California Is Changing Its Housing Rules. What About Prices?

The median cost of housing in California is at 900K, almost double the national average. At the same time, the market is still tight with not a lot of people wanting to sell their homes. Meanwhile, the state is loosening some of the development laws. And over the last few years, we've had more and more new laws that will allow more density in California. Today, we sit down with Jim Rickheimer and Steve Sheldon, who will tell us what's going on with the development in California. Are the neighborhoods gonna change? Will the cost of housing come down? And what will California look like? I'm Siamak, welcome to California Insider. Jim, Steve, it's great to have you on, welcome. Great to be here again. Thank you for having me back again. We wanna talk to you about housing. Both of you are in the housing space and you have a lot of experience in this space, what's going on with it. Right now, the affordability is, it's hard to afford homes, especially in California. The state is supposed to build more. What are you guys seeing right now with housing, in the housing market? There's a lot happening in the housing market. The question is, is it gonna help lower prices or make more things affordable or not? The problem that you have in Sacramento is they'll go ahead and pass a law with a bunch of legislators who think they're doing the right thing or trying to do the right thing. And in reality, causing all sorts of problems to get stuff built. On the other hand, you had a situation where you had towns were just not in my backyard. They didn't want anything built. So there's this balance or imbalance we're trying to get through right now where the state is hammering down on cities to say you have to build this high-density stuff. And the cities are saying, hey, back off a little bit. See if we can work something out. So we're kind of stuck right now. What are you seeing, Steve, about this? Similar point of view, I would first say the interest rates are causing a situation. And those that own home at those 2,022, 2,023 lower rates aren't wanting to move on to something different. That's kind of stopping that supply and demand that you'd be able to sell that and move and then you'd have that home available and they would be purchasing new homes. That's creating a situation in the new home building industry and the resale industry. But as a Sacramento, I share much of what Jim said, but I want to add that in our business, we do land development. Single family detaches our emphasis of what we do. And the state laws, I think, have been very helpful to us in that you've had cities acting as the emperor over the land and really very subjectively saying, okay, thumbs up or thumbs down out of our personal arbitrary feelings. And that really has hurt housing production in California for decades. And that's why you saw back in 2019, state Senator Skinner introduced Senate Bill 330, we call SB 330, that amended the Housing Accountability Act. And it changed the game where cities can't do that anymore as much. They have to make better findings to do it. They just can't arbitrarily do it. It doesn't take their power away. It takes their arbitrary power away or their capricious power away. So they have to prove up that this project, this development of 75 homes is going to have an adverse impact to public health or safety. And they just, they have to have a findings that proves it up. Other than that, the project complies with all the rules and regulations. So they really shouldn't be saying no. I think some very good that's come out of Sacramento and there's some things that I necessarily wouldn't vote for if I was up there, but I think there's a lot of good that's helping out our housing crisis. 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Like the listings have come down in California. Is that true? Well, I mean, it's back to what Steve just said. People are not selling their houses. People in a certain demographics, your baby boomers and all that should be putting their houses on the market now and getting them sold. The reality of it is, is the houses went up so much in value. And so you think everybody got house rich, but it's not really cash because you have to live somewhere, right? So if you just wanna move down the street and go to a smaller place, you think I can save some money. The reality of it is, is you're gonna pay a bunch of capital gains taxes to sell your house, which normally you didn't have before. You're gonna go to a much higher interest rate than you had before. You're gonna have your property taxes reset and there's ways to not have that happen. People look at each other, honey, what do you think? The house is big, the five kids are gone. And they're like, I gotta write a check. We'll just stay. To pay the taxes. Yeah, because the taxes are low, the Prop 13 taxes. And so there's just not a reason to make it happen. So you don't open up those houses to kind of get what I call the housing ladder going to get things moving. And then on top of it, we're Southern California. So we're different. If you go across the country where they went ahead and built tens of thousands of apartments and tens of thousands of houses, or you go to Austin, Texas or different areas, the market really works. There's extra houses, price comes down. Here, we have so many people that wanna be in Southern California or Northern California for that matter, is that we always have so much pressure, no matter what we do, to bring the cost down is very hard because we never get more than enough houses needed. You know, once you have vacant houses, the prices will come down. People aren't gonna keep them vacant. Just to put some specificity on what Jim said, I have about a 2.5 interest rate. There was a great time to refi. In your house now. In my house now. So to move and acquire maybe a little nicer, newer home, maybe closer to the coast or what have you, I'd have to have what, a 6% interest rate? Why would I do that? Well, that's one of the problems. People are not moving much. Maybe those that own or the public, unfortunately is gonna have to accept that these interest rates maybe are here to stay longer than we want. And so that is affecting the buyers and of course the sellers. But that's not much to do with housing policy in California. That's a national issue. And the market for kind of resale homes are locked up from what you're saying. Do you see that in the new home development when you guys are building, when there's new home development here in California, does it go fast? The home absorption is about two and a half homes every month, kind of any type of home they're selling, sort of statewide on an average. That's the amount of homes that are selling. The homes that are locked up are the resale homes for the reasons I said, or they're not putting their home up and deciding to move. But the absorption is about two and a half. And in the past, there've been three or four homes per month. And that affects the economics of home building where you have to hold lots for longer. That costs money. You have interest chomping away at your bases. So that is a problem. And- So three and a half out of- Two and a half homes a month is about what most, like the housing tracts you see- Whenever you do a development project, you gotta say, how do I absorb it? And absorb. In the end, how many houses are gonna sell? Now, whether it really is two and a half or four, I mean, I was always amazed by, you build a project and they would estimate that four houses a month are gonna sell. And then they build a project next door and that's gonna have four. And then the hot project next door. I'm like, after a while, how many four per month are you gonna have? You keep on having more projects. But the industry has to have some kind of math to have a basis to know how much. And they'll base it at four, or they'll base it at two and a half or three houses per month will sell. And then they'll adjust based on that as a project gets built. So is it slower? It's slower compared to the past. The absorption is slower, yes. What about the cost? How do you see the cost? Are people willing to pay the market rates? Or is there pressure on you guys to lower the price, buy down the rates? I think that you're seeing the prices are staying steady, but what's happening is there's incentives being offered to the buyers. There's like tens of thousands of dollars for them to do the upgrades to the home. There's tens of thousands of dollars to buy down their mortgage so they can get a lower mortgage rate for a set period of time. The building industry is keeping the pricing pretty consistent, but the incentives are getting greater and greater. Now, Jim, the state, and you guys both know this, the state is trying to build more housing. There's a lot of talk about building housing. So the laws are changing. What are you seeing out there with these changes? The state is trying to build more housing. And so like Steve said, there are things that they're doing where when you literally had this whole attitude of not in my backyard. And when I was mayor of Costa Mesa, we had areas on the west side that were 1950s industrial buildings that really, quite frankly, had dirty soil and all sorts of problems that had to get cleaned up. And we went ahead and previous councils had rezoned it for like three-story townhomes. The traffic impact was identical of what the buildings were before. And it would bring in a clean brand new thing. Plus what it would do is clean up the soil. There was a different lift in the value so the soil could get cleaned up. We had people going crazy about, don't build these things. You're building too many houses. You're doing all this stuff. So this not in my backyard stuff was kind of crazy. And it would like, developers just didn't want to do projects. It got so bad that you got ended up in a situation where cities are voting against projects. They weren't asking for variances. They weren't asking for anything different. They were asking for what they were allowed to do. That's when the state came in and started saying, you need to find better reasons why you can't do this project or the city will lose its right to tell a builder what to do. And you have things like builder's remedy and all sorts of things where the state's basically stepped in. Now the question's gonna start being, how far does that go? Again, in Costa Mesa, they have a state-owned piece of property called the FTC Fairview Development Center. It was built in 1959. It's for people that had a lot of physical deformities and mental issues. And it's been closed down. It's a big piece of state land. And the state comes back and says, out of this, what, I don't know, 100 acres, 100 and some acres? Yes. They want 4,000 apartments. And that's another example. The city council and their perspective, different from Jim's, they were trying to do even more density. So they were proposing 4,000. Well, because the city required it. No, the state required 2800. State required 2800, which is still a lot. And the city recently reduced it. But you're seeing some cities going further and further above having that mindset. I guess that's the definition of what's the city. The council didn't agree. The city staff was going for it because the council went ahead. And the council said, no, we're gonna- And pushed it down to 2300 for 100 acres. But that's- That's a lot. I mean, for 100 acres, we have nobody has that kind of density in 100 acres anywhere in Orange County. That is three-story attached townhomes. Four-story. Three, four-story. I'd spread over the entire- It wouldn't be townhomes. It'd be condos. But you'd have to go higher, but it would be spread over the entire 100 acres. So there's a lot of- So it could even be more dense than that. It's gonna put up, you talk about getting costs down. They gotta put parking structures in. A parking structure for an apartment building is $30,000, give or take, per space. You put two spaces for an apartment, that's $60,000 just before you have breakfast in the morning to pay for parking. So the whole idea that you just make it denser and denser and denser, and somehow it all pencils out, it costs too much to build it, I mean, to get it done. So this whole conversation of when cities get to the point where they just, whatever, the neighbors show up and say, you don't want anything, and kill perfectly good projects, what you end up with is the state coming back and hitting it hard in the opposite way and saying, you will go by this set of rules. To the point where in Costa Mesa, they want them to put a road through the golf course. I mean, just crazy stuff that Sacramento was never involved with. Remember, housing until the last dozen years or so was always a local issue. And one day Sacramento said, no, we think it's a statewide issue, so therefore, we can tell the cities what they have to do by law. Where before, it was a local issue and the local people took care of it. But again, if you don't approve good, normal kind of projects, like it's zoned for this, because you just don't want it in your neighborhood, then you get the state to do overreach. Now, Steve. Well, I would not call it overreach to a certain degree. And Jim is my good friend. Because I view- Well, he's a developer. So SRS land, we don't build homes. We sell to the home builders like the finished lot or the land with a ready-to-record final map. So it's shovel-ready. So we take the risk of the entitlements, which is a big entitlement risk. Then you take the risk on grading and things. And then, you know how you see these big master plan communities and you have all these builders? Well, there's an underlining master developer that got the land, entitled it, and did all these lots and they sell them to different home builders. What the Irvine Company does and the Great Park does, that's an example. No, we're not that large. But so SRS land, we acquire the land. And then you, I wanna go back to your impact fees. So in some areas, the impact fees can be more than 10% of the cost of the house, over $100,000. So that is a huge expense that's affecting what we do and then how the value of the land and then ultimately how the house is sold. So that is a big problem. Those impact fees go to regional agencies and they go to the sewer and the water, which you have to have a need to pay for. Sometimes you're paying for more than just what they say that you're paying for. You have exorbitant application fees. We were talking about $100,000 just apply for a project that is just very outlandish. So there's a lot of costs that are involved in that. And developers have to walk through those minefields. But on the state housing, I think these lots have been in place for a while, but it was just the past six years, seven years that the state put teeth in them and required the cities to, they started to enforce them and the state streamlined the process to a certain degree. And they took away the power of the city to act arbitrary. They have to have findings that are backed up by evidence of why they're gonna say no. We're talking about our home, your home, the people viewing their homes. We all need a home. At one point in time, our home was dirt. So someone had to make it a home for someone to live in it. And it was out of hand, the type of, I would say, housing atrocities that have occurred in past times. I can go on with examples of that. You mentioned impact fees, and I'm sure there's the element of lawsuit fees too, and risks that you guys carry with different laws in California, like CEQA. How much of your cost or the builder's cost goes into that? What percentage of the housing, or it doesn't depend, I know it depends on the projects, but it would be good for people to know, like how much of it is fees and how much of it is the real, like the cost of the land, the building. The fees in one project we have are triple the cost of the land. Wow. Yes, they're triple the cost of the land. And so, but on the Environmental Quality Act, CEQA, that risk is always taken into consideration. We look at it, and the state has passed laws. One is, if you're, I've had to face a lawsuit on CEQA that we just had to settle and do all these things, give away things. And if a, the plaintiff group many times is a wealthy neighborhood group of neighbors that got together to sue that have funds. And so the state said, if you're gonna sue and you lose, you need to post a bond of half a million dollars so that the developer is compensated for your frivolous lawsuit. Now, I don't know how often that's actually occurred, but that is a new law that's on the books. And there's a effort to not change, not to change CEQA, but just to give CEQA a timeframe to get things done and a fair process that if you have a lawsuit and there's one error in your plan, and then the judge says, okay, you have this one problem. Well, currently you have to go back to like almost a square one and fix all the other things. And then you're open up your project to more criticism. Well, there's a proposition that you would, on the ballot in November, that you would have the judge say, okay, this one's wrong. Go back and fix it. And then come back and see me. And if you fix it correctly, then you've done your job. It's kind of the same thing. They talk about justice delays, justice denied. If people don't want something developed in their area, they just run out the clock on you. If you're a property developer, you're putting the property at risk. You're buying it from somebody. They're gonna have a certain date of which time you have to close and actually pay for it. Meanwhile, you're spending hundreds of thousands of dollars, if not millions of dollars to get something entitled. And all they have to do is just keep on dragging it on. And so they'll find that they can get whatever out of you. Because at some point, you need to make some kind of deal for you to have anything there. But in many ways, you'll find that it's just spent, lost money, it's just gone. So the question that has to be answered is not just how much of the cost of a house is your fees, is how much is the cost of the risk to go ahead and do it? Because Steve or myself, we have to bring investors in to do a project. And they're gonna look at the risk. And they're gonna say, I need a pretty high return if I'm gonna go ahead and put up money that's just gonna disappear if it doesn't work. And you may need to have two or three projects to have one of them go. And so you're spending hundreds of thousands of dollars on projects. What the state's trying to do in some ways, the good side of it is, is they're trying to say, let's put this in some more balance so that when somebody goes out there and risks, ties up a piece of property under contract, gets it all entitled and gets it done, they have a pathway to saying, it was zoned this way. I'm following the rules that you have. Give me a process that can finish it up. And with CEQA, which is the Environmental Act that California has, it was getting to the point where the opposition had so many tools to destroy the project that had nothing to do with the merits of the project. We analyze every project for CEQA and our CEQA vulnerability. Our investors that we have with us, they depend upon us to look at all those things. And we bring them deals. They, we go over all those things. And that's definitely one of the major items on our checklist is what is this CEQA issue and how are we going to solve it? How are we going, how secure are we? And it's a very important issue. The change of the new laws have helped you guys a lot to build easier. I think you're more confident. They brought more certainty to it. So we know the rules better. We know that what are going to be the, what can be objections to parts of the project? What are our responses to those objections to the project? And it's the certainty and it's the knowledge that the risk, there's always a risk, always a risk in land development, but the risk I believe has been diminished or has been reduced in past years, which makes, you know, for our investors very happy and makes for good returns and that they appreciate that their risk is more measured. So that's helping out. What about the fees? Is there any, can the cities still stop you if they want, if they don't want your project? Can they play with the fees or? When you have these $110,000 fees per home and you have a $700,000 home, you can't take that out of the price. The fees are based upon the impact of the homes and the people that live there. So the cities and the developer, they will put a mellow roof CFD on the property. So those that are living there will pay for the fees that- Over time. Over time and the impacts. Now, but it's very, it's subjective of whether the city can allow you to do that because you have to get their authorization to do a community facilities district, which gives them so much leverage on other parts of your project. So I came up with a concept myself and my son, Chad, literally to let's take the protections of the Housing Accountability Act. I mentioned SB 330 and let's put it over into the CFD process because you have entitlement, but here's financing. If you don't get financing, you have a huge problem. And that legislation was carried by a state assemblyman, Tree Ta, and he's a Republican from Westminster. And it passed the legislature fairly, I know unanimously in the Senate and the assembly pretty well, it had some issues in the local government committee because you have two main committees, local government who favors local government and you have housing that favors housing. It's kind of interesting where their biases in the committee but it got through it, didn't get everything that it wanted. And right now it's on the governor's desk. So that would bring some accountability to that aspect of financing. Jim, you're seeing all these laws passing, you were a mayor, you are also a developer as well. Are you concerned that it's going too far and it could impact us, impact away California? The problem that we're having in California has more to do with the RENA issues. That's one of the major problems. So RENA is Regional Housing Needs and it's basically where state has an agency that has different players in it, none of whose are elected that basically say to all the towns and cities throughout California, how many houses do you have to have zoned for in your community for the future? So basically what they're gonna say is they can't make the city build the houses but they can say, we want you to zone enough property, basically changing densities to higher densities or converting from commercial. And in some ways that's very good, some ways it works but they'll get to a point where let's say in my town, I can just tell you cause I know my town, we were required to build like two or three houses. We just had no need, everything was fine. State comes in and says, we're gonna change these rules and you go from, you need a few houses to 11,000. Now, Costa Mesa is basically built out. Most of Orange County is all built out. So when the state comes in and says, you must make things higher densities to bring more units in, they'll go into areas, let's say, are areas that we have a lot of industrial projects, areas that Anderall, a major employer has land and there's other land in these areas that have always been for jobs. They say, no, no, they want you to put high density housing there. Or they don't say you have to put high density housing, they just say, you need to come up with where 11,000 units can be built. And so they start looking at their map and their city and saying, well, these industrial areas, we can convert those to residential or put an overlay for residential and you can come up with this high density project. The problem starts to happen then, because just what Steve was talking about earlier, cities have to work with you as far as, if I bring a project in that's zoned properly, you should let me go ahead and build this. Well, now you've got a situation where the state came in and told the city, we want you to make this from single family houses from four units to the acre to 50 units to the acre. And you have to approve that. Once that's approved, then a developer can come in and say, look, it's already zoned, which was with a gun to the head of the city to come in with a high density project. And then they can get it approved with builder's remedy or all sorts of things. So that's where it kind of goes overboard later on. The standard projects where he's trying to bring in single family homes, nobody should really have a big issue with that. People did, they just don't want anything built around them. But if you've got four, five, six houses to the acre, that's pretty suburban, what Steve's doing. So it's not that big of a problem. My issue is more of when they come into these areas and say, we want you to build 2000 apartments, 4000 apartments with big parking structures. I mean, your traffic impacts are just massive in these built out towns. And so how can they go ahead and do that? But that's what's happening. You've got legislators who think they're somehow solving the problem. And the other thing is they think they're somehow solving for affordable housing, and they're really not because brand new houses, the most expensive house you can build, the brand new apartment is the most expensive apartment you can build per foot in every way for parking and everything else. But they say, we're just gonna make you build more and somehow affordable housing is gonna magically come. It doesn't really happen that way. Steve, what are your thoughts on that? We actually incorporate a small part of 15% of affordable housing into our projects. We sprinkle in 15% or actually it's like seven half very low. Do the cities require you or it makes it easy? The state requires us, if we wanna avail the benefits of these new statutes that have been approved, we do 15% affordable. So what we're doing is to the taxpayer benefit because we're the whole, the point of all these, of these particular laws is that with a density bonus, we provide affordable homes at no cost to the taxpayer versus a lot of the other more 100% affordable projects have taxpayer dollars or bond dollars from taxpayers. Ours are all paid for by the private sector. So that's, and we are creating affordable housings in probably every one of our projects, which I feel is a really good thing. Now, do you think there will be a lot of density as a result of this laws? How do you see density? I know you don't build very dense projects, but do you think there's gonna be a ton of density and congestions and those things? Yes, you're gonna see, I think all the higher densities that Jim was talking about, like at the Fairview Development Center in Costa Mesa, those sort of things. And a part of the greater density is the need, it's a couple of things. There's different competing public policies of the state legislature, and one is wanting to create housing because it's a very important thing to create in our state and is also from the legislature's point of view and the governor is the climate. They're trying to have more higher density, urban in the city apartments or for sale condominiums, townhomes that are very dense. They're trying to have more mass transit. The legislature is rewarding projects that are built within a half mile of mass transit, get higher density. They want more people to use the mass transit and to ride a bike and to walk and to not use the vehicle. There is another concept that is trying to, as a sword to penalize developers like myself, called vehicle miles traveled. And if you are too far out from where the jobs are, vehicle miles traveled equivalent is how far are people gonna have to drive to go to get goods and stores and go to work, then there is a potential penalty on the development project because you are not dense enough and you're not close enough to all those services. So that is being done. So that would be a fee on your project? Yes. Again, it's like the genius of Sacramento really thinks they figured it out. Nobody's using the mass transit that people are talking about. It's just kind of cover. Oh, you're close to mass transit, you use it. Mass transit- But people are gonna still have cars. Well, they have to. There's no way you can be in Orange County or any suburban county and somehow have a traffic- Except San Francisco or downtown LA. But that was built before and it's much denser. If you took San Francisco and their BART system and laid it over LA, you'd get some little section up and down the 110 and maybe South Bay and that's it. I mean, the amount of trains and how close they have to be, it's just never gonna happen. So someone says, well, you're within 100 feet, 200 feet, 500 feet, 1,000 feet of a train station that goes north and south. How do you get to the grocery store? How do you go to get your nails or hair done or pick up something else? Because we have things that go off it. I mean, people, the first, I don't care how poor you are. The first thing you do at some point when you come to California or United States is get a car because a car makes your life more efficient and there's some value to your time. You can't sit there and wait for a bus a half an hour this way and then you gotta change buses on another way. You just can't get there. You can't get the groceries home because we don't have the densities that they have in San Francisco, SK. So I've always said, if you don't have elevators above you or subways below you, there's not enough density in that area for the train systems that they wanna do. And so to say it doesn't make any sense. So what happens in these areas that they say, we wanna put a high density, nine story project, eight story in a neighborhood that right next door is single family houses or even if it's stepped down a little bit. The reality of it is people who don't have any parking because the whole key here is they don't get many parking. They're gonna park their car two blocks over in that neighborhood and cause massive impacts no matter what anybody says, that's what happens all the time. And somehow they think that, well, if we make it so expensive or so hard, you just won't have a car. People aren't gonna have cars or they're gonna move somewhere else or it's just not gonna work. You know, there was a prevailing thought among the policy makers in Sacramento that I can't get them all straight. Millennials, the 20 year olds, 30 year olds. They don't wanna drive. Yeah, yeah. They wanna live in the city. They wanna live more urban. Well, you know, that's not what home purchasing is true. That's what new home purchase. If they can afford it, they would rather live in a single family, detached or attached home or attached townhome much more than in an apartment. I mean, just from privacy and noise and old things and that is the general disposition of everybody. And there's maybe a minority that prefer living in a busy city, what have you. But most people wanna live in a home. So there seems to be multiple initiatives from these laws. One is they wanna have more density. They wanna have people not drive. But then there's another side to these initiatives that they wanna bring the housing costs down. Yes. And a lot of these laws are marketed or thought about as lowering the housing costs. Do you see that happening with the development you guys are doing or do you think there needs to be a lot more? With supply and demand, yes. You do see housing costs getting lower just by the mere fact that you're building more homes in certain areas. There is more product available to buy and that's competition. That lowers prices. Yeah, to a point, I mean, a lot of prices if you have vacant houses out there. But if they're gonna be absorbed in a pretty short time and we just don't have enough, people wanna be here, right? So until we have less people coming to California, that's how you put downward pressure. We had, wherever they came from, legally or illegally, doesn't really matter. When you have tens of millions of people just show up and think they're all gonna live in the street, they're not. They moved into apartments. They doubled up with other people. We had no place to put them and it put high pressure on it. We're seeing across the country where more stuff is built and where more people have left. People that came into the country that left is making a difference because you have a housing ladder and things are starting to free up. It's starting to happen a little bit in California, but not a lot yet. Listen, look outside today. People come here and they go, this is really nice and I wanna live in this real nice area. Are we having more people leave California than we did before? Yeah, but they're people that have already made it. They've already got some money. They can go to a second tier state, a Colorado in Arizona, a Utah, whatever, Texas, and maybe get a little bit more house and things are kind of set up for them. But for the most part, people are coming behind to fill up those vacancies in California. And until we have less and less people coming here, we're gonna have upward pressure on price. So let me add to that. I think, James, I wanna kind of clarify. So the home prices are not dropping. What's happening is you're getting more incentives. So you can have a de facto home price drop because you're getting 5% of the price of the home in free upgrades and in written down mortgage. Maybe 7% of the value of the home is being done. So you're seeing that occur and it's getting more and more. And I do believe when you have five or six places to choose, you are going to see competition and they're gonna have to cut margins and that's what they're gonna do because they wanna sell product. They don't wanna hold onto it. And I think that is occurring. So prices are not coming down, but you have some options, more options, so you can get better deals under mortgage incentives. Public home builders do not want prices to move down. They'll do anything to keep the price at because you had people just moved into the last phase and they paid X dollars for the house. They don't want to be the next space, X minus $5,000. They'd rather give you some $5,000 benefit. Is it possible to build profitably and is there a point where you cannot be lower at a certain price point as a developer? So meaning that right now the market rate is like when you wanna buy a home, like average home costs like 900K. If you build that in California with the new laws, can you build significantly lower than that or is it gonna be around that price? So when we're done with our finished lot or our fully entitled property, the shovel ready, we sell it to a home builder. If what you've said occurs, they won't pay us as much. In development, it comes out of the land price, the land value, because the builders still have to keep their margins if they're publicly traded. Because their cost is... Yeah, their cost is... They're not gonna build it if they don't have a margin. So they won't get built. They won't get built. They won't get built or they lower the cost of the land. They lower the... Or weak, it comes out of me. And that's the risk. So if the price goes down, there'll be a lot less development. They all say, yeah, it's less we're gonna pay for the land. So it comes out of SRS Land or everyone else that does what we do. And now if they've got a, you know, tracks out there, they're not gonna sit on it and let the interest chomp away and get bigger. They will reduce margins because it's smarter to get out of it. Just to plow forward and take the pain versus delay the pain. So... That's the way it works. They, there's a lot of calculations. So for a lot of Californians that are waiting to buy a house and now the mortgage rates have gone up and what do you recommend to them? I've always said that if you need a house and it's in an area that you can be in and there's a house that you can, you know, pay for and it's the schools that are decent for your kids and all that, then do it over the longterm. But these prices are very high. They're inflated. We talk about how nobody's putting their house on the market because they don't want to move and do whatever. But if you look at demographics, the greatest generation, that group, they're starting to pass off and those houses will come on the market. And so they may not sell it because of their two or 3% interest rate, but over five, six, seven, 10 years, those houses will start to come on the market. So you have to be concerned about that. You can't just think that doesn't matter because are there people there behind them? We have the next generation behind that's much smaller. Are they there to buy those houses? So, you know, but I'm not telling you to hold your life on, you know, for 10 more years. If it's a house in an area you need and it works for you, then just go ahead and buy the house. It'll all wash out in the end. But if you think you're going to buy something and flip it in three years, I would tell you to watch out for that. Yeah, I would say the same and cut the best deal you can with the home builder. Right. And even more, come into the sales office with your friend who's the realtor because they'll get paid a commission and who knows if that realtor will share it with you or not, if they can do that and cut the best deal, get the most incentives that you can because you can get a good deal like that to buy the home. And this may be corny, but my mom, when my mom and dad were getting up there and all the kids were old, we were out of the house and it was a four bedroom big home. And my mom said, you know, Steve, should we sell? Because we're getting up there. We can go to assisted living and that's okay because another family needs to use our house. That struck me. So I thought that was interesting. That's very good. That's very good to think of the rest of the community and society. Now, Steve, do you think people should get into development in California? Is this a good time or is this very hard? I don't encourage anyone else to get into it. But if you're looking to invest some money in it, you can certainly, you know, SRS Land, you know where to find us. Jim, Steve, it was great to have you on California Insider. Thanks for coming and sharing your thoughts with us on development and housing costs in California. Thanks for having us. Thank you for having us. Tell us what you think about the housing costs in California and do you want to see more density and lower costs or do you not want to see as much density? Make sure to tell us in the comments or email us at siamakacaliforniasider.com. I'm Siamak Kourami, this is California Insider. We'll see you next time.