Pundits

Through The Years

BUILDER's Special 25th Anniversary Issue

When we asked 10 well-known "pundits" to comment on housing's progress in the last quarter century and its future promise, we had no trouble finding a common thread. In fact, it's more like a steel cable that links every concern about housing, from land use, to innovation, to mere survival. We're talking, of course, about affordability.

The nation is better-housed today than at any time in history, with more than 68 percent of households owning a home. But despite low interest rates and a vibrant secondary mortgage market, the income of a growing crowd of Americans can't match appreciation in home prices.

Our pundits may disagree on who or what to blame for today's affordability crisis. But they all seem to point to the same conclusion: Unless steps are taken to address the cost of housing, our industry may fail in its unspoken mission to provide quality shelter for all.

Witold Rybczynski

A thoughtful chronicler of American architecture and land planning considers housing today.

One might expect that legendary architectural historian and critic Witold Rybczynski to prefer development patterns of the past. But Rybczynski, a professor at the University of Pennsylvania and the author of books such as Home: A Short History of an Idea, evaluates today's housing with respect for both the old and the new.

"One could argue that nothing in America grew organically, because it was all built very quickly," Rybczynski says. "That's always been part of American life, because what can you do when you come to a new place? You have to build a street, houses, shops. There's an element of artificiality, whether it's Thomas Jefferson building Monticello or a developer building today."

In today's suburbs, builders give rise to entire towns within a few years, constructing parks, pools, and even schools to go along with houses. It sounds like a trend, but Rybczynski says it's actually a tradition.

"There is a long history of developers who have been social engineers. They knew to put in places where people could meet and greet," Rybczynski says, citing as an example Hilton Head developer Charles Fraser, who held a cocktail hour every Friday for early residents. "They knew when you're starting something from scratch, you have to prime the pump."

If Rybczynski accepts current development trends, he longs for the industry to create better-designed communities. "I wish that the home building industry could find a way to make better use of architects," he says. "In my opinion, the high point of American housing in many ways occurred in the 1900 to 1930 period, when there was real design innovation with prominent architects setting the design bar quite high. Today, architects and home builders have drifted apart. The industry doesn't see a demand for 'design,' and so we have housing products that are excellent in many ways, but unfortunately often ugly."

Chuck Shinn

A home building consultant recalls his years in the industry.

Thirty years ago, a young man named Chuck Shinn took $1,000 and used it to build his first home--something that wouldn't happen today. "It's harder for a young person to get started in the business," says Shinn, president of the Lee Evans Group in Littleton, Colo. "We used to be the last bastion of the entrepreneur."

That shift, along with the rise of public builders, is one of the few things Shinn wishes hadn't occurred during housing's last 25 years. Today, public builders, who barely sent a ripple through the market in the late '70s, account for one in every four housing starts. Shinn isn't bothered by their size as much as their orientation. "They tend to make decisions for Wall Street, not their local community, the industry, or the customer," he says. "I wish we didn't go tap public money as an industry."

But Shinn has seen positive evolutions too: land planning, target marketing, and management systems. "Computers allowed us to grow," he says.

They have also enabled builders to customize. "We pay more attention today to modifying the product based on the consumer," says Shinn. "In the mid-1960s, we were just satisfying a hell of a pent-up demand for housing because of the Depression and [WWII]. You just built houses. People were looking for shelter. Today, they're looking for lifestyle."

Karl Case

Price watcher says housing appreciation has created wealth for many and incredible obstacles for others.

Karl Case bought his first Massachusetts home for $56,000 in 1976. He sold that house in 1991, buying a $392,000 home that's now worth more than $900,000. It's just another incredible example of ribald housing appreciation, everyone's favorite cocktail party topic.

Case, a research principal at home-price research firm Fiserv CSW (formerly Case Shiller Weiss) and an economics professor at Wellesley College, may be happy with this investment, but he says there's a cost to such wealth building. It has benefited only those with the resources to own and maintain a home--the middle and upper classes.

"It's hard to say I wish [such appreciation] hadn't happened, but in a way I do--or I wish it would have increased at a slower and steady pace, rather than the boom-bust, boom-bust cycle. It has been terrible for the low end of the income distribution scale," he says.

Somehow, Case says, someone needs to find a way to produce more housing for working and low-income people, who have found themselves priced out of the booming housing market. "We are the best-housed country in the world. But not at the low end, where there is the intersection of an overburdened government and a private market that does not serve that segment [of the population] well," he says. "I'm a believer in the market, but the bottom end of the distribution is not served well."

Watts Wacker

Author and futurist Watts Wacker foretells of a high-tech world of semi-intelligent homes.

Watts Wacker

Builders haven't looked at the way people actually live. That goes from building too much in the wrong areas to not building enough in the right areas. As we get more concentration of wealth in fewer hands, we have created a class demarcation where people can't live in certain areas. These may not be physical gates, but they are functional gates. It's completely contrary to any concept of diversity.

Q: Can you suggest a better model?

The key here is that we're missing the power of urbanness. There's an incredible thirst to find new points for social connection. Instead, building patterns create more isolation. There's a longing that the building industry has missed.

Q: Will today's housing survive the test of time?

Unfortunately, innovation has been going in the wrong direction--toward the super-sized home in the suburbs. This isn't a trend. It's a fad. In less than 10 years, these will be subdivided and made into neo-duplex housing. But why not do it now? Another example would be not realizing that the kitchen is the most used room, and the living room is dead space. Yet builders stick to the same plan.

Q: What about construction technology? What big changes do you foresee?

Most important will be the advent of silicon (computer chips) being used in everything. You're talking intelligent clothing, intelligent products. It will be capturing all of your behavior and recording virtually everything about your life.

Q: That sounds a little scary.

There is no privacy. Your existence has economic worth just because you exist. For example, a town may consider collecting low-level data on recycling and water usage from your home and reselling that data to lower taxes. The home becomes the critical collecting point for all kinds of information.

Q: What can builders do to prepare?

Smart builders will realize that at the very least, they've got to build each house with runs of conduit. Although wireless technology is certainly a possibility, it's better to be smart. They don't know what's going in that house in coming years. If you think you can incrementally gain your way to the future, you might as well pack it away now.

Tim Eller

A big builder celebrates housing's past but remains concerned about the industry's coming challenges.

To Tim Eller, president and COO of Centex Corp., the past 25 years have been good ones for housing. "I can think of nothing of serious consequence that I wish hadn't happened," he says, noting the industry has made strides in everything from housing finance to construction technology.

"We have a ubiquitous mortgage market that is the real key to the industry's success. Customers can obtain a mortgage anywhere in the United States that fits their circumstances and is basically financed by Wall Street.

"The large home builders are bringing a new level of sophisticated management and fiscal stability to the industry," continues Eller, adding that there's growing recognition of home building's importance to the general economy. "And every aspect of the American house is getting better--from the designs we offer, to the materials we use, to the efficiency and workmanship of the building process."

But even a powerhouse such as Centex senses challenges ahead. "Demand for homeownership in this country is remarkably strong and will stay strong for the foreseeable future," Eller says. "But exclusionary land use policies that affect housing availability and affordability are limiting the industry's ability to meet the housing needs in a number of markets today, most notably in parts of California."

Builders can't afford to wait 25 years to see how the battle turns out. They need to join it. "The industry needs to sound this alarm and strongly encourage balanced local policies that allow for future growth and support affordability," Eller says.

Reid Ewing

Land-use researcher argues for infill incentives.

Photo: Courtesy Reid Ewing Reid Ewing

Ewing doesn't deny the lure of a single-family home in the suburbs, but he does believe attitudes are changing toward development. "Even if we like our individual situations," he says, "we don't like the collective effect" of development, such as traffic congestion, less green space, and lost farmland. And, as people seek to incorporate more activity into their daily lifestyles, he believes buyers will desire more walkable neighborhoods.

The answer, as always, is infill, which can be prohibitively costly and time-consuming for many builders. Ewing says that must change. "The most important change we could make [during housing's next 25 years] is regulatory streamlining and financial incentives to encourage residential development and infill development in the city," he says. "One gains more in terms of reduced vehicle miles traveled and health by infilling, re-filling, and revitalizing the city than anything we can do in the suburbs."

Jack Robinson

A consumer-minded former builder advocates that buyers, not planners, affect the design and features of new homes.

Buyers unite! That could be a rallying cry for Jack Robinson, the former executive of the Texas building company Rayco, which was bought by KB Home in the late 1990s. Rayco was legendary for delivering high-value homes with designs based on market research. Now retired and serving as a consultant to builders, Robinson retains his longtime passion for giving buyers what they want--a task he says that has become increasingly difficult over the past 25 years.

"The biggest problem we have right now is entitlements," says Robinson. "The small planning commissions really control our business. And to whom do they answer? Homeowners, who are interested in increasing the value of their homes, keeping minorities out, and keeping families with children out of their neighborhoods."

Pressure from existing homeowners often restricts the type of product builders can build, the size of the homes and lots, and the amenities offered. This is anathema to the consumer-minded Robinson, who wishes buyers had more political power. "The planning commission's values influence the product more than the buyer does."

So what would more buyer-driven homes look like? "They would have more square footage. They would be two-story, single-family detached houses on minimum-sized lots. And they wouldn't have any brick."

Cushing Dolbeare

This decades-long champion of affordable housing warns that good ideas have often been tossed out with the bad.

Cushing Dolbeare

"The most disastrous change in housing in recent years has been the termination of any production program to house extremely low-income families," she says. "The problem is that the public tends to assume that rental housing in lousy condition is subsidized housing. There were a lot of good things tried in the 1960s, but the only failures still visible are the housing failures."

Even worse, many people associate subsidized housing with massive high-rise development, when that was only 10 percent of the public housing stock, she says. "Most of the programs, especially in small communities, were very successful."

Dolbeare argues that housing inequity could quickly be fixed by moving tax incentives where they would do the most good. "If we committed as much money to low-income housing as our current homeowner deductions cost the Treasury, we wouldn't have a housing problem. We'd have a surplus."

"The fact is that 75 percent of that lost revenue goes to people in the top fifth of the income distribution," she adds. "That would buy a lot of housing."

Kent Colton

The former NAHB head looks to housing finance's next wave.

Photo: Courtesy Kent Colton Kent Colton

That debacle led to what Colton considers the second revolution in housing finance: the development of a secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac. (The first revolution would be the creation of the FHA and other related programs.) Today "there's a continuous flow of credit that has linked home buyers to the capital markets," he says.

Colton thinks another revolution is now happening, this one based in technology. Computers have led to faster underwriting, quicker refinancings, and even lower down payments. New computerized financial models not only permit more people to qualify for mortgages, but also reduce the potential for discrimination. Finally, more flexible mortgage products have been developed and implemented.

Much of the credit for those innovations belongs to the big F's. "Fannie and Freddie need a strong regulator, but we shouldn't limit them for the sake of limiting them," Colton says. "Because of Fannie and Freddie, we have 30-year fixed mortgages. We're the only country in the world with a 30-year fixed mortgage without a severe prepayment penalty."

Steve Hullibarger

A consultant doesn't want history to repeat itself in manufactured housing.

While stick builders enjoy record years, manufactured housing has been suffering--badly--despite trends that should work to their advantage: increased use of factory-built components and growing concerns about housing affordability.

Solving the industry's deep-seated challenges will take time, but Steve Hullibarger, a manufactured-housing industry consultant in Fair Oaks, Calif., has a few ideas. First, the industry must "get serious about policing itself and rooting out the conditions that repeatedly allow unsound and fraudulent behavior to control it," he believes.

Second, manufactured and modular must come together. "Although modular manufacturers tend to disdain the HUD-code people, I think the solution that will come to the rescue of both factions is some hybridization of the two. To run volume, you can't live without a large dealer organization to diversify your market exposure and smooth out the short-term market bumps and dips. To get beyond 250,000 to 300,000 home sales per year, the HUD-code side needs to build supplemental distribution systems."

What else would help? It's "wishful thinking," Hullibarger says, "but a dramatically elevated standard of education within the industry would help all of us to remember our history and work to prevent it from recurring."

Steve Alloy

The rise of a new breed of home builder.

Photo: Courtesy Stanley Martin Steve Alloy

Q: How has the home building industry changed in the past 25 years?

The biggest change from a management perspective is that now home building companies are run by people who look like MBAs, whereas they used to be run by people who looked like builders. ... The guys who made the industry great in the 1970s and the 1980s were entrepreneurs. Their creative side drove the business. Today, we are building a company around people rather than a deal.

Q: Where do you fall on that spectrum?

I'm a business leader running a home building company, rather than a builder looking for the next deal.

Q: Obviously companies are better managed today as a result. But what has the industry lost?

Many of my peers have not built houses, which I find troubling. I've spent time on the jobsite and in the sales office. You gain an understanding of how the customer side really works and the home building process works. We don't want to end up like the auto industry, where execs got too far removed from the floor and the market.

Philip Fairey

This dedicated researcher says that until homes are measured by life-cycle cost--not initial cost--efficiency will continue to suffer.

Philip Fairey, interim director of the Florida Solar Energy Center, a government-funded research facility in Cocoa, Fla., says that if he could take charge of the industry tomorrow, he would start with a change of philosophy.

"My priority would be to make sure the total cost of owning homes is involved (and disclosed) in the building and selling process. That would be the No. 1 thing. Quality would improve. I can show you that with a 30-year mortgage, we should be building homes that are 30 percent more efficient. Research is really a small piece of the pie. It's critical, but getting those results into the marketplace is a much larger problem."

So why hasn't housing seen the same rapid acceptance of innovation as, say, computers? "Computers are just sexier than housing," Fairey says. "Porn sites make the most money of anything on the Internet. In housing you never even see most of the innovation--it's behind the walls."

That doesn't mean innovation isn't happening, he adds. One highly visible example: compact florescent bulbs. "Three years ago, they sold for $18 apiece," he notes. "Now, you can buy a 100-watt equivalent for about $4, and soon you're going to see LED lighting in homes. These are major advances in efficiency."

Where are they now?

Roy Humphreys: "I'm just enjoying myself," says Humphreys, 62, who retired as president of Shea Homes in April 2002 after nearly 30 years. But he hasn't left the industry: Humphreys serves on the boards of private builders Colony Homes of Atlanta, T.W. Lewis Co. in Phoenix, and Illinois-based Kimball Hill Homes.

Jim Schuler: He may be 64 years old, but Jim Schuler, who merged Schuler Homes with D.R. Horton in 2002, has no plans to retire anytime soon. As a regional president for Horton, Schuler runs Schuler Homes divisions in Las Vegas, the Pacific Northwest, and Hawaii. "I don't play golf, so I can't spend all day on the course. I love this business--I always have. As long as it continues to be fun, I'll continue to stick around."

The Lewis Family: The Lewis family sold Lewis Homes for nearly $500 million to KB Home in the late 1990s, but they remain very much in the business. This year, the Lewis Group of Cos., which does apartments, commercial construction, and land development for master plan communities, controls about 30,000 lots, two-thirds of which they expect to sell to home builders. Founder Ralph Lewis died two years ago and his wife Goldy is semi-retired, but their four sons--Randall, Roger, Richard, and Robert--still work for the family business, which recently welcomed a third generation into the growing company. "All the markets we were in for 40 years--the Inland Empire, Sacramento, Calif., Reno, Nev.--are going through a growth wave right now," Randall Lewis says, explaining the family's continued activity. "It would be a shame to let it pass by."