Why the Leading Builders of America are Doing their Own Thing
Almost nothing in Washington is easy to explain these days. So, why should the housing industry’s “great divorce”–the split-off last November of 16 mega-regional and national home building company executives from their role as a committee of the NAHB to form their own association called Leading Builders of America–be any different?
Housing itself, last we looked at the title of this blog platform, is in crisis. Policy, which may or may not have a past, present, and future role in the depth and duration of the crisis, seems to be intent on continuing its intervention in housing as it seeks faster progress on the broader economic front.
So why shouldn’t powers in housing–large and small–find ways to unify when it comes to the issues that affect the housing economy?
Good question.
Industry observers frequently trace last year’s break-up to a clash of big egos all around, after several near-splits dating back two years or more. Reports of the formation of the new organization followed the ups and downs and ins and outs of large home building companies’ disenchantment with NAHB leadership’s handling of Capitol Hill matters, particularly around the extension of corporate tax benefits on net operating losses.
The NOL carryback extension, which carried the day in last November’s legislation that also extended and expanded tax credits for home buyers, remains a bright line of controversy that sharply delineates the interests of publicly traded home builders from private ones.
Public companies collectively retrieved more than $2 billion in cash thanks to the NOL extension measure, the consequence being a mini-frenzy of finished lot pursuits that very likely drove land prices up above where they should have been for the past year.
What happens when a few players can write checks that drive up land prices? A bunch of smaller players who can’t write those checks have to go somewhere else or apply for jobs at Lowes and the Home Depot is what.
That’s Darwinian reality. The biggest grow in a downturn, at the expense of the smaller.
What’s also reality is that egos and brush-ups between large home builders and the NAHB don’t matter in the end of the day. What matters really is that the more government policy infiltrates the day-to-day of the housing business, the more inevitable it would be that large home builders need their own “direct connect” to Capitol Hill, which is what they say is at the root of their reason for being.
KB Home CEO Jeff Mezger, a year ago, might have thought he was going to succeed former Centex CEO Tim Eller as chair of the NAHB’s High Production Builders’ Council. That was the plan.
But instead, the HPBC has been disbanded under the NAHB, and Jeff is chairing the new Leading Builders group. As has been reported, the group’s member companies retain their local, regional, and state building industry association affiliations with the NAHB.
“On 99.9% of the issues, we agree,” says Joe Robson, immediate outgoing chairman of the NAHB, who founded and runs Tulsa, Okla.-based Robson Companies. “We’re still talking with the big builders at a staff to staff level on a regular basis, and I talk to Jeff [Mezger].”
Robson acknowledges that in “just about any industry you look at,” large corporate players tend to team up themselves when it comes to lobbying on issues. “Where we [the NAHB and the Leading Builders] diverge is probably more on corporate taxation, on publicly traded company issues vs. private company ones,” Robson says.
Mezger, and some of the other Leading Builder executives who’ve spoken off the record, doesn’t disagree that critical issues as they regard consumer home buyer demand will continue to unite the interests of both the NAHB and the Leading Builders of America.
“If it’s a topic that brings us together with a common interest we’ll go for it,” said Mezger, who chaired the group’s first in-person meeting in Scottsdale, Az. last week. “We’re still in our formative stage, but the intention of the group is to focus on key issues that are specific to the larger builders’ interests. There’s always two or three things at any given time where the sensitivities and needs of the larger companies may be different from an agenda that encompasses commercial multifamily apartment builders, contractors, etc.”
Right now, he says, three hot-buttons–apart from the overriding need to continue to work on ways to jumpstart the housing economy–separate the Leading Builders from the priority list of the NAHB, according to Mezger.
- Energy legislation–”The House passed its energy bill, which has tremendous implications on the cost to build over time, and we’re working with Congress to make sure the standards it’s looking to meet match up in a cost benefit analysis,” Mezger says.
- Protecting the water supply–”Storm water run off is another area where the EPA has new standards, and we’ve been working with education around the need to comply with them, because we do a pretty good job at that.”
- The Florida Home Town Democracy amendment–”Most of our initiatives will be at the federal level, but all but two of our companies have operations in Florida, and we felt that this one was important enough for all of us to make it part of our priority list,” Mezger says.
The question, then, might be how would the big builders’ interests differ on these issues from those of the broader NAHB constituency.
The answer might come down to two simple factors. One is that size matters. So whereas energy legislation and its new mandates bear significance for all home builders, however large, when you start to scale upward, the implications on cost to build vs. the need for affordability become potential stress points.
The other factor is “nimbleness,” a notion the Leading Builders of America group brings up frequently in discussing its mission and structure. The “direct link” to Capitol Hill proved it worked when it came to home buyer tax credit policy and tax carryback policy, according to Ken Gear, the association’s executive director.
“We need to be able to act decisively and fast on some of these issues, and there are times we couldn’t do that within the voting and approval structure of the NAHB,” he said.
The way we see it, the two groups will tend to work as one with respect to the demand side of the housing equation, and separately when it comes to some of the supply or cost-factor issues.
That makes sense, although it’s not easily explainable.
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