Testimony of Jeff Mezger, Chief Operating Officer, KB HOME
To Millennial Housing Commission – June 4, 2001
My name is Jeff Mezger, Chief Operating Officer of KB Home, formerly known as the
Kaufman and Broad Home Corporation. Our company is the largest builder of singlefamily homes in the West. We focus, in particular, on building homes for first-time
homebuyers and for move-up buyers. We are the largest homebuilder in California and
in Texas, which happen to be among the neediest states when it comes to availability of
housing for families. California is 49th in the country in the rate of households who own
their own home, and Texas is 45th.
We work closely with state and local government leaders who seek to legislate policies
that will help homeownership. I can tell you that the bulk of the struggle to build homes
is with local government—not the federal government. The federal government—with
the exception of the misapplication of the Endangered Species Act—has been part of
the solution. But, of course, the federal government could do much more.
The great demon in blocking home production for our workforce is the strong and
growing resistance to any new development. This manifests itself in local agency
denials and years-long delays in approving new housing. Land use laws are used to
prevent new residents from coming into the community, rather than to channel housing
production in an orderly way. Further, in California environmental law procedures are
used to delay approvals for many years, which multiplies costs and creates serious
uncertainties. Finally, in California and increasingly in other states, there is an epidemic
of litigation over construction quality. This adds immensely to the cost of housing. It
causes liability insurance to withdraw from the market. It penalizes thousands of
California minority subcontractors, who because of their short tenure in the business,
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-2are unable to get insurance. It has led to a near halt to condominium construction. This
is the very product that uses the smallest amount of land and is the ideal vehicle for
first-time homeownership.
While this terrible shortage of available housing—particularly near job centers—assures
that our KB Home communities in California sell out very quickly, I know that in the long
run this is very damaging to the economy, and it leads to a serious degradation in the
quality of life. Families must commute great distances on clogged roads and breathe
unnecessarily polluted air. In order to address this crisis, a group has formed called the
Job-Center Housing Coalition made up of business groups, labor, affordable housing
advocates, minority groups, and homebuilders to begin the long process of trying to
restore some balance to state and local policies that have choked off housing.
Let me set all of that aside and focus on what I as a builder for America’s workforce see
as at least a few things that the federal government can do to put America’s workforce
into homeownership.
1.
FHA
I cannot say enough about the importance of the FHA program to furthering
homeownership. I have just two recommendations to make regarding the FHA
program. The most important thing you could do would be to recommend a
change in law that would allow the FHA to raise the ceiling on its loans to realistic
levels in high-cost markets such as California. The maximum FHA mortgage
limit in California is $239,250. The median-priced home in California is
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-3$254,000. Turning to the counties in which most Californians live and in which
most of the existing and newly emerging jobs are available, such as cities in the
counties of Alameda, Contra Costa, Santa Clara, Los Angeles, Riverside, San
Bernardino, and Orange, the FHA maximum loan amount is one half to two thirds
of the median-priced home. We have got to give FHA the flexibility to deal with
these market differences.
I would also recommend reviewing FHA-associated costs. Every $1,000 that is
shaved off of the closing costs would qualify several thousand more California
families for homeownership. For example, among the FHA costs that should be
reviewed is the requirement that an insurance policy issued by a third party to
cover the warranty given by the homebuilder. Today’s market reality is that highproduction homebuilding is done by large corporations—such as ours—which
often have financial resources substantially greater than the third-party insurance
companies who issue the policies backing the builder’s warranties. In today’s
market, the buyer of a home from one of the large builders is paying for
something that gives neither the buyer nor FHA any new protection. That
change could save several hundred dollars in closing costs.
As great as the FHA program would be if the ceilings were raised, the program
itself does not attack the main barrier to workforce housing—the strong nogrowth, nimby sentiment that leads to a protracted, uncertain and extremely
expensive approval process. In fact, the bricks and mortar are becoming a
shrinking percentage of what the buyer gets, as process costs including
consultants and exactions paid to local government drive house prices way up.
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-4Recognizing that the federal role is historically limited and that we certainly do
not want the federal government in the business of growth management, let me
focus on a few things the federal government might do so that the private sector
could do its job of providing housing to the workforce.
2.
First, financial incentives should be given to cities so they welcome new housing.
HUD’s Community Development Block Grants, federal aid to municipal facilities,
assistance to local law enforcement, or urban mass transit grants might all be
tied to some measure of the city’s record of accommodating new housing. One
measure of commitment to housing would be the number of residential building
permits issued as a ratio of total population, factoring in the amount of available
land and age of existing housing stock. To say it directly, the possible reward of
important federal dollars or the possible loss of those dollars might give local
elected officials the reason they need to promote housing.
3.
Federal downpayment assistance in the form of a loan would allow large
numbers of working people to live closer to their jobs. A number of local
jurisdictions have experimented successfully with downpayment assistance to
teachers, fire, and police who locate in the districts in which they’re employed.
Employee retention is increased by forgiving a percentage of the down payment
with each year of employment. With federal help this should be extended to the
private sector workforce.
4.
Transportation dollars need to be spent where the people are. We need to
improve our transportation infrastructure. Housing always becomes the first
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-5casualty of an electorate’s frustration with traffic. In the urban parts of California,
we will need major federal assistance in order to make important freeway arteries
more efficient, including expensive doubledecking. Unless we build highways
and public transit for the next generation, we will see a continuing degradation in
the quality of life, and we will see nimbyism completely out of control. The
federal role to help pay for this infrastructure is significant.
If federal financial support could be viewed as an instrument to promote housing,
the overall effect would be to incentivize local governments to accept the role of
promoter of workforce housing, rather than its naysayer.
5.
The various proposals in Washington today to help the buyer are helpful.
Extending the federal tax credit program from multi-family housing to singlefamily housing is worthwhile. The proposal to create an IRA-type savings
account for downpayment is good. The granting of tax credits at the time of
purchase—even if they are to be subsequently paid back—would be very helpful.
6.
Let me turn now to a non-monetary role for the federal government …
improvements to the complex Endangered Species Act. When over 35 million of
California’s 100 million acres have been designated as critical habitat compared
to the just 5 million acres of developed land in California, we know that things are
out of balance. Last year, the Fish and Wildlife Service proposed that 5.5 million
acres be designated as critical habitat for the red legged frog. A good deal of this
acreage was adjacent to existing developed areas. The space for the frog
originally designated was greater than the total amount of land on which
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-6practically all Californians live. The final rule recently adopted still designates
over 4 million acres in 28 mostly populous counties as critical habitat for the frog.
We need to fix the framework in which scientific and economic analyses are done
to give them far greater rigor. We also need the Fish and Wildlife Service to be
very precise once the designation is done so that we know with certainty which
land has actually been designated. Rather than broad descriptions we need
specific maps with boundaries so we know which land is actually not available for
housing. Further, the process by which species are listed and their habitats are
designated need more precise legislative criteria so that the Fish and Wildlife
Service is not always subject to litigation by groups using the Endangered
Species Act to delay or prevent any housing whatsoever from being built.
And by the way, the ironic net effect of many environmental lawsuits is a
decrease in density, which contributes to inefficient land use or sprawl, and the
leap frogging of community development, which contributes to great increases in
commute time.
7.
Finally, let me suggest two measures the federal government could initiate and
support that would have the long-term systemic effect needed to allow the orderly
development of housing as our nation’s population grows.
It is commonly said that the two things that residents of any community hate most
are sprawl and density. This contradiction reflects the complexity underlying
housing development and quality of life. Many people just don’t make the
connection in their minds between the lack of housing that is affordable located
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-7near job centers on the one hand and such consequences as long, punishing
commutes, traffic congestion, air pollution, inability of their own adult children to
buy a home anywhere within the same metropolitan area, and a loss of good
paying jobs because of employers abandoning areas lacking adequate affordable
housing on the other hand.
Let’s undertake two steps with support of the federal government. First, an
academy for local government officials—which would be based in each state and
run by the state but supported through HUD—to educate important officials, such
as city councilmembers and planning commissioners, about the land use
regulatory function and its role in promoting or hindering our nation’s housing
stock. Local officials need to understand the complexities of housing
development, which in the 21st Century—except for one-at-a-time custom-built
homes, is a combination of sophisticated finance, market analysis, land planning,
architectural design, civil and construction engineering, customer service, and
politics. They need to understand the central role they play in seeing that the
nation’s housing is built. Finally, they need to understand the difficulty that
comes with their job of balancing between a noisy few who will oppose any
development and the prospective new residents of the community who are not
yet there to articulate the community’s need for housing. Given the strong
national policies to promote homeownership and given the complete gate keeper
power that local government has over achieving these national goals, it is
appropriate for the federal government to help equip and train city
councilmembers and planning commissioners—as the federal government does
with other kinds of local government officials.
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-8-
Second, public education to counter destructive nimbyism should be done by
state and local governments with federal financial support. The public needs to
understand the importance to our quality of life and to our economy of an orderly
execution of housing production for the current generation and future
generations. Nothing improves a neighborhood like homeownership. Nothing
improves one’s own quality of life as living in a community of contented
homeowners. I understand that the State of Minnesota has ventured into the
arena of public service announcements designed to carry its residents to a sense
of community and consensus that meeting the housing needs of the state
benefits all residents. Just as government-supported programs to discourage
smoking or to encourage crime watch, a federal role to educate the public—
probably through HUD—could accomplish a great deal.
The goal of these two suggestions is to change the adversarial nature of the
regulation of homebuilding to become an effective partnership between local
government and the private sector so that we can try to meet the nation’s serious
housing need.
Thank you for the role you are playing in guiding the federal government to play a more
active role in promoting housing for our workforce. With your help, homeownership will
become a reality for tens of millions of Americans.
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