilder incurs
when undertaking a project in a community that has
have been provided in
implemented growth controls
addition to a discussion of the impacy that these costs
have on the economic and social community at large.
Thesis Supervisor: Michael Wheeler
Title: Lecturer in Urban Studies and Planning
ACKNOWLEDGEMENTS
I would like to thank my thesis advisor Michael Wheeler,
for
would also
project.I
Kenneth
Leventhal's
my
maintaining
assistance in
his
like to
Orange
would like to
provided
spiritual
for
his
on this thesis.
And
County
office
thank all of those
support
this
Whitaker of
thank Peter
invaluable and unending assistance
finally I
focus on
throughout
especially my parents and Karyn and Cris.
people who
this
year,
TABLE OF CONTENTS
P.5
1. A BRIEF HISTORY OF GROWTH MANAGEMENT
2. STRATEGIES
UNDERTAKEN BY
THE HOMEBUILDING
INDUSTRY IN
COMMUNITIES WHICH HAVE IMPLEMENTED GROWTH CONTROLS P.23
3. METHOD OF INVESTIGATION
P.36
4.
P.45
INDUSTRY RESPONSES TO GROWTH CONTROL
5. AN EVALUATION OF INDUSTRY OPERATIONS IN GROWTH
CONTROLLED COMMUNITIES
P.52
6. GENERAL OBSERVATIONS AND CONCLUSIONS
P.60
7.
BIBLIOGRAPHY
P.69
8.
SOURCES
P.72
9. EXHIBIT 1
P.74
10. EXHIBIT 2
P.75
CHAPTER 1
A BRIEF HISTORY OF GROWTH MANAGEMENT
been implemented in cities
Growth management plans have
across
the
country as
growth
and
its
impacts
are
most
quality; the
and
development
and not
the
and
loss
of land
quality
of
open
life
of
air
services including
space
through
development.
which have implemented
of
traffic
the
environmentally sensitive
in maintaining
which
Many of
growth controls
the character
contributed
attractiveness while others wish
impacts of
increased
These
police and fire service, and
that is
primarily interested
rapid
impacts.
time; deterioration
necessarily the best for
the communities
are
as:
reduction of available
water and sewer treatment,
schools;
negative
often cited
commuting
of controlling
means
associated
and
congestion
a
to
its
to minimize the fiscal
uncontrolled growth.
The former
have been
variously described in the literature as elitist and the
latter fiscally conservative.
Growth controls can be categorized into two broad areas:
1)
Controls which allow for development at a reasonable,
planned rate.
"growth
These controls,
management,"
infrastructure is
sometimes referred to as
attempt
not overtaxed,
to
ensure
neighboring
that
land uses
Controls which attempt to slow
2)
are compatible, etc.
development as an
or stop
These are
character,"
rural
as "preserving
justified
sometimes
end unto itself.
although the communities seldom qualify as "rural." This
kind of growth control attempts to avoid the problems of
growth
central
cities
Other- mitigating
halting growth.
by
"land hungry"
influence of
and the
in general
measures are seldom invoked (California State Department
of Housing and Community Development).
Burrows
(1978)
Dowall (1981)
and
further
categorize
growth controls as follows:
- limitations
on the
level of
intensity of
development
permitted (subdivision control, zoning);
- stringent design and performance
standards for lots and
buildings (subdivision control, zoning);
- shifting
project
exactions
costs
from
the
(adequate
and
public
public
impact
to
the
facilities
fees,
administrative
development
ordinances,
fees
for
application review and processing);
- reductions
in the
restrictions
permitted
on
supply
the
(zoning,
of
developable land
locations
urban
where
limit
and/or
development
lines,
is
greenbelts,
agricultural reserves);
- reductions in the amount of growth permitted, overall or
per
unit
time
(population
caps,
square
housing unit caps, annual permit caps).
footage
or
Growth
have been
management plans
they were first implemented
such
as
Petaluma,
Ramapo, New York.
new
housing
to
controversial since
in the 1970s in communities
California, Boulder,
Each of
preserve
and
these cities sought to limit
their
existing
character
and
groups or
individuals who felt their
each
Colorado
withstood
legal
small
town
challenges
from
rights to develop
would be unjustly limited.
The plans have been accused
of
of
increasing
the
costs
employment base out of
ability of low and
While
supporters might hope that
least maintain their quality of
effect, these limitations often
further
the
the community and inhibiting the
the plans improve or at
the
shifting
moderate income people from residing
in these communities.
life, in
housing,
degradation
of
the
contribute to
environment
by
contributing to the sprawl of the metropolitan region in
which the community is
located.
restrictive
controls implemented
guise
of
land
use
protecting
Growth limitations and
the surrounding
"hustles" (Frieden 1979) which
under
the
environment
are
elite communities use to
exclude undesireable economic or social groups of people
from
the
community
while
benefitting
themselves
increasing the property values (Ellickson 1977).
by
THE IMPACTS OF GROWTH MANAGEMENT ON THE COST OF HOUSING
The
most
serious
accusation directed
management plans and the one
is
their
impact
consistently
increased
on
shown
housing
growth
that has been most studied
housing
costs.
that California
prices
towards
after
Studies
cities
have
experience
implementation
of
a
growth management plan in both direct and indirect ways.
Dowall (1984)
communities
that
reported in
his study of
which implemented
there are
a number
restrictions
on
the
growth management
of ways
local land use policies can
six California
which a
plans
community's
affect the cost of housing:
amount
of
land
available
for
development; restricting the intensity of development of
land (through
zoning); increasing the
fee requirements
and approval times for
subdivision plans; requiring the
construction
on-and
of
both
off-site
infrastructure
improvements; and charging large permit and impact fees.
All of
these actions contribute
capitalization on
must
pay
the part
additional
to a need
for greater
of the homebuilder
interest
charges,
who now
taxes,
and
overhead costs as well as inflationary increases.
The indirect consequences of
growth controls on housing
costs as described by Dowall include restrictions on the
developers
ability to
respond
to
demand when
demand
exceeds
current
supply.
supply
of
housing
is
result of insufficient amounts of
restricted often as a
residentially zoned
The
land in
the community.
When this
occurs, prices go up and in the long term, will increase
demand
for housing
1984).
in neighboring
This "bottleneck"
Northern
California
electronics
Silicon Valley
has occured
communities
companies
are forced
Orange
In Southern
County are
in a
where
interested
number of
the
many
new
in
the
in locating
to look
lack of residentially zoned
employees.
communities (Dowall
elsewhere due
to a
land to provide housing for
California, housing
forcing employees
prices in
of Orange
County
firms to purchase more affordable housing in neighboring
Riverside
Diego
County and
County.
This
to some
degree, in
northern San
is
result
insufficient
the
amounts of residential land and
of
an increase in the cost
of land in Orange County, both of which have contributed
to increased sale prices.
Another contributing factor
to increased housing prices
is an overly burdensome approvals process which makes it
difficult for new development firms to enter the market.
This leaves the homebuilders
a price
low
attributable
enough
to the
who purchased the land for
to
offset
additional
approvals process,
as the
costs
strong
players in the market, for "they can afford the risks of
operating
This
in
makes it
an environment
easier for
of
uncertainty"(Dowall).
these developers
to control
local
land markets
and the
development" where less
out to
result is
fortunate developers "must move
less centrally located and
If local land use
developers
often "leapfrog
less expensive land.
ordinances prohibit leapfrogging, the
who control
land
can
act as
monopolists"
(Dowall).
In
addition to
negotiated
groups
groups
can
these restrictions,
development with
lead to
demand
higher
lower
developer
moderate-priced
subdivision
and
who
staff and
housing
density
subdivision improvements.
the
city
more
that
community
costs when
and
these
luxurious
In response to these demands,
initially
development is
per-unit
Dowall found
proposed
now
land
a
large
faced with
higher
costs.
In
order
to
make-up for these costs, the developer often responds by
reorienting
the project
to a
adding amenities and features
unaffordable
to a
more
higher-income market
to the homes which become
moderate
reorientation is a common
by
income group.
This
tact taken by homebuilders in
markets controlled by growth management plans which will
be discussed throughout this thesis.
This trend
towards controlling the rate
development was contrary to the
of
development
encouraging
and
which
often
and pattern of
post World War II years
saw governments
assisting land
at
all
levels
developers
and
merchant builders in their efforts to subdivide suburban
1982).
(Eichler
property
California
which
was
establish
government
creation
and
one
the
of
entities
enforcement
of
true
in
states
to
most
was
This
first
the
responsible
for
development
approval
procedures such as plan review, public hearings, etc.
GROWTH CONTROL IN CALIFORNIA
In the
1960s, in
response to rapid
California experienced
amount
and
type of
communities
with
protection of
controlling
the
It
that
primary
evolved
into
themselves with the effects
in
its
purpose
of
This movement
development,
and ensuring
limiting the
could occur
stated
the environment.
agricultural lands
state.
a movement towards
growth
coastal
population growth,
the
began by
development
quality water
programs
which
of
for the
concerned
of development upon all the
services of a community (Eichler 1982).
By the
mid-1970s, many
had growth
form
management policies
most often
These procedures
to the
in
the form
services,
proposals
local
and counties
and procedures
of zoning
added more complex and
approval process
development
California cities
restrictions.
timely reviews
by including an
on
their
government reviewed
in some
assessment of
impact
design,
on
public
internal
recreational facilities, unit
conceptual aspects of the
was a reduction
and
added
size, planting, and other
building program.
in the total number
time
and
The result
of units permitted
increased
standards
which
dramatically increased development costs (Eichler).
From 1986 through 1989, 122 growth control measures were
on the
These
ballot in various cities
initiatives had
a 62%
throughout California.
passage rate
(California
Association of Realtors, December 1989).
SELECTED GROWTH CONTROL PLANS
This
thesis
correctly
will
known
as
development control
tools to
Plan
slow
each
interested in
of life or
plans
city.
Each
or
set forth in
community
the preservation of the
new
developments,
development
surrounding
on
are
more
residential
have been
ambiance of the community
of
which
growth
systems that
implement the goals
of
impacts
investigate
adopted as
the General
is
primarily
existing quality
by minimizing the
existing
residential
environmental
amenities,
public services and the overall economic vitality of the
community.
The
plans
are
normally
implemented
in
response to a period of development which is threatening
those qualities
mentioned above and are
often designed
to limit the population of the community by limiting the
number
of residential
year with the
building permits
available each
ultimate goal of controlling
the rate of
growth over a number of years.
For
example,
the
City
of
San
Clemente,
California
implemented an ordinance to manage growth in response to
"a period
of intense
adversely
affecting the
local
freeway
capacity of
other
system
the
meet
traffic
to
by
quality of
its sphere of influence
No.
in the City
in business,
the
beach and
the sea
character
life prevalent in
and
absorb
of
the
the city,
922,
utilities and municipal
City of
San
Clemente,
implemented in response to a
at the special municipal
of San Clemente
on February
number of dwelling
units that
in the city to a maximum
of 500 per
and limits the
can be constructed
demands,
schools to
citizen's initiative submitted
25, 1986
the streets
and the surrounding region, and
This ordinance was
election held
which is
of area
to households of some
services"(Ordinance
1986).
of
capacity
village
community, the
the cost
capacity
parking facilities
areas, the
children,
residential development
year.
The City of San
Juan Capistrano, California implemented
a Residential Growth Management Plan in 1976.
was specifically
designed to control
This plan
the unprecedented
growth the city had experienced between 1970 and 1976: a
population growth of 3,781
average annual
between 1970
to approximately 15,500.
increase of
and 1975,
1972 (San Juan
600 dwelling
with a high
units occured
of 1,122
Capistrano City Code).
An
The
units in
plan set an
annual growth rate of 400 units annually.
The growth
Clemente
local
experienced in
was not
economy,
commuting to
County and
the result
but was
jobs in
due
to
expansion of
an influx
were moving
of
of the town
bedroom community"
as
As
the
people
of Orange
into a
in the community.
long-time residents
a
of any
and San
the employment centers
retirees who
mobile home parks
"just
San Juan Capistrano
number of
a result, many
consider it to
opposed
now be
to the
rural
community to which they were accustomed (Dubbink 1984).
This thesis will investigate
Growth
Control Plans
the impacts of Residential
on the
homebuilding industry
southern orange County, California.
the
implementation
of
communities
due to
an inability
expenditure
dictate.
If these homebuilders
they
market, the
to meet
requirements
thesis will
reorient their
caused
a
certain
cease doing business in these
capital
the
It is believed that
these plans
number of homebuilders to
in
that
such
plans
are not "forced" out of
attempt to
business to
determine how
survive in
regulated
environment.
provide a
hypothetical example of the
In
the up-front
addition,
the newly
the thesis
will
additional costs
which a homebuilder incurs when undertaking a project in
a community that has implemented growth control and will
discuss what impact these costs have on the economic and
social community
will
at large.
discuss the
impact on
In particular,
the thesis
the developers
desire and
ability to build in such markets.
What impact do growth control plans have on the economic
viability
of
communities?
the
Who
residential
are these homebuilders?
will investigate the impacts
which
control
developer
the
these
This thesis
of growth management plans
number
available on an annual
in
of
residential
permits
basis, on the local homebuilding
community.
THE NATURE OF THE HOMEBUILDING INDUSTRY
---------------------------------
Before
an
undertaken,
analysis
it
is
homebuilding
how
California.
In
"Merchant
necessary
development
this
1982,
and
moods
America
Ned
in
This
which
an
controls
review
industry
of
1982).
growth
to
in
Builders"
(Eichler,
trends
the
industry
understand
and
of
to
15
in
an
of
effort
in
the
a
market
study
of
industry
the
for
the
to
history
American
highlights
be
Southern
a
identify
unique
created
history
completed
effort
study
the
operates
Eichler
this
can
national
the
single
family home.
The
earliest examples
of
large-scale homebuilders
this country were according
to Eichler's history, those
early entrepreneurs who attempted
for
hundreds
of
in
thousands
of
to address the demand
new
homes
families who emerged after World War II.
for
those
Housing starts
jumped from a level of 300,000 a year in the 1930's to 1
million in
1946 and 2
this demand,
would
million by 1950.
builders acquired
accommodate
the
low-rent housing.
was
for
critical
employment
the
success
centers remained
least initially.
the land in
development of
low-priced or
Responding to
areas that
mass
produced,
The location
of
in the
the
of land
projects,
as
central cities
at
Inexpensive agricultural land
at the
edge of the city was thus subdivided for the development
of
housing.
agricultural
The
physical
land made
development
more feasible for the land
less
expensive
than
one's own home in an area
danger,
(Eichler).
This
construction
of
in
of these
the
city.
a response to a
this
projects
In
short,
desire to own
away from the dirt and noise,
and
movement
highways
of
was typically flat, dry, and
land
suburban development was
corruption,
characteristics
contamination
was
of
the
accelerated
and rail
lines
by
which
city
the
made
travel between these outlying areas and the central city
more convenient.
In
1954,
the
Eisenhower
legislation to fund the
was
proposed
freeways
to
across
the
country.
presumably to
eventually
interstate
These
freeways
Though
in
the
initial
order
construction
in
the
gas, inexpensive
postwar
contributed
automobile at
of
1989).
with inexpensive
search of
to
the
the expense of urban
the
New
and abundant
incomes of
single family
increased
of
America's
automobiles and the rising
families in
housing,
development
urban
single most
(Freiden and Sagalyn,
in combination
plans
provide
important
highways
commerce
the original
system was probably the
suburban communities
were
centers of the
interstate highway
factor
of
involved in the development of
altered
routes,
miles
facilitate interstate
suburban communities.
were
34,000
to bypass the urban
and the desires of those
new
drafted
interstate highway system which
have approximately
originally intended
country,
administration
detached
use
of
the
transit systems and
urban life in general.
Land was
of the
the most important ingredient
new suburban housing developments.
this land
for few
make
proven
for the success
was generally prohibitive to
banks were legally
loans on
track
(Eichler).
arranged financing with the
the farmer).
These sales
the new builder
prohibited in the
undeveloped land
record
The cost of
1940s to
to builders
without a
Builders
therefore
seller of the land (usually
were made with
purchase and
sale
agreements through
company
acting as
deposit from
which the
the escrow
eventually applied
Land
were
financing
which
capital required
provide the
made.
made
agent) accepted
a small
the transaction; this
to the
through
would
the
limit the
purchase price.
use
of
creative
amount
of
up-front
by the developer but
seller with
These
a title
the buyer to secure
deposit was
deals
seller (or
which would also
tax benefits, land
deals, which
were
quite
deals were
risky for
the
seller, provided the developer with the inexpensive land
needed to undertake large
often the
result of a
housing subdivisions and were
strong, direct sales
pitch from
the builder (Eichler).
The
important factor
builder
was the
marketable
for the
ability
and that
to select
could
favorable financial terms.
developer put up
however, also
minimum of
excessive
success of
a
necessary to
possible.
select a
most
It was,
site which
engineering problems and was
regulations
with the
was
usually meant that the
as little money as
government
site which
be obtained
This
the merchant
had a
not subject to
both of
which
were
costly and time consuming.
The successful developers in
the
were those
homebuilding industry
political realties
who
could guide
that were
their
evolving around
projects
Homebuilders represented the
who learned
through the
the
them and
process.
business fabric of America
which respected the entrepreneurial spirit.
This spirit
years as these companies expanded
was rewarded for many
to
and
newer
markets
larger
find the
would
these builders
Eventually
country.
the
across
development
environment more treacherous and less cooperative.
economic factors contributed to a
In the 1970s, several
more complex
an
increase in
and a
units,
Once
national
above became
realities of
Up
unprecedented levels.
mentioned
the factors
obvious that
More specifically,
had to decline.
points out
of
point,
to this
evident, it was historically
housing production
Eichler
recession.
constructed at
the combined
an oversupply
expenses,
operating
had been
housing
for homebuilders:
development environment
the following
signs of
difficulty
within the housing industry in the 1970's which led to a
recession within the industry: withdrawl from housing by
some
acquirers
increasing
(investors); apartment-operating
rising
rents;
than
faster
costs
apartment
vacancies; construction bottlenecks and costs increasing
than the
faster
price
consumer
index; and
declining
contract sales in 1973 (Eichler).
These
problems led
to the
demise or
restructuring of
many homebuilding firms who were ill-prepared to respond
to
these
premier
Larwin,
changes
in
homebuilders in
Presley, McKeon,
the marketplace.
the
country
Some
such as
and Kaufman and Broad,
of
the
Levitt,
suffered
the most and were forced to either restructure or go out
of business (Eichler).
net
savings and
In the late 1970s, the amount of
available mortgage
interest rates
declined.
to
boom
a
renewed
somewhat tempered
This
taken
by
the
inexpensive
sales.
production
increase in
Various monetary policies of
At the same
which
was
residential debt.
the government and actions
financial institutions
interest rates
and
combination contributed
in housing
by an
funds swelled
with
contributed to
regard
to
record home
time, however, restrictions on land
development were becoming more commonplace, resulting in
an increase in the value of land already approved.
contributed to an
increase in the cost
This
of housing that
was offset by the increasing number of buyers willing to
pay ever increasing prices.
than
the
rate
of
inflation
increased, merchant
only
more units
As house prices rose faster
and
builders were
but
to achieve
total
able to
production
produce not
higher gross
margins
(Eichler).
This strong new market supported
some of the same large
companies that had been in the homebuilding industry for
years,
while
it
saw
particular, many of
the
demise
of
the new entries to
others.
In
the industry in
the 1970s experienced great success as they concentrated
their
land
markets
acquisition
which they
some degree control.
form
of
growth
and
felt they
development
efforts
understood and
on
could to
New regulatory requirements in the
controls would
20
however
have
varying
impacts on their success and business operations.
As previously discussed, most communities throughout the
county
which have
experienced an
housing.
enacted
increase in the
This is
housing prices
years than
timeframe
growth
no
control plans
price of both
less true
other region
was characterized
land and
in California,
have risen faster over
in any
have
where
the last fifteen
of the
by intense
country.
This
shelter demand
and frenetically speculative inflation in the California
housing markets
(Downs, 1989).
During the
period from
the third quarter 1987 to the third quarter 1988, Orange
County, California
in median
Partly
home price in
because of
highest
home
strategic
Angeles
people
posted the fastest rate
and
the
the
firms who
county
The
southern California
are
is very
attracted
more
desireable
at 32%.
has the
county's
between Los
attractive to
by its
diversified economy.
locations as Riverside and
overflow demand
Orange County
country.
Diego counties
beaches and strong,
make
in
location in
and San
any metropolitan area
this factor,
prices
of increase
climate,
These factors
than
such
inland
San Bernadino counties where
from Orange
County is also
driving up
the cost of housing.
Over
three hundred
County between
households.
thousand people
1980 and
Only
moved into
Orange
1988 resulting in
131,000 new
123,000 building permits
were issued
over roughly the same period however, reflecting a ratio
unit permit per household (Downs).
of
supply-side
lower such
would have
controls,
which new building is encouraged.
communities in
control
permit per
1987.
a
increased population
for housing
the basis
low
1989).
in that area
have formal growth
housing-unit
1980 and
supply-side response
At
to
the same time,
highest home prices
in the
This reflects the
large demand
and provides an
insight into
for the success of
in the county.
areas in
While the majority of
in the county.
experienced the
erect
of growth
was granted between
new household
country (Downs,
ratios than
one additional
than
This indicates
the county
the form
Orange County do not
plans, less
that
areas
homes in
building new
barriers to
From the perspective
theory,
economic
one housing
of less than
to new households
of permits
the homebuilding industry
CHAPTER 2
STRATEGIES UNDERTAKEN BY THE
HOMEBUILDING INDUSTRY IN COMMUNITIES
WITH GROWTH CONTROLS
The
Orange
County
homebuilding
industry
has
been
dominated over the last two decades by a handful of very
large
landowners who
either acquired
ownership of parcels of land
In fact, the
of 50,000
either
acres.
Over the years,
of
the
land
development.
It
land
to
been in
in excess of 10,000 acres.
Irvine Company continues to
developed
parcels
or have
own in excess
these companies have
themselves
other
or
merchant
have
sold
builders
is estimated that these
for
builders have
over $10 Million in annual sales.
In addition to these
large landholders, there are other
owners of smaller tracts of
land that was once used for
agricultural
are
developing
purposes
the
land
who
interested
themselves
or
property to established developers.
property
owner
wishes
to
viable as
area.
For
involved
in
selling
advantage
the
of
the
of property no longer
agricultural land in this
those
either
In both cases, the
take
significant economic appreciation
in
in
the
rapidly urbanizing
development
of
residential
projects,
investment,
they
versus the
as
must
returns on
in
any
consider
other
the
real
estate
potential
their investments.
risks
This thesis
will investigate the home building industry to determine
the types of the builders who can operate in communities
that have
implemented growth
builders respond to
responses
on
control plans,
such plans and the
the
development
of
how these
impact of their
housing
in
Orange
County, California.
LONG-TERM LANDOWNERS
A majority of
are
the large
land owners
developing
AND
DEVELOPERS
homebuilders in
who bank
it.
land with
These
the intention
companies
diversified in
product type
and build
communities in
the county.
The ability
land is dependent on
market a product
to
understand
of
are
generally
in a
number of
to develop the
their ability both to successfully
in demand at that
and
Orange County
particular time and
successfully navigate
through
the
development approvals process
including subdivision and
zoning
permit
approvals,
building
permit
associated
charges
review.
These
associated
for infrastructure
attached to
related
costs
building
physical
processes
which must
improvements
the development
to the
allocations
each
be
added
and the
of property which
development
of a
and
have
to
fees
are not
particular
piece
of property.
fees, or
latter
might include
area-wide transportation and
These fees compound
both the
The
are a significant cost
a developer
of one
Capistrano is
utility charges.
the cost of carrying
approvals period
the land over
and construction
of doing business.
project
in the
school
For example,
City
estimated to have land
period and
of San
Juan
carrying costs of
$60,000 per week for this project alone.
The National Association
of Homebuilders has determined
that
expect
a homebuilder
range from three to
At
the same
percent of
can
the costs of
to a
Finished lot
costs
developed or
lot costs
of
account for
sales for homebuilders
Pacific region,according
accumulated
to
five percent of operating expenses.
time, finished
Business Survey.
financing expenses
NAHB 1988 Cost
in the
of Doing
costs are defined as the
finished
purchased.
23
lots
Included
that
have
are the cost
been
of raw
land, financing and interest, land planning, zoning, and
other costs
pertaining to the development
of the land.
Costs of sales are made-up of direct construction costs,
indirect construction costs and finished lot costs which
represent all
costs associated
with the units
sold by
the firm (NAHB, 1989).
Though it
is difficult to
know how much
these figures
may vary from state to state, it can be assumed that the
cost of financing a
project in today's more restrictive
climate
is
a substantial
California.
To
what degree
affects the business
financed.
and
of
or
doing business
by
what amount
will depend on how
in
this
the project is
The recent restrictions placed on the savings
loan industry
impossible for
its
part
total
the federal
an S&L to
assets
severely
by
limits
developers and
to
the
government make
loan more than 10
real
estate
amount
of
requires them
percent of
developers.
money
to be more
it
This
available
to
prudent about
the projects that they develop.
SALE OF PROPERTY TO MERCHANT BUILDERS
If
it is
company
determined that
to
develop
themselves,
it is
a
particular
this property
merchant builder.
not feasible
may
be sold
For various business
homebuilders/landowners determine
to
be made
without
a
making the
return on
the
the landowner
provided
sell the
selling the
constructing
capacity,
markets
in
parcel
property more
land at
a price
investment for
in
the
land
smaller,
reasons, large
to other
homes themselves.
becomes a
of
to a
that there
land
for which
and development
participation
parcel
for the
is profit
developers
In
land developer
infrastructure
has
this
who
been
approvals have
been granted,
valuable.
landowner may
The
that assumes
an established
the purchaser and
profit
26
that
the
requires a
purchaser
experiences from
sells
to
property
For example,
each home.
a
builder
a landowner
$1,000,000.
for
The
landowner requires that each home in the project be sold
the landowner receives 50% of
than this minimum amount,
In order for the
that amount which exceeds the minimum.
builder to experience additional
must
be charged
sells for more
If the unit
of $300,000.
for a minimum
profit, a higher price
unit which
for each
in turn
largely
depends on the market.
In
some
instances,
purchaser
design
this
sale is
constructing the
and
construction
contingent
project under
standards set
This quality control
for the
landowner because these standards
to a large
with.
maintenance
guarantees the
the smaller
It should
of
strict
builder to enter into
are what has
design
controls
This motivates
such an arrangement.
the builder who
land in such transactions is
the
valuable to begin
profit to both parties.
be noted that
by
is a necessary ingredient
degree, made the property
The
the
the rigorous
forth
seller.
on
purchases the
not always small (that is,
a homebuilder who builds 100 units
or less a year).
In
fact, some of these merchant builders are companies that
have been in business as homebuilders for many years but
who have been forced to discover and take advantage of a
smaller niche in the marketplace.
In addition
to the
builders who
purchase the
land to
there are
develop it,
through
bankruptcy
reduced
price.
who may
makes the
gain the
at
proceedings
not
usually
are
a
property
hold the
preliminary
development
property more
valuable, or
receive
to
enough
may
purchasers
These
approvals, which
they
foreclosure
but investors
homebuilders
long
or
the property
those who acquired
approvals
and
and
land
hold the
contract a builder to construct homes on it for sale.
REPOSITIONING
must be exercised by both
Another business option which
the large homebuilder/landowner and the smaller merchant
builder is the repositioning of their product within the
market
an
in
remain
to
effort
This
competitive.
repositioning is necessary in a market where perhaps too
on line and
certain product has been brought
much of a
is presently not preferred by the buying public.
Several
homebuilders
interviewed
for
this
thesis
indicated that it takes from four to five years from the
time the
land is purchased to
process for
complete the application
building permit allocation and
construct a
home on a parcel of ground in Orange County.
Before the
building permit allocations
can begin,
application for
the
homebuilder
approval
which
must
provides
have
a
28
preliminary
general
subdivision
outline
of
the
proposed
development.
typically
only
be
This
preliminary approval
granted
as a
result
discussions
with
approval of
development plans and others
the
city
planners
development process
These
discussions
proposed
are
such
will
aesthetically compatible with
the area.
control
The criteria
ordinances
are
positive
responsible
for
to
ensure
be
the
interested in
as neighborhood
designed
development
of
will
groups.
that
physically
the
and
the existing character of
established within
designed to
the growth
ensure
that
the
proposal will not overburden the existing infrastructure
unless
system
improvements
will
be
funded
by
the
city,
the
developer.
In
order
to
begin
homebuilder must
considered to
discussions
with
have a proposed product
be compatible with the
consistent with
the
type which is
surrounding area,
the pattern of development
of the city
as outlined in the city's General Plan, and last but not
least, marketable.
project
to
The amount
this
point
changes very expensive and
the
homebuilder is
ability to
years
considerable,
frustrating.
not only
making
in
advance.
any
The success of
dependent on
his or
efficiently process the development,
be able to anticipate the
more
is
of time dedicated to the
her
but to
demands of the market four or
This
process
significant risk to the development process.
contributes
NEW COMPANIES TO THE MARKET
All new entrants to the local market will experience the
costs as
over
a result
of the
years.
This
the
additional
increased
is
They
will
of
incur
higher costs
with
materials
builders will experience.
also
in
true
control
the amount of
costs associated
costs
particularly
number of permits
have limited
development.
land values
appreciation of
enacted growth
limited the
plans which
for
have
which
communities
which have
expect higher land
exception that they can
the notable
developers with
costs as the existing
same development
plans
available or
land available
encounter
those
development such
and
labor
that
as
other
Small builders will actually
because of
which will not allow them
the economies
of scale
to purchase materials at bulk
discount.
Higher land costs, materials, and labor will result in a
tendency of builders to upgrade
units
When
that they
current
build in
demand
the size and quality of
markets of
exceeds
"excess demand".
builders tend
to contruct more expensive
they
more
can get
margins
this
(Downs).
tendency
to
profit per
In
lot
30
is
an
home
units because
and higher
communities with
upgrade
supply,
current
profit
growth controls
even
more
common
occurence because larger units
exempt from
on larger lots are often
the growth control plan.
of additional
The construction
expensive homes contributes to
a further
reduction in the relative affordability of the community
to
those of
more moderate
demand for units
means.
to
number of
of any particular type
for sale at any given time
decision
The
continue
and
or price range
will also play a role in the
constructing
large,
expensive
homes.
GROWTH CONTROL SPECIALISTS
In addition
to identifying the types
have experienced
success in
a variety of
thesis will attempt to determine
choose
to build
in
of developers who
markets, the
if there are those who
communities
with growth
controls
because they have found a competitive advantage to doing
business in
fact be
those communities.
the same large firms
thesis as
the success of
These companies
may in
discussed throughout this
a firm in a
community having
growth controls is particularly dependent on its ability
to
obtain
difficult
financing.
to obtain
historically
capital for
been
As
from
the
financing
savings and
principal
home builders, the
becomes
more
loans who
have
source
for
large firms may
only companies left in the market.
working
be the
CUSTOM BUILDERS
growing segment of the home
Custom builders represent a
in communities that
building industry
for
controls
growth
as
and desireable
ordinance
from the
units exempt
of the
greater segment
to a
This demand is
County.
homebuying population in Orange
they
mentioned,
previously
large, expensive
likewise build
have implemented
$40,000 1989 median income for the
unique in light of a
county (Downs).
Custom
builders
Association
are
of
by
described
as
Homebuilders
the
National
those
builders
constructing one-of-a-kind units, generally on scattered
lots
and
with
a degree
of
craftsmanship
higher per-square-foot sales prices
is no way to determine
there
are in
single most
of
the
a county
county, it
the "over
over 19 percent
is
noteworthy that
$450,000",
a
Orange County,
which
median
sales
which can support
like many
accounted for
sales with 108
while somewhat deceiving in
approaching $335,000, nonetheless
the marketplace
the
the first quarter
of all detached product
This statistic
having
While there
exactly how many custom builders
active price category in
1990 was
units sold.
(NAHB).
indicating
price
for
homes
represents a niche in
custom homebuilders.
other expensive areas
in the
country consists of many
full-time
households with two well-paid,
wage earners
with average
mortgages for these
can qualify for the
the median who
incomes exceeding
expensive homes.
The
of the
continued success
will to some degree depend
the
California
economy
on the continued strength of
in
general but
also
ability to
obtain financing.
The smaller
experience
problems
they
savings and
master developer.
less
and
because
loans for
less
these homes
builders of
rely
viable,
the
builder will
more
their financing than
With this
on
on
the
the large,
source of funding becoming
the small
difficulty surviving in a market
builder
will
have
that has the high land
prices found in Orange County.
The areas in southern California which are located close
to the ocean are unique
in
a
and desireable because they are
metropolitan area
population
create
grows.
and rising
competition
amongst
those
Since the
entire
has
for
the
few
highest
the price
than the
best-quality
incomes
area
(Downs).
and
In addition,
desireable because
of the
the
which provides
sites
as the
of this 'best'
population
total
These conditions
absolute number and area
faster
Pacific Ocean
an expanding
real incomes.
with the
remains constant,
even
that
area
of the land
land rises
incomes of
these
superior climate
areas
the
are
offered by
cleaner air,
cooler
breezes and spectacular views unavailable inland.
Some custom builders believe
facing this
supply.
segment of
the industry is
instance, in
For
that another major problem
Linda
Building
thought was
L. Hall, president of the
Association
Homes, custom
building
the cause of
Los Angeles
a February 1990
Times interview, when Richard
California
constraints on
and president
firm was
of
La
asked what
he
a recent slowdown
in housing
starts, he responded by saying that:
"there'll always be a demand for a good
custom-home
builder...It's
constraints on
slowing
supply that
things
problems
we have
processing time.
find
a
years
project
to
up.
in
are really
One of
the
big
the industry
It's not
taking two
get through
the
the
is
unusual to
to
three
government
hassles and bureaucratic red tape."
Others
interviewed echoed
that the cities often
sources
of funds
this sentiment,
look upon developers as unlimited
for the
provision of
improvements or "deep pockets".
felt that
far too
officials
they must
ignorant of
complaining
often, the
work
the realities
with
infrastructure
Most of the developers
planners and
other city
are inexperienced
of the financial
and
aspects of
the
considerable time
ability
passed on
house.
process.
development
to
and expense to the
receive
to the
These
approvals.
These
consumer in the
add
problems
development firms
costs
will
asking price
be
of the
CHAPTER 3
METHOD OF INVESTIGATION
The thesis investigates the
building
residential
survive the
those environments
regulatory
which
process
am
permits.I
particularly
various companies who do business
interested in how the
in
limit the number
growth control plans that
industry of
of
impacts on the homebuilding
lengthy and
is inherent
in
In pursuing investigating
control system.
any
costly
growth
this topic,
the fact that there are many different aspects to growth
management became
evident.
There is a
large amount of
data regarding the impacts on growth management plans on
direct
impacts
financial
of
information necessitated
facts
the
regarding
these
the
As became clear,
This lack
and
operating
literature on
general.
the
of existing
characteristics of the homebuilding
of
on
a compilation
history
a review
plans
the industry.
homebuilding firms who make-up
of
information on the
housing but very little
the cost of
industry as well as
growth
management
in
existing literature does not
directly address the question at hand.
To
gather
conducted
a
broad
a series
impression of
of
current
interviews with
trends,
people in
I
the
who
those
industry;
homebuilding
perspective; public
growth from an academic
impacts of
with the
developers
to assist
consultants who are hired
officials; private
the
studied
have
processing and
negotiations which
are inherent to growth controls; and equity investors in
Many
sources).
projects (see
housing
findings
of my
were necessarily qualitative not quantitative but a good
deal of information was
various market studies and profiles
as well as from the
by
completed
obtained from these interviews,
firms
consulting
the
interviewed.
Additional data was obtained from the general literature
impacts of
documenting the
and
prices
impacts
their
growth controls
on
the
on housing
which
communities
implemented such plans.
Many
of
impacts of
yet many
were
the interviewees
as
curious about
the industry as
these plans on
respond that they didn't know the answers.
on
the issue,
knowledge
indicated that
they
on the
subject not
would be
difficult to
business
plans and
individual firms who
This
initial
a
record
only did
keeping
out and
When pressed
single body
quantify given the
not exist
of
but
diversity of
undertaken by
the
make-up the homebuilding industry.
frustration
retrenchment in order to
the topic.
this writer
take the simple way
were prepared to
the
on
my
part
required
a
determine how to best approach
The
is being
management
overwhelmed
in
policies.
to this
danger of being absorbed
is
Orange County
plans implemented
these plans
other
and
In addition
as opposed
created which insured
country,
zoning
restrictive
problem, there
to the
in two cities
To avoid
the
is the
in the growth phenomenon which
impacts homebuilders
communities.
information includes
throughout
communities
zoning
exclusionary
of
state mandated plans, citizen
discussions about various
initiatives
growth
the breadth
with
This
the subject.
information on
related to
topic
any
in studying
danger
this
growth management
in the county
and how
who operate
problem,
in those
a strategy
that the focus of
was
the thesis was
not lost.
The focus
of the
which limit
thesis is
to determine
the number of residential
how policies
building permits
issued on an annual basis impact homebuilders.
plans affect the way
if so,
how?
create
a more
process
for
Do these
which homebuilders do business and
I hypothesized that
difficult and
homebuilders
growth controls would
time consuming
which
would
approvals
result
in
additional costs.
These costs may be so burdensome that
certain
would
builders
not
financially
continue to
compete in
combination
with the
required to
operate within such markets
these markets
additional
be
or the
expertise and
able
to
costs in
energy
would dissuade
certain builders from doing business there.
Before
this could
be determined,
identify
the companies
industry
in growth
California.
To
that
it was
necessary to
make-up the
homebuilding
control markets
determine which communities
controls
as defined
for this
Southern
California
Association
performed an
article search
had published articles on
I proceeded
to identify
there.
accomplished
planning staff
on
allocations.
In one case,
the
the names of the
the
projects.
available in
County,
had growth
contacted the
Governments
and
newspapers which
Once I discovered
the county had such plans,
homebuilding
this
by
firms who
and
build
interviewing
those cities
plans
city
and requesting
the
most
recent
this information provided me
homebuilders and characteristics about
Since
this
information wasn't
readily
I requested the
names of
the other city,
some of the homebuilders
about
of
the topic.
members in
information
thesis, I
of local
that only two communities in
I
in Orange
that planner's
from the planners and inquired
professional experience
with the
builder.
As
it
is impossible
within
thesis to
identify each
chose
create
to
two
the
and every
major
constraints of
type of
categories
or
this
company, I
types
of
companies to study: 1)companies which have held the land
for years and 2) firms which are relatively new entrants
to
the
market.
Within these
two
broad
categories,
subcategories
were
choices that each
in
the
face
created
to describe
of these types of
of
categories seemed
growth
the country which is unique
The
in
the
first category
and should
major
area of
in terms of the presence of
influence over the patterns
Orange County,
two
choices in an
several large landholders and developers.
discussed
business
companies may make
controls.
to be logical
the
have
The companies
a
significant
and style of development in
be distinguished
from those
relative newcomers in the market.
The primary
personal
sources of information for
interviews conducted
who fit into each category.
sufficient in numbers
market
and
in
with employees
to be used as
who build homes in
those markets
an insight into
a research sample,
about the business choices
growth controls in particular.
to gain
of firms
These interviews, while not
provided me with information
made by companies
the thesis were
which
the Orange County
have
implemented
In addition, I was able
how builders compete
in those
markets.
The developers of housing projects in a market which has
a limitation on
are by
the number of permits
nature of the allocation
with one another.
This is
issued each year
system, in competition
because most plans are based
on a point system which rates each project on its impact
on local
public facilities and
services as well
as on
the more subjective aspects of the plan relating to site
design and architectural quality.
Although in
would
theory, one would expect
be awarded
granted the
and
approvals
degrees
project is
the
from
the
capricious
board
to
decision-making
body, normally
other
the
council
in
varying
with the
the part
the
receiving
are
also is the exercise
on
points
city planning
there
associated
behaviour
words,
prior
city council,
of subjectivity
of the
necessarily the case.
reviewed by the
planning
Unfortunately, there
and
the basis
project, this is not
Because each
staff
permits on
that each project
process.
of arbitrary
of
the
final
city council.
the
In
jurisdictions
investigated for this thesis, does not have to award the
permits
to the
number of
to
project(s) which
points.
issue the
received the
They are only
available permits
highest
required by ordinance
to the
projects which
score a minimum number of points.
In
a
fair system,
scoring the
equal
it
would
highest number
share
of the
seem that
the
of points would
permits
available.
projects
receive an
This is
not
always the case and the homebuilder who does not receive
permits may
each case
or may
not deserve
seemed to have
interviews conducted
homebuilders
who
its
for this
feel
that
to feel
own story.
slighted,
Based
thesis, there
the
system
is
for
on the
are those
in
fact
that
the
with
frustrated
are
people
same
these
would also venture to note
I
arbitrary and capricious.
individual professionals with whom they must deal in the
city development agencies.
As one developer stated:
"The planners are young, inexperienced,
and
the
see
project... They
a
develop
to
takes
it
what
about
naive
developer as an open wallet".
that the planners have their side
It must be noted here
of the story as well:
"Some of the developers are offended by
the
it
feel that
They
process.
is
their god-given right to develop!"
opinions.
by
the
is
there
Unfortunately,
There
cities
are many inexperienced
don't
who
development of projects.
carrying out
some justification
a mandate
knowledge about the
have
planners hired
in
experience
from the city
the
Innate
council.
financial realities of homebuilding
the decisions they make in
On the
projects.
reviewing
development
there are
those developers who fail
must learn
both
These planners are technicians
would probably not influence
they
for
to interact
representatives and the process
other
hand,
to appreciate that
positively with
the city
in general if they hope
to be successful.
Besides the allocation
awards, the homebuilders operate
in a competitive marketplace where prices are determined
by
the demand
true
in
for the
southern
particular.
product.
This
California
and
recently,
there
Until
is particularly
Orange
has
County
been
in
little
competition amongst homebuilders in this area because of
the enormous
demand for
changing as
a result
increase in
the cost of
three
years.
homes.
This situation
of an approximate
This
twenty percent
housing over each of
price
rise
in
is now
the last
combination
with
increasing land costs due to the lack of available land,
have resulted
in a
slowdown in the
homebuyer's inability
priced single
as
market due
to obtain financing.
family home in Orange
of April
1990 is
Meyers Group).
Such
to the
The median
County, California
estimated to
cost $335,000
a high median price
(The
makes it very
difficult for first-time buyers to enter the market.
As
a result,
as
densities have
developers
have
first-time
buyers
begun
as
increased
to
an
in
offer
the county
attached
affordable
units
to
alternative
to
detached units.
Increased sale prices have
also caused the average size
of homes to increase as it is now economically necessary
to
produce
densities.
single-family
detached units
Single-family detached
from 4,500 to
with
higher
lots typically range
8,000 square feet with most
lots held by
the largest or production builders ranging from 4,000 to
6,000 square feet
(ULI,1990).
with an average of
Constructing
larger, more
6,500 square feet
expensive units
on
lots
smaller
profit per lot
provides the
and higher profit margins.
units are often
controls, the
builders'
average price
the
mix
Builders
markets
net
do
with
This
income.
and quality of units
toward
not
larger
and
designed to
factor
raises
luxurious
more
demand
severe governmental restrictions on
or
units.
homes
where there
in
are
how many units each
builder can build each year (Salomon Brothers).
44
the
over time, shifting
moderate-priced
construct
very strong
When only a
and features which maximize
include expensive amenities
the
more
with
be built, as in communities
limited number of units can
with growth
homebuilder
CHAPTER 4
INDUSTRY RESPONSES TO GROWTH
CONTROLS
responses to growth controls
There are various business
taken
by
communities
the
homebuilding
which have
firms
residential building
issued on
an annual basis.
ventures
sophisticated
with
in the
operate
permits which
They
equity
in
on the
implemented limitations
number of
joint
who
shall be
include entering into
partners,
becoming
development process
more
and becoming
land developers as opposed to just homebuilders.
Joint-Ventures and Land Developers
The
ability to
finance
become more difficult
all real
in response to a
economy and
the imposition
the savings
and loan industry.
of all sizes have had to
financing for
this
of lending
such as General Electric
slowdown in the
restrictions on
Homebuilding companies
The primary
foreign investors,
insurance companies but
has
seek out new sources of equity
their projects.
equity are
estate projects
sources of
pension funds
and
also include large corporations
and Weyerhauser.
These groups
have large amounts of capital
to invest and are looking
for long-term appreciation and participation in projects
with strong local developers.
There are a
firms who are
number of large homebuilding
Richard Hall
According to
venturing.
themselves joint
of the BIA:
developers,
venturing
a lot
too.
of
them are
joint
buy thousands
They'll
of land at a
of acres
master
the
builders,
big
"The
time and invite
other builders to come in and build"
Hall
that while
believes
sources
of
capital may
be
shrinking, eventually leading to less competition in the
this joint
building industry,
venturing by
the master
developers,
participating
enables a
to take
the
are
there
"means
in
more
industry.
the
lot of the
It
smaller builders
advantage of the
master
people
developer in
expertise of
things
like
marketing".
Many small
and medium
sized homebuilding firms
who do
not have large land holdings need alternative sources of
financing in order to
As these
firms enter
enter growth control communities.
the market,
they are
faced with
high land costs and high sales costs which will make the
sale of their product more difficult (ULI).
46
In order to
in a highly regulated market,
purchase and develop land
financial partner who is willing to
they must take on a
and
capable
process.
of
ability
developer's
obtaining
which
building
to
must
be
mitigated
maximize
permits
development
risk for
a substantial
This represents
investor/partner
lengthy
the
sustaining
by
possibility
the
and producing
a
any
the
of
saleable
unit.
Joint venture
partners can
for the acquisition
necessary off-site
provide the
needed capital
of the land and the
funding of any
improvements.
For example,
a 1,000
acre project consisting of 2,200 total units in the City
of San
joint
Clemente, California
venture
Credit
between
Corporation.
negotiating a
city
after
diligence
Centex Homes
Centex
and
was
nine
was
month
period
completed.
agreement does
While
not guarantee
some assurance
in
by a
Westinghouse
successful
favorable development agreement
a
Centex with
is being constructed
which
in
with the
all
due
the
development
permits, it
does provide
that their project
will be
able to proceed and will receive certain improvements to
be
provided
available.
by
As
the
city
so
long
an equity investor,
as
permits
are
Westinghouse Credit
provided $50 million for acquisition of the land and $36
million in required off-site improvements.
has
built in
growth controls
other California
Centex Homes
communities which
with far less success.
have
They indicated
that they would not have entered the San Clemente market
had it not been able to
which has a growth control plan
obtain
partner,
since
the
costs would
resultant carrying
and the
up-front costs
as a
Credit
Westinghouse
have been prohibitive.
entered into
Westinghouse
the
past
of
success
across
addition,
the
successfully
as an
been in business in various
count-y
expect to
they
because of
looked upon Centex
They
experienced builder who has
markets
had
they
deals
Centex.
completed with
this arrangement
since
receive
the
a
1950s.
return on
In
their
investment in the range of twenty to thirty percent over
a twenty year build-out.
In
order
developer
to
attract
a
complete
must
and planning.
information
of
dimensions
the
venture
partner,
the
considerable
amounts
of
This planning
includes the
joint
complete
set
of
the economic benefits to
financial statements including
be expected.
a
and
project,
Without detailed information of this type,
joint venture partners cannot know whether they ought to
become involved
in the deal.
provided,
developer
the
potential returns to
Once
will
this information is
understand
the partner must be
that
the
more than the
returns that the developer could expect if there were no
partnership.
Without these
higher returns, there would
be no incentive for the partner to participate.
By
been
some time
landowners for
with
a
proven
industry has
development
position.
very favorable
these large
This
valuable.
more
combination
valuable
track
placed these
Lots
lot.
develop the properties
profits
substantial
detached houses
demand (ULI).
sell the
If
land
record
on properties
in
the
a
owned by
from $80,000
these companies
continue to
themselves, they will experience
by
building
new
single-family
and townhouses which continue
Some of these companies
properties to
build to the standards of
share the
in
companies in
builders are presently valued
$100,000 per
and must
low basis in
area has made their property
of land in the surrounding
much
on
overall escalation in the cost
Thus, the
the property.
to
as reliant
price which resulted in a very
land for a
to
are not
have
financing since they purchased the
these new sources of
that
which
development companies
large
contrast,
to be in
can also choose
merchant builders
who must
the large or master developer
profits of
their sales
with these
sellers.
The Legal Entitlement Process
Although
these
well-positioned
that they
larger
companies
economically, they
are
presently
have no
guarantees
will receive building permits
in communities
which have implemented growth controls.
unable to
receive enough building permits
sales to
make payments
out for the property,
in
the
And if they are
future.
and complete
on land acquistion
loans taken
they will face financial problems
These
companies
must
therefore
be
proficient in the legal entitilement or approval process
in order to maximize their chances of receiving permits.
This
process
involves
the
review
architectural plans, engineering
regarding public facilities and
of
site
and
plans and negotiations
services to be provided
by the developer.
As mentioned above, Westinghouse
into the financial arrangement
were confident that
all of the
Credit agreed to enter
with Centex because they
Centex could successfully negotiate
necessary development approvals.
Regardless
of the size of the company, the successful firms in this
process
either
responsibility
outside
have
staff
of gaining
consultant
to
members
city
approvals
perform
thorough
understanding
plan and
the basis for its
of the
assigned
this
the
or hire
task.
residential
Both
an
a
allocation
implementation will provide
the firm with valuable insight into the city's goals for
the
residential
necessary
individuals
allocation
for firms
to
within the
program.
develop a
city
It
is
rapport with
who are
involved in
also
those
the
development process in order to be sure that the project
being
proposed
is
consistent
with
the
development
pattern and
overall design goals and
city.
51
objectives of the
Chapter 5
AN EVALUATION OF INDUSTRY
OPERATIONS IN GROWTH CONTROLLED
COMMUNITIES
Up to this point this thesis has reviewed the literature
written
growth
on the
history
control movement
discussed the
control
firms may
and
the
It has
the homebuilding
also
industry and
types of homebuilding
communities which have implemented
plans
it has
management and
California.
some of the major
firms who operate in
Finally
in
nature of
has identified
growth
of growth
in
Orange
described
utilize in an
critical approvals
the
County,
California.
strategies which
these
effort to survive
the lengthy
process associated
with growth
control plans.
A review of the various
reveals a
number of
data gathered for this project,
unique characteristics
regarding the economics of
Orange County,
in
California.
Orange County
experience
is great
economic growth.
and trends
the homebuilding industry in
Demand for
as the
The
housing units
state continues
consumer is
to
however
finding it increasingly difficult to afford a home.
The
combination
the
of
high land
number of permits
to
the development
costs
and
controls on
available for construction contribute
of
larger homes
on smaller
lots.
This
need for
the developer's
repositioning addresses
larger profit margins in order to be successful.
land prices are a key
in
element behind higher home prices
high-priced regions
County.
forces in
prosperous.
When an
employment,
population
boosts housing
This can
supply of
an
country such
prices are
land
area
and
In
economically
rising
stronger
demand
order to staff
be able to
only be done if there
housing which
of
because of
income,
an area must
as Orange
the result
which is
area prospers
prices.
economy however,
people.
of the
These higher
supply-side
Rising
its booming
attract more
is an adequate
these employees can
afford to
purchase (Downs).
In response to
the rapid growth in
Orange County, some
of its communities have enacted policies restricting the
amount of
growth that can
occur in a
given timeframe.
This thesis has looked specifically at communities which
have limited the number
of residential building permits
available on
basis.
an annual
designed to limit
These
the impact on the
restrictions are
services which the
community must provide its residents and to maintain the
quality of
desireabity.
life and character which
The maintenance
contributed to its
of existing
services is
important to the continuing prosperity of the community.
Perhaps ironically, these policies which restrict supply
in
the face
of demand,
force housing
prices to
ever
higher levels making it difficult for not only newcomers
to
purchase homes
but many
long-time residents
(e.g.
those who grew up there) as well.
The
homebuilding
industry
is
forced
to
offer
an
expensively priced unit as a result of the high costs of
land,
construction,
government
These
units may
either single
be
fees
and
financing.
family detached
or
attached units: the latter is relatively more affordable
to the consumer and represents
an increasing (43% as of
April 1990) segment of the Orange County housing market.
Government
fees
and
increased 384% over
1989.
are
estimated
the eight year period
to
have
from 1981 to
Land costs are estimated to have increased by 61%
over the
3,672%
permits
same period
These
astronomical
factors facing
consumer.
causing an
It
both the
cost
increase in
increases
taxes of
are
homebuilding industry
is estimated that these
major
and the
fees and permits
add as much as $20,000 to the cost of a new 1,600 square
foot home (Sunstrom, 1989).
Land
price is
established by
first determining
what
buyers are willing to pay for finished homes (based on a
number
of
factors
amenities,
taxes,
subtracting
development
builder profit
final product.
including
and
from the
location,
design
and
proximity
features)
improvement
and
then
costs
and
eventual selling price
The remaining value (or
to
of the
land residual)
represents the price the builder is willing to pay based
on the
formas used
pro
on recent
based
to the
alone contribute
levels
never before
based
on
Government
the
of infrastructure
and
as a factor of the
as another
to
inability
fees are
to
attach
cities
that
industry
the
their
to
factor
support at
They are
to encourage development.
community's desire
cited by
home
need for financial
facilities and are often established
often
some major
These land costs
the county.
and/or improvement
construction
by
experienced.
costs
the
2 is
is included as an example
builders in Orange County and
of residual land costs in
Exhibit
land.
of the
economic potential
provide
contributing
housing
at
affordable levels.
It is apparent that it
real estate
is more difficult in general for
financing for
development firms to receive
their projects as the savings and loan crisis has forced
the
imposition of
that can
severely
limitations on
be loaned to
reduced
the amount
This has
real estate ventures.
the
primary
of
source
of money
funding,
contributed to both an increase in interest rates and in
the
slowdown
of
real estate
development
firms are
Homebuilding
by these
limitations because higher interest
These
have resulted in slower
factors when
added
approvals process have made
to
the
particularly impacted
country.
housing prices
across
rates and
sales of units.
a difficult
development
the homebuilding industry a
more complicated and risky development environment.
firms who were able
Without exception, the homebuilding
and fortunate enough to purchase large tracts of land in
the past and who were able to afford to develop the land
as
time
over
opposed
cost basis in the
relatively low
the
The larger
California marketplace.
of
a
property coupled with
the
in
homes
building
of
experience
most
the
are
advantage
the
have
firms
These
successful.
it,
to selling
southern
homebuilding firms
will continue to be able to raise capital through credit
(Eichler).
offerings
securities
and
paper,
commercial
lines,
The larger homebuilders who have developed a
strong track record in the development industry over the
years
are
tightening
of
impacted
severely
as
not
capital
the
recent
able
the result of the development
the
to
This is
that they have developed
lending community over
acceptable to
are
markets and
primarily due to relationships
is
the
permits become available.
continue to build as
with the
by
is also
the years but
of a proven product which
lenders, the
community and
the
advantage has not been
buying public.
This competitive
a guarantee of
success for inefficiently
run companies
communities, however.
As mentioned
in
growth control
earlier
in the
and
which
responsible for
in
only those
importance of the
understand the
process
thesis,
work
development approvals
closely with
administering the plans
these markets.
These same
which
large firms
those
who
are
are successful
companies must
also be
successful in the marketing of their product.
There are,
of course, exceptions
communities
look
upon
the
to this in
homebuilder
that some
as
an
"easy
mark" from whom any number of exactions can be demanded.
The cause
It
of such
may be
pervasive
behavior is difficult
driven by
an anti-growth
throughout
the
towards all members of
city and
to ascertain.
attitude that
that
is
is
directed
the development community, or it
may be the result of an acrimonious relationship between
employees of
the city
project.
In
expensive
for both
causes
the
any
event,
developer of
arbitrary
the developer
delays while
exactions.
and the
the
These
any given
behavior
can
be
city as
it
the merits
of
also led
to
and the
parties argue
disagreements have
litigation which is expensive to all parties involved.
Some of the larger firms have an established presence in
the marketplace that allows them
to be able to maintain
a significant influence over even local decision-makers.
This influence is
the result of the
fact that the companies own
constructed
large amounts
large amounts of land, have
of product
have involved themselves in
communities
significance
in
which
is the
company builds.
combination of the
they
in the
area and
the political fabric of the
operate.
success of
But
the product
of
most
which the
If a company has successfully built and
sold products which have been consistently attractive to
the
marketplace, a
company has
for they are not as
well positioned financially nor can
that are often created by
they perform to the standards
for
established firms.
in
prowess
marketing
into the market,
other firms to break
it difficult for
competitive
This competitive advantage makes
advantage for itself.
the larger,
created a
a
There is
no substitute
where
market
lengthy
development approvals can take as long as four years.
homebuilder must
most
likely to
what product is
be able to anticipate
be
saleable by
time the
project
receives approvals and is actually constructed.
This is
an especially risky aspect
of the development business.
Several of the homebuilders
admitted
but so far
the high demand
due to
competition
for
interviewed for this thesis
probably should
that they
economic analysis,
scarce
will find
economic forces
as
a
whole,
conduct additional
have not been
for housing in the
land increases,
prices even higher, homebuilders
the county
the
A
forced to
county.
driving
As
home
and major employers in
it necessary to
understand those
which will impact the
region's economy
particularly
its ability
to
house
its
workers.
In general, the homebuilding industry responds to growth
controls by becoming
better capitalized, which provides
the financial flexibility and staying power necessary in
a lengthy
development process.
Since
a company
that
owns the land will at best receive only a limited number
the past were
able to raise money to
improvements,
and build
on
of
the amount
loans from
houses are
capital
seek new sources of
homebuilders or
companies.
In
sources
income,
successful
has
been
addition
in the
able to
of the limitation
construction
They must therefore
capital through joint ventures with
such as off-shore investors,
of
no longer
available for
the savings and loans.
either large
buy land, install
lengthy process in view
sustain this
who in
middle-sized builders
small and
The
must be
withstand this extended development
able to financially
schedule.
year, such companies
permits each
of building
the
to
other sources
pension funds or insurance
the need
to
companies must
development approvals
described
consuming and costly.
of capital
throughout this
obtain
learn
to
new
be
process which
thesis,
as
time
CHAPTER 6
GENERAL OBSERVATIONS AND
CONCLUSIONS
As California
population
growth
experience
some degradation
Such
things as
of the
clamoring for
controls.
last
decade,
in
its
also
life.
air pollution
and
sewer capacities will contribute
some form
Because the
significant role in
it will
quality of
traffic congestion,
shortages of water and
to a
economic and
continues to experience the
of growth
homebuilding
management or
industry plays
the growth of any
a
community and is
directly affected by growth controls, it will have to be
a major
participant
in
future
development
plans.
Richard Hall of the BIA claims:
"we're going to
be building coalitions
between
environmentalists, slow-growth
people,
builders--we're
have to work
have to
realize we
concerns.
that
together.
way
It
of
to
We're going to
all have
may not
because
all going
the same
always
the
appear
antagonism
created by both sides".
Without
this
sort
of
coalition
building,
the
homebuilding industry will continue to have a poor image
amongst many Californians.
60
This
management plans
impacts
investigated the
has
thesis
growth
of
It has
on the homebuilding industry.
shown that in an increasingly regulated marketplace with
limited sources of financing, the larger homebuilder who
has
the
banked
But
position.
is
land
due to
the
in
advantageous
most
costs
in the
increases
sharp
associated with development, even large homebuilders are
financial partners.
forced to
seek out
choose to
become land developers
These
"master
land to
excluded from
developers"
provide
a
smaller builders who otherwise
business environment for
would be
who sell the
profit rather than developing it
merchant builders at a
themselves.
also may
They
While
the market.
these large
and medium-sized builders are able to remain active in a
land costs, smaller builders
market with extremely high
will
have
a
difficult
only
to be the small builder of
exception to this would seem
expensive, custom homes.
The
surviving.
time
The
thesis has also described
the factors which make building difficult in communities
which have implemented growth controls.
Even
when
undertake
homebuilders
approaches described
in the
the
operational
previous chapters
of this
thesis in their business, they will find it difficult to
produce an affordable house that
most
of the
residents
of Orange
is within the grasp of
County.
In a
more
typical economic environment where land costs are not as
high as in Orange County, there is a broader price range
units available.
of housing
it is
Angeles,
vs.
home
median-priced
about
(Barrons 1990).
national level
realized.
a
83% of the
This leaves
ownership may never
situation is
that
that is
to provide housing
are able
fewer communities
on
qualify
45% who
of this
reality
The
for the
Diego qualify
a situation where home
families in
be
and San
San Francisco
in Los
the families
only 17% of
estimated that
Although no
County specifically,
available for Orange
figures were
becoming more and
in California.
to achieve
more difficult
This is
affordable to a wide range of people.
those at
end of
the lowest
constructed as builders escalate
units due
more expensive
particularly
true
spectrum for
the economic
will be
low-cost housing units
units and
fewer rental
problem for
obviously an even greater
Affordability is
when
their prices and build
This is
to "excess demand".
local
governments
the
limit
number of housing units (Downs).
The
facts
writings
described
indicate
that
legions
in
here- and
controls
growth
of
other
are
a
contributing factor to the escalation of housing prices.
This is particularly true in the highest-priced areas of
the country where
economic growth
When
an
result of
area is
a high level of
amenities and strong
contribute to an influx
experiencing
growth
economic growth across the
of population.
pressures as
a
metropolitan area
Hawaii),
actual
population growth.
housing to
include
therefore
expanding the
supply of
and
faster
be built in more
reducing minimum lot size
speeding
requirements,
through
by imposing
rather than
These policies
multi-family
housing,
and minimum housing-unit size
up
for
processes
subdivisions, and paying
proposed residential
infrastructures
lower-cost
permitting
locations.
for
land
more
zoning
limit
Governments must
barriers to
housing
available
difficult to
it
find
it will
(e.g.
consider reducing
strictly amenities
stimulated by
to growth
as opposed
general
approving
for more
government
spending,
on the
new units
those costs
served (Downs).
are reasonable to a
These suggestions
point, for there
must be an effort mounted by local governments to ensure
that affordable housing be made available for all of its
There
residents.
however, because the
is
some
to
this
situation
many relatively wealthy... suburban
also used
communities
irony
their
zoning laws
unwanted minorities and the poor.
to keep
out
Whether for racial or
for economic motives--often for both--restrictive zoning
served to harm the excluded and to raise the prices they
paid for the
able to obtain
leftover housing they were
(Popper, 1981).
The relaxation
of these policies would
be contrary to the community's desire to control growth.
Even if there is no conscious
community
to
exclude
desire on the part of the
certain groups
of
people,
the
supply-side
of
imposition
difficult for people of
controls makes it
growth
as
such
factors
a wide range
of income levels to afford to live in these communities.
down growth--namely high-priced areas
that seek to slow
that
are
that "localities
prices states
high home
In assessing
reduce
booms--usually
experiencing economic
permissible housing densities, increase minimum lot-size
and house-size requirements, place
that can be built,
number of units
process,
annual limits on the
slow the permission
pay for
developers to
and require
infrastructure plus huge "impact fees" (Downs).
agree "that
these policies boost
all of
their own
I would
housing costs
even higher".
In order
housing more
to make
work closely
must
development community
the
with
create living environments that
to
are designed to be more
that are closer to employment
efficient, more dense and
This will not be an easy task in a suburban area
nodes.
where people
detached
much desire the
still very
a desire
these areas of the
high density
for
single family
open space.
by private
home surrounded
typical consumer in
shown
affordable, communities
The
country has not
living although
the
attached housing unit is becoming more acceptable due to
its
affordability.
The
projects rarely exceed
to the
acre.
density of
projects of
these
a density of more
than 20 units
will need to
encourage the
Homebuilders
design of more medium density projects which can provide
single family living while not
many of the amenities of
taxing the infrastructure and services of the community.
They
must work
and
government agencies
with
closely
local community groups to devise land use policies which
will
both protect
the quality
for
and allow
of life
affordable housing.
City
some of
effort to remove
funding improvements in an
methods of
alternative
and utilize
devise
governments must
infrastructure improvements
the cost burden of
required of
the developer.
These methods
include the
use of bond
financing to equitably pay for
the cost of
equity is important in this
The issue of
new services.
discussion
because the
ultimately
the
fees that
homeowner
new
construct
and
to
pay
facilities such
and
services
with new
and
the new and the exisiting
purchase a home provides both
homeowners
the homebuilder
as
roads, fire stations and schools that the new homeowners
An example of a bond financing
did not have to pay for.
an effective means of equitable
program which serves as
Facilities
California
state
establishes
a
districts,
school
corporations
public
(Sundstrom).
for
to form
The
a
through
taxing
authority
selling
in
a
Act
special
district to
the
the
municipal
other
and
seperate
The
counties,
cities,
districts
by
passed
1982.
in
Legislature
method
facilities
was
which
Act
District
Community
Mello-Roos
the
is
services
for
taxation
of
finance
bonds
Mello-Roos
property.
the taxing
obligation bond,
a general
With
benefited
against the
tax
a
only levy
can
District
authority can levy against all taxpayers in the district
(Sundstrom).
This funding
coordination
between
developer
or
government
the
and
agencies
is an
and
homebuilder
project
mechanism requires
example
the
of
to improve the impacts of
cooperation that is necessary
the provision of affordable
rapid development including
housing.
In
encourage
from a
are more
projects that
by zoning
efficiently designed
be accomplished
This can
land-use perspective.
for expensive
minimize the need
property to
such as
infrastructure extensions
must
cities
alternatives,
funding
to
addition
water and
roads and
sewer lines and by creating zoning districts which allow
higher density projects.
available for development is land
the land that remains
on
edges
the
cities
Ideally,
the
of
encourage
could
environments overlap,
projects
has so
projects
may not
sprawling
of additional
contributed
to
traffic
communities who would
of
villages where work and
but the
they would
areas,
development
development
demand for
These types
entire solution,
be the
suburban
the
been great.
far not
area.
metropolitan
or
urban
multi-use developments or urban
living
not an easy task, for
This is
nodes
congestion.
Also,
of
however; in
result
which have
such
in
the
certainly
there
are
discourage these projects because
66
of
attached to
the stigma
densities and
their higher
Still, compromises must be made.
these densities.
A reconsideration of the development review or approvals
for local governments to
process is another opportunity
improve
able to
work with
project
the
for
economically
the homebuilder
the best
to devise
city
Unfortunately,
community.
the
force who is
a more professional work
establishment of
system as
will require
This
developer.
to the
burdensome
being
without it
possible
as
efficient
make the
be to
goal should
The
community.
development
the
provide
they
services
the
government does not provide enough incentive for quality
issues,
procedural
development
which they
fees
properties.
earlier
in
have
used
have become
These fees
fund everything from new
mentioned
must
the
review
as a
and
residential
of
development
cities
special
builders and developers tied to
exaction levied on home
new
to
Beyond personnel
establish credibility and consistency.
and
enough
long
employment
continue
to
employees
commercial
way to
a popular
roadways to fire stations.
the
thesis,
these
fees
As
have
increased astronomically over the years.
As the various government entities in Orange County have
come to
realize, many of
population growth
for eliminating
the problems caused
must be handled on
the problem in one
by rapid
a regional basis,
community will more
than
The
which
build as
under which
the conditions
regarding
may
in the
Efforts of this sort will
area of the proposed project.
be necessary to address
a developer
levels of service
related to existing
task
regulations
county-wide
devise
will
neighboring community.
growth management
a
established
county has
force
to a
push it
likely only
the housing affordability issue
in the county but short of additional federal government
write-down the price of
subsidies that would
long-term downturn
in the
economy which does
land or a
not seem
likely, housing prices will continue to rise.
The
homebuilding industry
will continue
to thrive
these environments as demand for housing continues.
in
The
advantage that California has over other housing markets
which have suffered serious
declines over recent years,
is the fact that its housing market is not overbuilt, it
overpriced.
is simply
which contribute
various factors
While there are
to these
high prices, those
who have
been described here as having access to the land will be
fortunate enough
control
communities.
will adapt
not
to continue
The
to build, even
be able
valuable land.
to afford
these companies
majority of
to growth controls simply
not to
in growth
because they will
build on
what is
very
BIBLIOGRAPHY
The Growth Dilemma.
Baldassare, Mark 1981.
Berkeley: University of California Press.
Trouble in Paradise.
Baldassare, Mark 1986.
New York:
Columbia University Press.
Burrows, Lawrence B.
1978.
Growth Management.
New
Brunswick: Rutgers University, for Center for Urban
Policy Research.
California Association of Realtors 1990.
Real Estate Trends.
Curtin Jr., Daniel J.
Los Angeles.
1990.
California
Vol.
11 No.4.
"How Legal Trends in Land
Use Affect Real Estate." Proceedings of the
Commercial Industrial Development Association
Irvine,
Ca.
Deakin, Elizabeth 1989.
"Growth Controls and Growth
Management: A Summary and Review of Empirical
Research." In Understanding Growth Management.
Ed.
David J. Brower, David R. Godschalk and Douglas R.
Porter.
1984.
Dowall, David E.
The Suburban Saueeze: Land
Conversion and regulation in the San Francisco
Bay Area.
Berkeley: University of California
Press.
Downs, Anthony 1989.
"High Home Prices--A Worldwide
Problem." Salomon Brothers-Bond Market ResearchReal Estate, March 1989.
Dubbink, David 1984.
Please."
"I'll Have My Town Medium Rural,
1984
APA Journal.
"Paradise Lost--California
East, Burland 1990, July 23.
Home Prices Are Slumping".
Eichler, Ned 1982.
Barron's.
The Merchant Builders.
Cambridge: MIT Press.
Fischel, William A.
"What Do Economists Know
1989.
About Growth Controls?
A Research Review." In
Understanding Growth Management.
Ed.
David J.
Brower, David R. Godschalk and Douglas R.
Porter.
Flagg, Michael 1990.
"Q&A: Richard L. Hall." Los
Angeles Times (California), 26 February 1990, sec.
D, p.6
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Frieden, Bernard J.
1979.
Protection Hustle.
The Environmental
Cambridge: MIT Press.
Frieden, Bernard J. and Sagalyn, Lynne B.
Downtown, Inc.
Landis, John D.
1989.
Cambridge: MIT Press.
1986.
"Land Regulation and the Price
of New Housing." APA Journal.
Leventhal and Co., Kenneth 1990.
Winter.
"Orange County,
California." ULI Market Profiles, 1990: 211-218.
Miller, Thomas I 1986.
"Must Growth Restrictions
Eliminate Moderate-Priced Housing?" APA
Journal.
Summer.
National Association of Home Builders 1989.
Single-Family
Builder Profit & Loss Study.
Washington, D.C.
Popper, Frank J.
Reform.
1981.
The Politics of Land-Use
Madison: University of Wisconsin Press.
Sundstrom, Dennis 1989.
"Speaking Out: The High Cost
of Houses: Who's To Blame?" Los Angeles Times.
(California), 1 October 1989, part 8, page 8.
SOURCES
Project Manager, Lusk Homes, San Diego
Brennan, Sean
San Diego,
Division,
Brent, Ronald M.
California.
Division President, San Clemente
Division, Centex Homes.
San Clemente, California.
President, Town Center Properties.
Carter, Daryl
California.
Irvine,
Building and Zoning Assistant, City of
Gee, Daniel B.
San Juan Capistrano, California.
President, J.A.
King, Jerry A.
King & Associates Inc.
Newport Beach, California.
Lamar, Steve
Lowe, Kerry
The Irvine Company.
Irvine, California.
Coussoulis Development.
San Bernadino,
California.
Poland, Michael
Associate Planner, Community
Development Department, City of San Clemente,
California.
Rafton, Philip G.
Senior Vice President, Southern
California Region, H.R.
Remington Properties.
San
Juan Capistrano, California.
Tomlinson, Thomas
Director of Planning, Planning
Department, City of San Juan Capistrano,
California.
Whitaker, Peter
Manager, Kenneth Leventhal and Co.
Orange County Office, Newport Beach, California.
73
EXHIBIT
1
North County
Hills
Forest
Pacific Ocean
Balboa
Mission Viejo
Lacuna Beach
Dana Point
EXHIBIT 2
SINGLE FAMILY DETACHED
LAND RESIDUAL ANALYSIS
BASIC PROJECT RSSUMPTIONS
DUELLING UNITS:
GROSS ACRES:
NET ACRES:
DENSITY:
RUG. SELLING PRICE:
AUG. SQUARE FOOTAGE:
VALUE RATIO:
COST PER SQUARE FOOT:
120
23.00
15.00
8.00
300,000
2,000
150.00
45.00
REVENUES
PER UNIT
TOTrAL
Sales price
Lot PreMium
300,000
36,000,000
100.00
Total
300,000
36,000,000
100.002
90,000
9,000
27,000
15,000
9,000
2,250
1,500
9,000
10,800,000
1,080,000
3,240,000
1,800,000
1,080,000
270,000
180,000
1,080,000
30.002
3.00%
9.002
S.00
3.00%
0.75
162,750
19,530,000
54.25%
25,000
5,000
3,000,000
600,000
8.332
1.6T2
30,000
3,600,000
10.00P
30,000
3,600,000
10.00%
222,750
26,730,000
77,250
9,270,000
25.75%
m mmmmmmmm
mm mmmmm mm
BUILDER DEVELOPMENT
COSTS
Direct construction
Indirect construction
Finance
Marketing
Overhead
Warrantyg
Transportation Corridor fee
School and other governMental
Other
BUILDER IMPROVEMENT
Lot improvements
Rec comwon area
Builder profit
TOTAL BUILDER COSTS
LAND RESIDUAL
fees
3.00%
COSTS
nmmmmmmm
PER GROSS ACRE
PER NET ACRE
0.SO%
403,043
618,000
74.25P