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- [00:01]
A
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- [00:30]
B
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C
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- [01:52]
D
The 30 year treasury tops 5%. This is a big deal for our audience. It's a big deal for a homeowner or anyone looking to buy a home. How much will interest rates be a challenge to what you're trying to do in increasing access to affordable housing?
- [02:04]
E
Well, thank you so much. You know, I think you see, you know, the President Trump is laser focused on housing affordability. He's focused on keeping our country safe, you know, from a regime having a nuclear weapon, but also laser focus here domestically to make sure that the Americans can achieve the American dream. And so as we see the fluctuation in interest rates, we're also, you know, looking at the regulatory environment to bring down burdensome regulations to make it easier for builders to build and for buyers to buy. So I'm grateful for the President's leadership and at hud, we're following that and encouraging localities to do the same.
- [02:35]
F
You just heard from Scott Turner, President Trump's Secretary of Housing and Urban Development Sharing how the President is laser focused on improving housing affordability and cutting regulations on builders hello and welcome to the Votes and Verdicts podcast hosted by the litigation and policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP on the Bloomberg Terminal. Bloomberg Intelligence has 500 analysts and strategists working across the globe and focused on all major markets. Our coverage includes over 2,000 equities and credits and we have outlooks on more than 90 industries and 100 market indices, currencies and commodities. This podcast series episode examines the intersection of business policy and law. My name is Mike Sasso. I'm an editor with Bloomberg Intelligence and guest hosting this episode. With the last of three episodes comprising a miniseries on the crisis in housing affordability, this segment focuses on the flurry of truth social posts and housing proposals we've seen coming from the Trump administration lately, from trying to get rid of burdensome regulation to accusing builders of price fixing. Republicans are under intense pressure right now to show they've tackled the affordability crisis before this fall's midterm elections, but it's unclear if they can pass any of these ideas. My guests today include Jim Tobin, President and CEO of the national association of Home Builders, and Drew Redding, US Homebuilding analyst here at Bloomberg Intelligence. And with that, let's dig into the issues. First, Jim, President Trump threw a lot of things against the wall earlier this year. There was a 50 year mortgage proposal. At one point he threatened a Justice Department investigation into home builders and he accused builders of sitting on something like 2 million empty lots. Just what was it like, you know, living through that flurry of proposals and comments and, and it just must, it must have seemed like you had somebody watching truth social at 2 in the morning.
- [04:52]
G
Well, Mike, thanks for having me on. And anytime we're talking about housing is a good thing. And that's where I would start with the fact that the President is tweeting at 2 in the morning, perhaps. And talking about housing, I think means it's top of mind to him. Top of mind, certainly top of mind around kitchen tables all across the country. Yeah, I mean, we've got to watch what the President does. He sets the tone for everything that happens here in Washington, D.C. and I would think, dare say across the country. And some of those proposals, as long as we're continuing to talk about housing, whether we like the proposals, we're agnostic on them, we're worried about them, the fact that we have the highest levels of government talking about housing and solutions to the affordability crisis from our Perspective is a really, really good thing. And you know, the President's a builder at heart. And for us having somebody like that who understands what it takes to build things, whether it's the regulations or the financing and all the attendant part, parts of that is, is, is useful.
- [05:53]
F
But at the same time we were kind of getting mixed messages from the President. I could imagine that put builders in a tough spot. I mean you had some builder friendly proposals. For example, I know he proposed freeing up federal lands for construction. But then, then there's some other unfriendly proposals like you know, accusing them of, of price fixing and whatnot. I guess the big question is where do builders see the President right now? Is he a friend or is he a foe to builders?
- [06:23]
G
By and large, I think the builders see the President as a friend for, just for what I said earlier. He understands the industry. I certainly think there have been some headwinds. We could dive down deep on tariffs or immigration policy that have affected the industry. But then the deregulatory nature of many of the things that the President has proposed. You mentioned opening up, you know, more federal land. Anything that can help move more supply. You know, we, we have seen what I believe is the, the failure of policies that simply take federal tax dollars, turn them into some sort of handout back to people to help afford an already expensive home. What I would prefer to see is we, we lower the price of housing the old fashioned way and using the laws of supply and demand, let us build more supply to meet demand and home prices will fall naturally that way.
- [07:14]
F
And Jim's just sticking with you just to get like a quick state of new home sales. It seems like sales haven't, you know, exactly fallen off a cliff, but they have been stuck at around 6 to 700,000 homes a year and that's been for a few years now. For a while it seemed like builders were in a great position because they could supply product where the existing home market was kind of short of supply. So what happened to that dynamic? Why does that dynamic not, not in effect now, you know, being so positive for builders?
- [07:48]
G
The shift of, of higher interest rates in the post Covid world has really been that, that line in the sand. As we saw rates start to tick up to 6, 6 and a half, 7% as the Fed tightened. We've, we watched, you know, we've watched home sales essentially plummet and then, and then hold fast. It's just we are obviously like many industries but, but perhaps the leader in interest rate sensitivity when it comes to mortgage rates. You know, we saw, beginning of this year we saw rates tick down just below six for maybe a week. But kind of hovering in that 6% range. We saw more activity. Obviously interest rates have trended back up, you know, due to the Iraq, sorry, the Iran war over the last two months. But, but that you can watch interest rates and watch home sales kind of follow the same trend. As the Fed has increased rates and mortgage rates rose, people stepped away from the market. We have a generation believe that mortgage rates should be 3 and 4%. We have got to shake that from, from many people's psyche and recognize that 6% is still really cheap money. 5 or 5 and a half percent is even cheaper. And we are starting to, you know, we've just got to change that mentality. And you know, the other, the other reason is we're not building as many homes as we should to meet demand just by market dynamics at the moment. But we have not unlocked existing home market and that has been a real challenge for us because of those interest rates.
- [09:15]
F
Just following up on that, you said you've not unlocked the existing home market. We sometimes think of them obviously as the new market and the existing market being in competition and to extend. They are. But I think I've heard that there's the two actually kind of work in tandem a little bit. You're not necessarily, I mean you to an extent benefit when the existing market does. Well, is that true and is that the existing home market kind of holding builders back?
- [09:43]
G
I, I don't think it's holding. I don't think it's holding home builders back. I think there's a, there's a lot of reasons why home building continues to kind of hover. You know, we're our, you know, 25 was a down year certainly from, from 24. We expect 26 now also to be even, even a little farther behind 25. I don't again, there's issues for that. I think the real problem that we have with the existing market is that you have people who are in a 3 or 4% mortgages that don't quite want to trade up to a 6% or 6 and a half percent mortgage. So they're going to stay in their homes and in, because of that the traditional first time first generation homebuyer is, would move into a, into a existing single family home. I use myself as an example. I have a home that was built in 1985. That was the second home my wife and I bought. We first got married, a little townhouse and then when we had started having kids, we moved up into a little bigger home. But the existing market is so important to the churn in the real estate industry because new homes tend to. Tend to favor that move up buyer, that expanding family buyer. Or then you move up into the person who's buying their next home or. And that is the, that is the issue until the existing market really breaks free that people are moving out into a different product. That's really why they have to have to work in tandem. And until we see those rates get to a level that people feel comfortable making a move, we're going to be in this space for a little while longer.
- [11:15]
F
Drew. Drew, I want to turn to you for a minute. Stick with the state of the market. You know, several months ago, over the last few years, builders really were in a sweet spot in that they could reduce people's mortgage rates, something called a mortgage rate buy down. And there was something that the existing home market couldn't necessarily do. But I understand that's kind of lost a little bit of its effectiveness. Is that correct? And are they no longer enjoying that?
- [11:50]
H
Thanks, Mike. So this has really been one of the biggest stories in the home building industry over the last few years, particularly within the investment community. Mortgage rate buy downs have kind of been the ace up the sleeve for the home builders, and it's really what's allowed them to maintain the acceptable sales pace in a challenging environment. And, you know, it's, it's a lever that they've been able to pull that, as you mentioned, sellers in the existing market can't really leverage to the same extent. Now, just for some context, in the resale market, you can buy down your mortgage rates or purchasing points. You know, to, to buy a point, it's about 1% of the price of the home, and that'll buy your rate down about 25 basis points. But in the context of this discussion where we're talking about sellers financing, that you have to remember that there's a limit on how much sellers can contribute, and that's going to depend upon the type of loan, the size of the loan, and at the same time, you have lenders who put caps on how many points they'll allow you to buy because they want to maintain certain lending requirements so they could sell their loans. Now, builders have had a loophole which you alluded to, which is buying down mortgage rates through the use of forward purchase commitments. And basically what they're doing is they're paying an upfront fee to a lender to purchase a bulk pull of mortgages at a fixed below market rate that they can then offer to their buyers. So it allows them to meaningfully reduce the monthly payments without having to lower the sales price of the home. And over the last couple of years, when affordability really became stretched, that's what people were shopping for, right? They're shopping for that monthly payment. And I think the builders did well in helping to solve that equation, at least to some extent. The problem that builders are having now is that we have a lot of well educated buyers out there. You know, they're coming in, they're looking for a deal, right? They're, they're conditioned to expect one of these, you know, meaningful incentives. So builders have had to keep their foot on the gas pedal. And just for a little bit of context, if you look at some of the names that we cover in the, in the public builder realm, they're spending about 10% or more of the average sales price on incentives. You know, Lennar has been one of the poster childs. They're spending up where upward of 14%, you know, but, but to your question, are they still effective? I think the answer is yes. But there's, there may be a couple reasons why they seem like they could be losing some of their effectiveness. And I think, you know, one of the reasons, and I mentioned that home buyers are much more sophisticated and in touch with the market. You know, there's a lot of talk about home prices. Home shoppers are watching the news, they're reading the headlines and they're saying to their self, look, if home prices come down, maybe it's not a great time to buy a home. So I don't necessarily want to pay more for the house just to get a lower rate, knowing that if the market weakens, I could be underwater relatively quickly. Another reason I think is that it's expensive for the builders and there's only so far they're willing to go to chase that next sale. Many of the larger builders have been willing to accept kind of the reality that we're simply in a lower volume environment, and maybe it makes sense to hold on to some of that margin if you can. The last thing I think I'd point to is, you know, there are a lot of moving pieces that are influencing purchase decisions. And Jim alluded to several of them. I think, you know, perhaps the difference that we've seen More lately in 2026, we have the end of 2025, is heightened consumer uncertainty. So in many cases, a lot of the builders have made adjustments to the prices of their homes. They're offering buyers incentives. So it's not necessarily that the, the buyers can't afford the home. They're asking themselves, is now a good time? Maybe they're concerned about the direction of the economy or the outlook for employment. So look at the, at the end of the day, I think that incentives will remain a key tool for the builders and, you know, we expect them to remain elevated. I think the one caveat would be if there's any type of policy put in place that restricts their ability to use them. You know, that's something that's been hinted at by FHFA Director Pulte. So we'll have to wait and see where that goes.
- [16:11]
F
Let me just, if I can, let me just follow up on that. What has Bill Pulte said regarding use of incentives or buy downs?
- [16:19]
H
It was through a truth social post or a tweet, I believe actually. And it was something along the lines of where, you know, builders use of mortgage rate buy downs is artificially keeping the price of homes elevated. Basically he's saying that they should be making adjustments and make homes more affordable rather than simply buying down mortgage rates. And you know, there is, there is a little bit of truth to that because in order to, you know, achieve the same monthly payment, if a builder was to cut the price of a home rather than simply offer the incentive, they would take a much bigger hit to their margin than they would by simply offering the incentive.
- [16:58]
F
And Drew, just to touch on prices, he mentioned prices, we have seen a little bit of a decrease lately. I looked at some data the other day. The median new home price lately has fallen below $400,000 nationally. Although mortgage rates are kind of going in the wrong direction lately. You see the price going significantly lower than 400,000 or even under $400,000 and maybe helping affordability with or without something coming out of, out of Washington.
- [17:28]
H
Yeah, good question. So our stance from the beginning as it relates to affordability, you know, has really been that it's an issue that's going to take time to resolve, but it's one that the market itself needs to and will ultimately figure out on its own. You know, we haven't been big believers that the federal government has the ability to kind of solve this issue on its own. And quite frankly, I think that's, you know, why this has been going on so long. If it was easy to fix, it's something that would have been done. You know, there's a lot of interwoven elements to the market. And you know, as Jim said, ultimately it comes down to supply and demand. So I don't know if there's an easy way for the federal government to come in and thread the needle. Because if you think about, you know, some of the proposals that they've come up with, you know, some of them tend to contradict themselves. For example, President Trump has said that he wants to see home prices remain stable because they don't want current owners to lose all of the equity that they've accumulated over the last several years. But you know, that runs counter to proposals that would force builders to put additional supply into a market that's already oversupplied, which theoretically drives down prices. Now, on the other hand, you hear calls for demand side stimulants like down payment assistance or first time buyer credits. And you know, those tend to have inflationary outcomes. So, you know, it's admittedly a challenging position where, you know, they've identified the problem which is key, that needs to be solved, but there's, there's just not a simple solution. But you know, to your point, the moderation in new home prices, and they certainly have come down. You know, we look at, at new home prices because they tend to be a little bit lumpy on a six month moving average and we're down about 7% from the peak in 2022. And you know, I'm sure you're aware as it's been pretty well documented at this point, that the median new home price is actually at parity with resales. And that's something that you, you just typically don't see. New homes typically sell at about an 18 to 20% premium over resales for a variety of reasons. But I think it's important to recognize that builders have been looking for ways to get payments down. So of course, one, we've seen the base price reductions that we've talked about. They're addressing affordability through square footage. So building smaller, less amenitized homes, we're seeing greater density in construction. So more townhomes are being built. So there's a number of levers that are being pulled. But again, it's not just one thing that's going to solve the issue. It's ultimately got to come down to a combination of home prices moderating either through mix or price cuts, a moderation in mortgage rates or consistent income growth. And I think we get there slowly and surely. But again, it's kind of our position that it's the market that's going to ultimately solve the issue.
- [20:06]
F
Just follow up real quick. Is there a number that you've heard of. If I don't, I think most recent figure for median national price was somewhere around 385 or 387. Is there, is there projections that you've seen what the median national price might fall to or, you know, anything like that?
- [20:25]
H
I think for, at the national level, expectations are for median prices this year to be relatively flat, maybe up slightly. But again, when you're talking about the housing market, you know, you have to take a very regional and even a local lens to see what's happening. And a lot of the price action that we're seeing is being dictated what's happening with supply, both in the existing home market and the new home market. So while the national level appears to be stable, you do have certain pockets around the country where prices are falling. And if you look at the top 50 markets, you actually have, you know, prices down year over year in more than half of them. So I really think you need to look regional. It's going to depend on what happens with the inventory situation. But big picture at the national level, you know, there hasn't been a meaningful correction. And I think in order for something like that to happen, you know, which certainly isn't our base case, you would need to see significant downturn in the economy with, with unemployment rising pretty sharply.
- [21:23]
F
Jim. Jim, I want to return to you and dig into some of your specialty public policy and some of the president's proposals. President Trump called out builders for, quote, unquote, sitting on 2 million empty lots in a truth social post. I think it was last fall. First off, do you know where that number came from? Is it an accurate number? And is that, is that high relative to history?
- [21:50]
G
I don't know if it's high relative to history, but I think it's a fairly accurate number. I mean, the public builders certainly have to publish kind of where they're headed every quarter quarter for their shareholders. So I think it's an accurate number. I think what's, what's misleading is that the, the implication is that it's 2 million finished lots that are, if we could we just throw, you know, start putting the improvements on them and building homes on them. Those are lots that are in inventory for, for the builders in various stages of development. So some of them might be raw land, some of them might be finished. Many of them are somewhere in between and doesn't matter how many lots the builders have in inventory until they sell off their existing inventory. And as Drew just walked through, kind of the dynamics there, they're, they're they're not going to tap those, those, those land, those, the land that they have in inventory. So it's just, it's just, it's, it's a little misleading about, about the status of those lots and you know, but, but I get it, right. It's, it's, it's kind of setting the stage for, you know, large, the larger houser conversation about how do we build more houses.
- [22:57]
F
I don't know what the implication was by the President's post. Maybe he was thinking that if builders completely charitably just decided to start on those 2 million and flood the market and then, et cetera, would drop prices. Is that just not market dynamics? They're not going to build on them until they feel like they've sold enough of their existing product.
- [23:19]
G
Yeah, I think, Mike, you're right on. It's market dynamics and the market is, is soft right now and they've got a lot of inventory that, that's ready to be sold and like Drew said, walk through some of the incentives that they're offering and, and you know, until we eat through that and they're not going to, you know, really ramp up their, their production capacity until then. But I, I think, I think the President's trying to shine a light on, on production and that look, and I'm a. We're supply siders on this, right? We, I firmly believe that if we build more housing then, then prices will fall. We've already seen that in the rental market with the, the big bubble that we have, you know, continuing to move through in, in apartment construction is rents have fallen. So he's not wrong that more building will lower prices. It's just, you know, kind of the semantics matter in this case.
- [24:10]
F
The President, Jim, sticking with you. The President put out a fairly, how to call it volatile or empathy towards builders. He suggested that big builders are, quote, coordinating on prices through something called Leading Builders of America. I had not heard of that group prior to a few months ago. Do you know what Leading Builders of America is and do you know anything about what it does and why the President might have suggested that there is price coordination going on through it?
- [24:43]
G
Yeah, that was, that was an interesting one. First, I'll address the competition side of it. So the home building industry is as diverse an industry as you're going to find with many, many home builders. In each individual market. I'm talking about individual markets in everybody's hometown. There is a variety of builders and options in competitiveness. So your competition, I don't see that there's any antitrust activity. The Leading Builders of America is a national trade association that represents, represents about the 20 largest home builders in the country, both both private and and public builders. We work, we coordinate with them regularly. We share members in common with them by virtue of how the NHB Federation is structured. So you know, it's, it's not, it's certainly not a nefarious group. It's a national trade association that works very hard on behalf of its members.
- [25:37]
F
Just to be clear, I, I know the NAHBA as is maybe a little bit of a broader tent to think a fair number of your members are smaller builders and custom builders. Am I right? And so is that where you, where's the leading builders obviously are the bigger builders?
- [25:55]
G
Yeah, that's fair to say. You know, the vast majority of home building in this country is built by builders who build less than 25 homes a year and have less than 25 employees. It truly is a small business industry. The large builders dominate the markets and states where they dominate, you know, Atlanta, Mike, where you are, or you know, Dallas, the big high growth areas where there's a lot of land. They dominate those markets for sure. But again they are members of ours. Again, HB is a federation you join at the local level. So the Tampa Bay, the Tampa Area Homebuilders association that it does have a lot of high production builders. They are members of ours as well. And again we, we work in concert with them a lot because again, at the end of the day we're all trying to build more homes for the American people. And so it's, you know, a little bit of a subtlety perhaps, but, but the mission is the same.
- [26:53]
F
Jim, I read where your organization, Home Builders association has it pushing Fannie Mae and Freddie Mac to create a secondary market where building builder construction loans could be packaged up and sold kind of the way residential mortgages are. How would this work and what would you hope it would accomplish?
- [27:15]
G
So this is a great example of the difference between the small businesses that dominate the industry versus the large public and even the large private builders in the country. The large builders get to go to Wall street, they get to go to the capital markets for their financing for land purchases and, and business operations. The average small builder goes to local community banks. And since the Great Recession, those community banks have high capital requirements. When it comes to builder loans. Builders use something called acquisition, development and construction loans. A, D and C. Buy the land, turn the land into developable lot and then put the improvement on it. Those loans again predominantly come from Your local community banks. And given the capital requirements those banks are required, they hold them on their books. They've got to hold reserve capital against them since the Great Recession. So there's not a lot of churn in the market. Unlike what we see in the mortgage market where local banks can make a mortgage, they are then rolled up and packaged and given to Fannie and Freddie into the mortgage, into the secondary market. We believe that we could free up capital number one, but number two, that capital would be less expensive if there was a secondary market for those AD&C, again, acquisition, development and construction loans. We have talked for decades, to be honest with you, with FHFA and FHFA's predecessor about Fannie Mae, Freddie Mac and the Federal Home Loan bank system getting involved in those construction, lending, creating a secondary market. I'm not, I want to make sure it's as safe and as sound as it can be, but I believe there could be a role there that would absolutely help builders build more homes because of that, that, that accessibility, availability and then the ultimately the cost of, of those construction homes could be made better if the federal government created a program for that.
- [29:14]
F
Yeah, just following up on that. I'm not a finance expert or even a housing finance expert. We, a few days I had a different panel, I was interviewing a different panel on a, on a podcast episode and we touched on construction loans and this idea. I don't profess to know everything how this worked. These housing finance experts were somewhat dismissive of the idea. I don't know if it was because I, is it the construction loans would be much shorter duration maybe than you'd expect a residential mortgage to be. There was something that, that made them not, not as, as, as easy to facilitate as just without going into too heavy finance. Is it your understanding these are doable and that there would be investors in these kinds of things?
- [30:04]
G
I, I believe there would be. Obviously the proof is in the pudding, but I believe that they, they are, they are generally short term in nature that obviously they would need to be priced that way. You know, when you're talking about, you know, home and in construction there's this idea that they're more volatile. So like I said, that's where the safety and soundness and what the regulator needs to do and Fannie, Freddie and the home loan bank system kind of really taking a look at it. But again, I'm not a finance guy either, but I just think it's different and in my mind, you know, finance people like predictability, the 30 year fixed rate or the 15 year fixed rate mortgage has been predictable and proven over many, many, many, many years. So it's easier just to kind of default that. We are, we are kind of going down a different path and I'd encourage people to figure out the way to make it work. I think there really is something there that can unlock housing in the country.
- [31:04]
F
Jim, final question for you before I move on to Drew. I, I'm. Before moving to Atlanta, I was in Florida for a long time. I'm aware of something there. It, it's got a mixed reaction. It's called the Live Local act. And my understanding that is that tries to prevent, it's a state initiative that tries to prevent local governments from blocking affordable housing. So prevent NIMBYISM from taking root. I know California has done some things lately to try to reduce regulation there. Is this a good sign? I mean, do you see the answer to combating NIMBYism and freeing, you know, loosening regulation being at the state level or the local level, or does it need to be done at the federal level?
- [31:56]
G
24% of the cost of a single family home in this country is directly attributable to, to regulation at all three levels of government, local, state and national. For a multifamily unit, it's about 41%. And so there is responsibility at every level of government to, to try to chip away at that, that 24% or that 41%. The bulk of it is going to be at the local level. No doubt about it. We've already seen President Trump try to tackle the federal portion of that by deregulating or making the regulations we do have easier to comply with what we have seen. And the reason why I believe we're in this housing crisis is local governments are refusing to unlock land for development, therefore making availability low and making prices high. And land is one of, if not be the largest input to the housing price equation. So if we can unlock land and open up for new development and they restrict, either by completely restricting land or making the permitting process low, long and expensive and then layering certain regulations on top of that once we get going. Local governments, I believe for, by and large have broken housing in this country. And that's why you see states and even the federal government try to step in. You know, when, when the kids break it, the adults have to step in. And that's why we've seen Governor Newsom or Governor or Governor DeSantis step in at the state level to really hold the feet to fire to local governments, to, to open up more land. But more importantly to stop NIMBYs. Not in my backyarders from, from, from stopping these projects. Local, local officials love to be re elected and reappointed. They can't do that if their voters reject them because they're approving more, more home, home construction. We've got to break this cycle. The people that already have theirs who refuse to allow new people to come in because I had to wait an extra turn at the lighter. The line at Starbucks is too long. They are, they are hurting people from the ability to move into the neighborhoods where they want to. And that is dangerous in the long term. You know, some things take, take the shape of design standards. You have to put dormers on a house. You could only use brick. You can't use vinyl siding. Has to have a two car garage. Those policy or you can't build on a small lot. You have to build on at least an acre or five acres of land. In some communities around this country, those are designed to keep people out. They are design, they are socioeconomic barriers. They are veiled racism in many instances because we don't want those people moving into our town. And that is the challenge we have to break. And again when local governments refuse to lower or eliminate barriers to more home construction, we are penalizing people. And so therefore it's time for state governments and even again I said the federal government to, to move into the equation. I am not, I do not believe that local land use, local landing should stay at the local level. It should not be done at the federal level. That's a recipe for disaster. But again, when we've broken it as badly as we have, somebody needs to step in and provide a pathway forward.
- [35:02]
F
Interesting. Just following up on that. And this is more of a comment than a question, but I've been a long time reporter for Bloomberg News, aside from an editor in recent months and I, I was in Nashville about a year ago and they've had an enormous amount of building as you know, in Nashville. And there's a real consternation frustration in some of the Nashville suburbs. Some of the locals there have their, their efforts revolve around increasing a lot sizes or a lot size requirements as a way to restrict building. I've seen a lot of that. All right, so that as I said, that's more of a comment than, than a, than a question.
- [35:44]
G
Yeah, Mike. So it's really interesting because I'll tell you what, the failure in Nashville's been one of the hottest markets, clearly a fantastic destination for people to visit. But, but the issue there is that the infrastructure is not kept up with the growth, which means that you don't have the road capacity or transit or whatever, whatever mix that you need to move, move people around the, the greater Nashville metro area, they have failed on that as well. Home, home growth, job growth and infrastructure growth need to go hand in hand. And that's where people react to. If you can still, you can still get through town fast enough, but we've had a lot of growth, then people aren't going to worry about that. They worry about the inconvenience that growth and then they end up creating these lot sizes which is going to make Nashville unaffordable and, and people who to move there. Whether there's a job opportunity, you're restricting that, that mobility in the sector. If we again make housing more expensive, I promise you that a one acre lot or a five acre lot in Nashville is going to make that home multiples of millions of dollars.
- [36:51]
F
Just as a devil's advocate, I know that improving infrastructure on Nashville and elsewhere would require what they call impact fees, which are fees upon developers and builders and whatnot. And I obviously builders would be asked to step up to the plate in order to, to bring some of those about and pay for some of that infrastructure.
- [37:12]
G
Very common. I think the challenges we all find is sometimes those impact fees, whether it's for schools or sewers or transportation, those impact fees don't always stay in that pot where they're supposed to.
- [37:23]
H
Right.
- [37:23]
F
If.
- [37:24]
G
But they are, they're put into the general fund, which means that obviously the local government's just looking to fund general operations rather than actually mitigate the impact that new development would have. But that's a whole other podcast on non regulations. But I appreciate you bringing that up.
- [37:41]
F
And finally, one last question for each of you. Drew, I did want to bring up immigration. It's my understanding the Trump administration's crackdown on immigration hasn't yet really hurt builders. Correct me if I'm wrong, my understanding is that's partly because demand for workers is lower. The builders have not been at full capacity, so they've not had a full need for as many builders as they might. I'm sorry, workers as they might otherwise. What's your thoughts on the effects of the Trump administration's immigration crackdown?
- [38:16]
H
Yeah. So, you know, as we all know, this has been a hot button topic across this country for a long time. And we also know that immigrants play a significant role in the US Residential construction industry. You know, estimates will vary, but you know, some show that immigrants represent a quarter of workers in the construction industry. And when you start to look at specialty trades and in some of the larger markets, you know, like Texas, Florida, that share of immigrant labor is significantly higher. There's really two ways that I think you need to think about the impact of reduced immigration on the home building industry. One, directly to your question, I think, is the impact it has on the supply side. And that's what gets most of the attention because it's kind of immediate. And then the second is the long term demand implications that lower immigration could have. But to your question, I also think it's important to parse out what you hear from the large publicly traded home builders and what may be happening in local markets among smaller home builders and smaller modelers. You know, based on what we hear during earnings calls and conversations with the largest builders, the crackdown on immigration has not had a meaningful impact on operations at this point. I think, you know, by and large, labor has been readily available for the big builders, and we've actually heard about some of them finding a little bit of cost relief on the labor side. Now, part of that has to do with, you know, as you said, the fact that industry volumes have moderated, so maybe you have crews who aren't spread as thin, you know, and are actually looking for work. The other thing to consider when you're talking about the larger builders is that they have a much greater ability to attract trade labor given their scale, more consistent production cadence. And that's something that's valued by the trade. So, you know, the big builders will tend to get a first look from the trades when they're looking for work.
- [40:09]
C
Work.
- [40:10]
H
I think the impact has probably been more acute among smaller builders and remodelers, maybe those who rely on day laborers. And you know, you do hear anecdotally that contractors have seen crews thin out due to ice raids, crews not showing up to job sites just because of the threat of ice raids. So, you know, it's, it's really not all that dissimilar to, to some of the discussions around affordability, where maybe the construction industry wasn't necessarily the target of the policy. And maybe there are valid reasons for the policy, but it certainly had a direct impact on the industry. I think residential construction has really dealt with labor supply challenges really since the gfc, and it's something that's exacerbated issues that have led to longer construction cycle times, delayed remodeling projects, certainly higher cost. So it's another situation where maybe a one size fits all approach doesn't work here, but again, that's something we'll have to wait and see. And then just quickly. I think it's also important to consider the demand side of the equation. You know, you asked if, if immigration crackdowns are impacting builders. But we, and it's not just supply. We have heard that demand is being impacted, particularly you know, given some uncertainty around visas, whatnot. And there are markets around the country that are very heavily dependent on foreign demand. At the same time, there's longer term considerations. When you think about a more subdued native born population in the US A lot of projected long term growth has been expected to be driven by immigration. Look, we're not saying that it all goes away, but if immigration continues to moderate, that does have implications for, for long term housing demand as well.
- [41:59]
F
Interesting. And Jim, I want to wrap up with you. Forgive me for going off on a hypothetical here, but I want to. Everybody's talking AI lately. Every, a lot of people are scared about AI. I live as, I think I told you, I live in the Atlanta area. One of my neighbors told me he's in the tech field so he's watching things closely. He told me that he and his wife a few months ago were so nervous about things with AI and displacement that they were thinking about do I need to move, do I need to get out of this big mortgage. I have just, just throwing it out there. Are you seeing or hearing of any of AI weighing down consumer sentiment when it comes to purchasing a home?
- [42:45]
D
Yeah.
- [42:46]
G
If I plug in your question into ChatGPT, my guess is it tells people how people are going to buy a home.
- [42:53]
E
Right.
- [42:53]
G
You're going to search for, you can go chat GPT or any of the, any of the AI systems and you can probably decide, you can probably put in enough, enough the right, the right prompts and it's going to give you a bunch of listings in your, your, your area. I think it's going to, AI is going to help people how they search for homes and how they buy homes, how they look for homes. So I don't see it. It's as a displacement history there. Now if I've talked to my chief economist, my guess is he's going to say that there is going to be a productivity shock. You know, we've seen wages start to rise. That's really good for ultimately for home purchases as people feel better. We've got headline risks of the uncertainty of the macro economy. I think that's in high interest rates which are kind of depressing demand But I think largely down the road it could provide some unemployment. And so there's that shock you're talking about. I think there is an opportunity for that. But I also, we're also not sure that it's going to AI is going to impact when people buy a house necessarily or whether they should. I think the market is going to even this all out. The market generally always gets things right, whether it's labor or capital. And I, and I just generally think that things will even out there, maybe get that short term shock. On how you know, from a home builder product protection, home builder production side, I would simply say that you still got to swing a hammer. Until we create an army of AI robots that know how to build a house and put a trust and do some drywall, I think we're still going to build homes the old fashioned way. And that's with laborers. And to Drew's point about immigration, that is going to be an equation not only for our workforce moving forward. We consistently are behind 250 or 300,000 workers in our industry every month. But more importantly, that structural home buying population we are birth rates are going down. If it wasn't for net immigration, we would be in a declining population in the United States. So immigration and labor is going to be critical to our industry in the long term home buying population for the foreseeable future. But again, AI disruptive in the first place, but in the first, first phase here. But I also think that it's going to even things out. The market will take care of things.
- [45:16]
F
All right. Well fellas, this has been wonderful. I think it's been a great discussion and I really appreciate your time today.
- [45:23]
G
Yeah, thanks for having us on.
- [45:24]
H
Thanks a lot, Mike.
- [45:24]
F
Take care. To read more of Drew Redding's research, please go to BI H O M B N on your terminal. Thank you and see you next time on this special edition of of votes and verdicts.
- [45:59]
H
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F
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H
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