Land Entitlement Risk, Leadership, And People Who Think Differently Than Us
No doubt, building materials and products supply shocks are new residential construction's near and present danger.
However, with due respect to the construction supply chain, zoning – the granddaddy of all real estate supply – ranks as the peril investors, developers, and homebuilders fear before, during, and after all other pains – including windows and appliance allocations, back-orders, etc. -- that come and go.
Getting windows to job sites, and moving new-home construction past that phase, through drywall and the finishing stages, including paint, cabinetry, flooring, appliances, and lighting, to settlement feel like minor miracles as they occur.
These are the not-to-be-ignored, foreground challenges builders are leaning their shoulders into and losing sleep over on a daily basis. They're real, material to business risk and viability, and valid as priority-one issues as firms and enterprises push for performance. At stake are a cascade of consequences. They range from canceled or more costly home purchase settlements, vendor contract inflation due to last minute variations, delayed or missed loan payments, compressed margins, and for the big national players, surprise underperformance to guidance, which hurts valuations.
What's more, supply disruption, input cost inflation, labor capacity constraint, wage inflation, and, bang, higher interest rates – they all co-relate like falling dominoes in building and development business community leaders' minds.
Still, that mix of external forces, unpredicted variables, and uncertain impacts falls within the playbook of strategic and management challenges those leaders address and handle. Within that moving-parts framework, they focus on operational excellence to out-compete peers, and they focus on strategy to out-perform plan.
The one macro mitigator for all of these pain and pressure points has been the reality – thus far – that consumer homebuyers' price-elasticity has stretched farther and faster than at any moment in most mortals' memory. And many believe those tolerance levels have even more headroom before they reach a break-point.
Where those real estate investment, development, and construction business strategists draw up short, however, concerns the lifeline of real estate – the ultimate brittle, fragile, and, opposite-of-resilient but vitally important supply chain.
At a recent national conference that brought together homebuilders, architects, land planners, developers, investors, and all their respective partners, the utterance – amidst a litany of challenges offset by a baseline belief in a continued boundless boom in demand for all types of new housing development – that took the oxygen out of the room was simply:
The biggest risk to what's otherwise an enormous opportunity is zoning."
It's not a new risk. It's not describable as having new characteristics, or rules of engagement, or modus operandi.
Also not new is that the challenge is growing ever more inimical to the interests of developers of just about any type of new neighborhood housing solutions. Municipalities, neighborhoods, jurisdictions of all sizes, stripes, and in more and more geographies, are making life and business harder for residential developers even as their unmet need for more homes for more people grows more problematic by the week.
From what we hear, few if any of the business community's strategic leaders believe that local zoning's trajectory – fueled by local elected or appointed officials and community activists who fear added crime, traffic, noise, garbage, school costs, infrastructure stress, etc. with the addition of more attainable, more densely planned neighborhood development – will do anything but worsen over time.
Entitlement risk – the multifactorial clash of economic promise and local land-use over-regulation -- ranks at par with housing and community development's other 2020 to 2030 epic challenges, attracting fresh, hard-working talent into construction's ranks as careers of choice.
In both instances, education, training, nurturance, proof-cases, committed presence and patience – rather than transactional, elevator-pitch-style, one-time-only offers – may be the last best hope to turn what appears to be a diminishing return of essential resources into a new stream of opportunity.
As leadership challenges, the two come down to a critical point of recognition about how our world – personally and in business works today.
We'd call it "the end of self-evidence."
Self-evidence, we understand, involves a proposition whose meaning all can agree needs no proof.
Critical to understand, especially as regards land entitlement risk, is that my self-evidence and your self-evidence may differ. I may think that your town or city needs the kind of shelter and neighborhoods I design, devel0p, and build and, to me that may be self-evident. You however, may feel that it should be self-evident that the people already living in that town believe not only that they're just fine without that added development, but that by adding it, their lives and livelihoods would change for the worse.
That theme and umpteen variations play out in municipalities, counties, and regions around the nation, even as more of the nation's inhabitants become housing over-burdened, displaced, or homeless.
A leader's skill-set for the challenges of entitlement risk – and the fact that entitlement risk along with a fast-diminishing human workforce loom as the business's most pressing structural perils – needs to evolve.
Insight here may apply.
Try cutting the terms "investors and investment" and pasting in "people involved in land entitlement and neighborhood development," for the following passage.
You’re surrounded by other investors [people involved in land entitlement and neighborhood development]. They see things differently than you. You’re in the midst of people building investment businesses [people involved in land entitlement and neighborhood development]. Companies. They are operating differently than you might be.
That’s okay. It’s supposed to be that way. A total and complete stranger doesn’t have to share your investment [people involved in land entitlement and neighborhood development] beliefs. Doesn’t have to agree with your opinions about the right way to trade or the right investments to hold.
That difference in opinion is not a repudiation of your beliefs. It is not making a mockery of your philosophy. It’s not a challenge to your wisdom or a taunt about your positions. If you believe it to be, your mind is playing tricks on you.
Housing leaders' skillset – and where their accountability lies in today's market rife with uncertainties and challenges – is in making reliable in-roads on the issues of local zoning and the dynamics that suggest builders' and developers' sole recourse to lessen entitlement risk is to move farther and farther away from municipal zoning challenges. That's called endgame.
Here's an alternative framing of the opportunity:
The ability to disagree with others respectfully is an investing [people involved in land entitlement and neighborhood development] superpower. It keeps the door open to change our own minds. And to learn new things from unexpected sources. To reverse ourselves when necessary. To detoxify the environment around us. To grow."
That's why, after all, you're the housing and real estate business' leaders.