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Welcome to Trust the Process podcast, where we'll pull back the curtain on new

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home construction, the real estate market, and the trends shaping it all.

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Discover the stories, insights, and expertise behind the process of building

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a new home. Join us and let's build something great together. Welcome back to

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Trust the Process, a podcast where we talk about new home construction, the real

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estate market, and everything in between. Today we're gonna talk about the

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topic that's really top of mind for a lot of people right now, and it's making

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dominating national headlines, would be the fires in California. Given that

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Nevada is so close to California as our border state, how does that influence us?

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What does that mean for us? What does that mean for our housing market? And some

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of the things that we may or may not see as we as this crisis unfolds. So I'm

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gonna hand it off to you. Obviously we know the tragedy that's happening there

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and yeah it's can't not see it. Right. So many people affected. Yeah it's a lot of

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it's a lot of devastation and a lot of things laid to waste and a lot of

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ramifications I think that will feel for years into the future. I agree. There are

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just locally as a Las Vegas resident, they're a huge neighbor of ours right.

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I mean they're on the order of what 25, 30 times the size in terms of population.

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Yes. Of Nevada and sometimes I feel like Las Vegas is a suburb of Los Angeles

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anyway. It does sometimes feel like that. Now when they've talked a little bit about

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the train that's gonna go between there's almost that imagination that it is. It

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kind of feels like it right. It affects everyone but I do think it'll have

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it'll have pressure on the entire country. You know, it's small ripples. Locally

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it'll affect obviously Los Angeles in terms of how that looks from a

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rebuilding standpoint and that's why we chose to talk about it on this episode

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or as part of this podcast because around 15,000 at the time of filming this

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we're in the last week of January 2025 and at the time of filming this it's

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estimated that around 15,000 structures were destroyed. The vast majority of

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those were residential structures. We're homes. Yeah tragic. So that is a lot of

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inventory that is now out of the market a lot of devastation obviously loss of

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life and loss of memories and things that it's hard to seems straight to talk

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about in this context but it does matter and it will it will affect building

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policy and it will affect building practices. It will affect net migration.

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It just there will be people who choose not to rebuild or people that make this

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there. You know what? This is their line in the sand and say I was on the fence. I

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was going to move in the next five years but I don't want to be the next victim.

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I don't want to be the next person that's affected by a natural disaster in

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California. It's going to be so expensive to rebuild. It was such a it's an

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expensive loss. It's an expensive loss in terms of where it is just

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geographically. It's very challenging to build in a lot of those locales and the

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Pacific Palisades a lot of those slopes and mountainside homes may be cost

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prohibitive to build. They may not even see it pencil out for many many years so

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that kind of loss is really how do you even calculate it? Where do you even

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start? Because it wasn't just the structure that was lost. It was

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everything else that maybe the whole viability of that site is now no longer

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buildable. Now what is it worth? A vista? I mean it's you buy it to put a picnic table there.

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Right, and I have heard some discussions that because of the location and because

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the you know some of those obstacles that City County may not even allow people

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to build in those same locations. And what is that in itself is a migration question?

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That's right. I mean if you're displaced and you owned that parcel and it was

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passed down especially some of the Altadena real estate that was lost a

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lot of those homes were handed down. Those aren't affluent people as you know

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in general. A lot of that that eaten fire the damage caused by the eaten fire

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affected more middle class and even lower middle class people that their

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largest asset was their home and maybe that asset was handed down over the

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generations and it's underinsured or not insured or now going to be in the

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neighborhood that is completely burned out including the commercial areas. So

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who's who wants to be the first one in? And the businesses certainly don't want

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to be the first one in. They'll need the rooftops to support the businesses. Sure.

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The people don't want to live where there are no cafes and restaurants and

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dry cleaners and gas stations and general conveniences of modern life. So who

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who's going to who's going to take the investment? Who's going to take the risk?

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Right. And then if you look at it from the eyes of the speculative builder like

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our company where where is the off-ramp? How do you how do you how do you

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calculate end-of-day value of a finished product? Let's say you were to pick up

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six or seven lots demo the homes what's left of them and rebuild with the

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intent to resell where's your market? Who's going to take that risk? Are you

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going to shoulder the risk of not only what does the home look like at the end

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in terms of market value but what is the process looking getting there and what

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kind of regulation and red tape are you going to have to fight to tear down and

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to rebuild to make it a commercially viable endeavor? So we have that

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overlaying it and then you'll have the individual homeowners who may choose to

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rebuild. Did they have enough insurance? Is what they owned before even

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approvable with current zoning and city planning? So those are the kind of clouds

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that are hanging over the entire process and when you look at that times

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let's say 90% of the structures lost were residential and if the estimates are

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accurate at 15,000 and that's not more let's just take those two assumptions

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we're at 13,500 residences. How many of those were for family homes that like I

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mentioned may be incongruent with current day zoning. Now it's one home or one

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home in an accessory dwelling structure we'll see a net loss of homes and then

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now what we're seeing is a push-pull and I feel that both sides are a little

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correct because there's a push to say we have to rebuild we have to cut all the

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regulation and red tape and then there's a push on the other side of the

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argument that well if we just rebuild low density suburban housing in the same

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like kind and quality of what was there what's to stop this from happening

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again and that's not just a desirability standpoint or an intellectual

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argument it's an insurability argument too. What kind of insurance company is

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going to want to take a risk if you look at the actuarial risk of ensuring

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something that's the exact same product that was there before give or take at

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2025 or 2026 year built but it's still in essence the same product that was

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there that in a one and 50 year window was annihilated and everything in an

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actuarial I'm not an insurance expert but everything is about the likelihood of

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an event a major loss happening in X number of years over the amount of

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value of that loss so if a fire is an every 50 year event that property

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becomes insurable they're pretty much having to hit you with the 2% risk so

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your property is a million dollars 2% of that if you have a one in 50 year chance

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of a total loss just general of these are more that goes into these

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calculations and that but in general that's a $20,000 a year policy because

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it's a 2% risk of a loss so when you couple that with other natural disasters

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and over other overlays and then just an overall appetite for wanting to be in

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that business at the end of the day insurance is a capitalist endeavor so

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you're going to have to have people that want to take that risk even if the map

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is 20,000 maybe the the market has policies priced at $40,000 and it just

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might be an uninsurable insurmountable hill to climb and when you look at the

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affluent areas that might be okay it might the market forces might out outweigh

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that it'll still hold down their values in the future but when you look at the

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more middle-class neighborhoods in that market maybe a million dollar homes

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probably a middle class and a lot of Altadena 1.2 which represents maybe a

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1600 square foot rambler single story on an eighth of an acre 56 in a

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square of a lot how does that math work out how do you hit a middle-class family

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with a 20,000 or $30,000 insurance premium plus their mortgage taxes and

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everything else that comes with running a household so it's those types of

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considerations that really have a lot of people worried it's not a fair playing

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field exactly so there isn't and like you said they're not all affluent so so

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how does that look? A lot of what and I think LA is a massive wealthy city that

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land will be reimagined and reused but it's going to be so challenging to go

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through that web of problems similar to our foreclosure crisis that really had

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a lot of the Sunbelt and high-growing cities it took a lot of time a lot of

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that land was held in bankruptcy courts or was part of a settlement or part of

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a company that had since gone bankrupt so you're driving through these

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neighborhoods with all these buildable lots and you're thinking there's still

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a demand for housing and the numbers still pencil in some ways why is that

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not being developed yet it just has to work its way through the courts and the

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financial systems and maybe it's wrapped up in bank like I mentioned

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bankruptcy courts and and other kind of barriers and hurdles that we don't even

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see and aren't overtly obvious so we're going to see a push-pull and in the

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meantime where are those people staying exactly the displaced people that if you

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figure it's on the order of 50 to 100,000 people what is that what is that

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look like to the greater LA market what does it look like to Las Vegas there's a

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lot of op-eds already publishing that no 100% have knock-on effects to the Las

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Vegas probably rental market maybe we saw that and we'll have we have another

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episode on ration we saw that in COVID I mean we saw various states with their

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different regulations and rules around COVID that was sometimes just the line

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in the sand that may have pushed them to a 2021 move to a different state versus

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what would have been maybe a 2030 move or 2025 move it just kind of read it kind

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of reshuffled the deck and the taxes and a lot of living all those things a lot

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of things right if they're 30% if they were cost of living probably depending on

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the city and confused and not yet exactly or three towns over was displaced but

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you're fine what does that look like what does that look like for just these

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kind of bordering cities to LA bordering states to California so it'll be

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really interesting and we'll probably be talking about that that's why I said

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these these will have long ripples and it will affect a lot of things from a

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regulation standpoint when you look at what is it going to take to rebuild when

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I talked about that push and pull so you have existing zoning laws existing land

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use existing building codes that's just what's priced into it now but what and

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will it be politically advantageous to reimagine these things and cause more

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you know more regulation and have more pushes for barriers you fire natural

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fire breaks more setback laws stricter setback laws and when they talk about

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it from an intellectual standpoint it's easy to say but in a in a country with

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private property who's to determine oh your street is now a boundary zone so

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we're not going to allow development on your street who how politically popular

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is that domain right is that what it looks like I mean when you when you

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think about it becomes people who wouldn't want that or wouldn't be willing

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to give up what they do have exactly that they could come in an eminent domain

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now that is a very long drawn-out process that has appeals may even go to the

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state supreme courts maybe appeal higher than that so it's just very tricky

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because you're going to have an intellectual argument that's probably

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not wrong right they are you could steal man either side of it yes and I

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think that it's going to be interesting to watch the push pull right now it's

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easy to get action because of cities literally still smoldering at the time

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we recorded this last week of January 68% contained it's a little over half

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contained it's still a very active and unfolding situation what does that mean

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how does that ripple through so right now it's very politically popular to talk

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about Newsome has an executive order that said the coastal Commission he

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basically defanged the California Coastal Commission so the California Coastal

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Commission could be its own episode so what it it was sworn in in the

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mid-70s sworn into law and it essentially regulates the coastal zone it's

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1,100 miles of California's coastal zone pretty much the entire border where it

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hits the Pacific Ocean and it only pertains to development okay access to

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the beach and overall preservation of the coast so it dictates the entirety of

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the coastline but it can go as short as 3,000 feet in from the coast and as far

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as three miles inland depending on where you're at they have full veto proof

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authority to transcend city planners actions taken by local elected

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government officials and the ability of fine private citizens so effectively

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what it does yes what it does is grants one body go on governing body that was

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originally voted in in the 70s that allows them pretty much full executive

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authority of the entire coastline and like I mentioned as short as 3,000 feet

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and as big as three or four miles in coastal so when you think about the kind

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of reach think about how far four miles from the beach would feel right you're

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gonna go that's not even we're not anywhere maybe we're a beach town but

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we're not a beach from property we're four miles in four miles in when you

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think people are building right up to the beach there's a lot of jurisdiction a

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lot of exactly and it's by the way it is even more than residential so it act

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also dictates commercial but also dictates room rates and how they want a

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diversity of room rates along California's coastal hotels and hospitality

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industry in fact one hotel operator was fined 15.5 million dollars for

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converting his hotel to a boutique high-end luxury hotel without their

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approval and operated it for several several years never asked for their

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permission and was slapped with a very very heavy fine for that so you can see

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the the far-reaching power and authority that they say that regulation you know I

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think a lot of what it is is that yes it encompasses a large land area but how

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many citizens does it truly affect and you've got a lot of these little

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anecdotes and these stories which I went down the rabbit hole and read and some of

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them are absolutely atrocious I feel that it when it's affecting on the order

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of 100 people 20 people one developer one hotel owner it's just not a popular

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story it doesn't get brought up so now with the wildfires though and we're

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talking 30 to 50,000 citizens displaced I think it was smart of Newsom to say

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we're gonna defang this for a little bit temporarily let's get this place rebuilt

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because they have full authority let's say you own let's say you're in one of

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their zones you're two miles in from the coast and you want to pull a permit to

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build a single family home they have full authority to stop it and their default

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generally if you talk to my architect does a lot of work over there if you talk

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to them their default answer is almost always no and then because it's

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considered an environmental agency it allows for public comment so if you're

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converting a rundown fourplex into a five over 100 unit apartment building

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every neighbor in there is going to have public comment and the ability to

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basically petition the California Coastal Commission to stop the project

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and the appeals process alone takes about nine to 11 months just the appeals

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process if you're told no and many times it's completely overridden really good

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example was were two condos in Orange County condo complexes on the water

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they needed a breakwater bill one condo was to save the development one condo

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was built in 1974 which predated the California Coastal Commission and the

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guidelines in the California Coastal Commission say they may approve

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structures that will prevent the demolition or the loss of existing

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structures so the Coastal Commission had another application for a condo

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complex built in 1984 they're about 500 feet from each other they approved the

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one built 74 and denied the one in 84 leaving that condo complex completely

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vulnerable to erosion to loss from weather just general coastal concerns and

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their argument was well you existed after the California Coastal Commission you

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can see the level of fury and ire that that commission draws from local

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residents and developers and it's funny to read the stories of the local

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jurisdictions like City of Newport Beach coming in to direct opposition to the

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California Coastal Commission for instance they sold a parcel of their

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wharf to a developer for several hundred million dollars which really helped

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the city and the California Coastal Commission blocked it saying that you're

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going to cause undue strain under the local streets and traffic and people

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aren't going to be able to park and access the beach appropriately another

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great story and I won't I won't fill the podcast with anecdotes but there was a

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single family home owner that wanted to build an accessory dwelling unit for his

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disabled daughter to live in after he passed and they opposed it because the

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pathway he was going to plan for fund and execute to preserve beach access that

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was previously through his property they said that it wasn't as good of a view

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for hikers when you're rerouted it 40 feet to the east so they denied his

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entire accessory dwelling unit even though his local jurisdiction and

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building department had approved it they have a lot of power and it's an entity that I

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didn't even know existed yeah and I guess that's because Nevada doesn't have a

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we don't have a real deal with you know that municipality that's right that's

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interesting and as mentioned it how many people does it truly affect not enough

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to make headlines but now it will know but it will for sure so yes so imagine

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pretty much every home in the Palisades would fall into this I doubt all to Dean

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is probably far inland enough to not deal with the Coastal Commission but

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that's just one of many one of many commissions that you might have to deal

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with to get your projects approved but you can see just those little anecdotes

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of those are just layers of little stories every single home every single

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every single home every restaurant everything everything that story or

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that's right story that they're gonna battle that they will all right and the

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last count in the Palisades alone was about 6,500 structures so there are 6,500

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potential anecdotes now like I mentioned that those have been temporarily

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defanged so we'll see but there that's that's popular to say and do but how is

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it going to look where the rubber meets the road when the headlines in six

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months move on to some other calamity or move on to something else what's it

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will that look like will it come back will will the will the Coastal

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Commission and it's I think 200 employees and 48 million dollar budget on the

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scale of the state of California is nothing but yield so much power are they

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going to fight for their survival because you see something like this could

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this be the end of that commission could we see it realize wait this commission

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has no popular support and plenty of coastal states and towns manage their

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coastlines completely fine without some state appointed regulatory body so what

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I found interesting was their ability to veto state and local building

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departments and state and local municipalities or should say local

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municipalities really interesting non-elected not a single person is

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elected in that office itself and before we even get to the building part so the

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regulatory bill portion of it what do you think that land value will be at the

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end of all of this you know I going to be parcel to parcel or will it overall

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there's some decrease or I can't see how it if for sure lost is our ability

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when the entire town is lost LA Metro is such a huge animal that could it easily

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be absorbed absolutely barring not withstanding any of the personal loss and

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personal property loss that is objectively prime real estate now it has

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its own headwinds the insurance sure but it's desirable in its in the when

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you're in a city that large want to be there right where they're my choice

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exactly an accidental right that was right desired location and we'll talk

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about this in our migration episode the California is still one of the top five

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states for attracting new residents it's not growing net because it's losing

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people as fast as bringing them in but it is don't let the headlines fool you

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it is a dynamic economic powerhouse that pulls in a lot of people so you're in a

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growing state you're in a established Metro plaques of I don't I think 13 or

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14 million will put a correction if it's more than that it's a lot if you count

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the metro area if you run into the inland empire and you kind of how far can

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you drive without seeing desert if you count that the boundary you know

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depending I'm sure the Metropolitan statistical area by the census is one

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number but you look at a place like that and what a drop in the bucket 12,000

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homes is it'll be nothing to find the demand but I think what is it gonna look

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like and how is it going to collide with private property how are you going to

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get the 50 residents on this block to also at the same time to all have the

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same around this house right and burn you know they only had nominal damage

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right one next door that's right we lead us great it's so it's it's not it's

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piecemeal that's right it's not it's not 150 acres in the desert which we have

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the benefit and the beauty in these growing Sunbelt cities we have that

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kind of cohesive nature to say okay this is a big big tract of land and we can

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kind of reimagine it any way we want which I guess that brings me to the

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next spot was do they come here I mean there are a lot of good reasons that

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they might consider so how what does that do to the influx here oh I think we'll

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definitely see it macro data I don't know if even 50,000 people and we'll talk

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about that in their migration episode if that how many come to Nevada how many

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come to purchase how many come to rent how many live a family in Stain

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California what what does that really look like when you look at the total

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numbers of people that moved to Nevada on the order of a hundred and our 360

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thousand over four years it's not it's not time then even assuming every single

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one of those people that was that you know that are displaced come to Nevada I

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think it'll probably ripple out and we'll slowly kind of incrementally feel it

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mm-hmm and like you said it's not going to be immediate no in people have a lot

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to store through there yeah so I think that we're and we're also used to a lot

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of inbound migration from there anyway so we might not even really feel it

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because we're used to ceiling I just feel that the numbers are so massive of

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what we're already seeing I don't know that it'll have a dramatic increase

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we're already a tight real estate market we're already appreciating real estate

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market we're already a tight city we're already seeing a lot inbound migration

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and growth is are those numbers going to really bear it out how many of those

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people moved to Austin Texas how many moved to just an inland city in

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California how many people moved to Seattle so there's a Arizona even

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further I mean exactly so I think so it's it's a scale that's unimaginable if

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you try to put 50,000 people into an arena but when you spread it out over

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six or seven states that would be candidates for moves and relocations I

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think that we might not really feel it but it'll be interesting and when you

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look at what does it do to building industry when you have that it's not a

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growing city it's not used to that base of labor that we're used to in these

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Sunbelt cities that are growing the Phoenixes in the Las Vegas and the

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Charlotte they have a labor pool we have an existing labor pool so we might

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feel that first before we fill anything else but I think they're they will

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struggle without having the housing stock for that labor force what kind of

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premiums will you have to pay to get the labor force out there to start

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rebuilding right will the regulation be a blessing in disguise because it will

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throttle down redevelopment and will throttle down the rebuilding process to

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where it is somewhat manageable imagine trying to rebuild 15,000 structures in

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a 12-month period we built what we say around 12,000 homes last year in Las

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Vegas in addition to all the other development and growth that might happen

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in the city that large redevelopment things tear down stuff like that and a

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sparse labor force nationwide too so now are there people from Vegas that go

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there to to build it that's what I'm worried about kind of what you call it a

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brain drain but also a labor drain where we'll bear labor statistics already

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estimates were about two to four hundred thousand construction labor type workers

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short over the next so many years three or five years I definitely feel it I

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definitely feel it yeah it is it is gonna be a challenge and then what does it do

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inflationary pressures on building materials and just logistics of all of

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those things that that are going to come into play and I think the biggest

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factor that people are glazing over is something that you brought up but what

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is the overall desirability of that now but well and and how does them how do we

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have price discovery and that's one of my favorite terms right we where's the

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price discovery we've never had essentially an entire city if you look

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at Altadena or Palisades we've never had an entire city burnout that's part of a

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larger major metropolitan area where's the price discovery on what what are

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those parcels worth what are the homes worth when they're done

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where's the desirability because you could make an argument that you could see

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luxury homes built on every single one of those two three four million dollar

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homes luxury homes by most standards is there the demand there the geographic

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supported a lot to consider obviously it's an unfolding situation and we kind

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of it's the unknowns in it are really unsettling it's very I mean and it's not

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even it's our neighbor it isn't even it isn't even our backyard here in Las

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Vegas Valley but because they're our neighbor it's you know you feel for them

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and you want to understand what they're gonna go through and be somehow

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empathetic somehow yeah maybe help in some way and you know that you are

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watching it like a cinema movie but it's something that is interesting to watch

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what it's gonna look like as as this unfolds and hard to envision I just

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can't comprehend how you know wildfires used to be wildfires just happened in

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the wilderness straight through town right isn't something that used to

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happen right here about it right suddenly this has become a thing is it the

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way that we're building is the way that we're living is it you know products

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that we're using or is there is there some other ecosystem happening that's

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allowing for these fires to take place you know in Maui and the one I mean

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there just have been a series of those situations right isn't yours is it a

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numbers game is it that those areas that our fire prone didn't have the

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development and then the scale of geological time 50 years is a blink of

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an eye so if you were to look at it and a scale of a thousand years and you'd

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say those homes popped up and then there was literally a fire how could they not

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have seen that happen if you're looking at it on that scale on that scale of time

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so I think there's a lot of things that that come into play weather patterns and

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climate change I think that are affecting droughts droughts are longer harder

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more intense so I think that has a play in it I think there's I don't want to

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pontificate but I definitely think that there was probably some mismanagement

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in terms of brush control and if you see the kind of way it was managed it is

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kind of interesting that it didn't happen sooner that there was not some sort of

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fire sooner you have all of those people that means there's funding of the fire

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department and some of the exactly right right those things too that obviously

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you know are all topics of discussion out in the news world but for us to kind

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of bring it back home and think about how that affects us right and just the

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national housing market as a whole what it could potentially mean and and

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something that we talked about in our other episode about headwinds and things

377
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kind of affecting the market that I regret not bringing up was the insurance

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crisis and if you look at what it's doing to premiums in many states Florida

379
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North Carolina any hurricane prone state any seismic prone state wildfire prone

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state those are that could be in a you know an upcoming crisis that is not

381
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even on our radar when you think about the actuarial math that goes into is

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this a one in thousand year event one in 50 year event one in 500 year event

383
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turns the math from a $20,000 premium a year to a $2,000 premium a year

384
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and categorically maybe it isn't always a fire like you're saying maybe it's the

385
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earthquake maybe it's a flood maybe it's a mudslide and there are so many other

386
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natural disasters that happen and try it nationally you know that we're not

387
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affected by here and what's right there we're weather conditions we don't have

388
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hurricanes whatever we're grateful for some of that we do have the heat we have

389
00:31:05,520 --> 00:31:09,960
the heat we don't have enough vegetation for fires so that's something but yeah

390
00:31:09,960 --> 00:31:13,800
that'd be interesting to see how it unfolds yeah it will be an ongoing but

391
00:31:13,800 --> 00:31:18,240
it felt relevant to discuss it now as it's happening where we sit here you know

392
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safe and cozy there are people who've been displaced and who are suffering from

393
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this and so to look at that and think about that and how that's affecting not

394
00:31:24,920 --> 00:31:29,080
just them specifically but how the ripple effect as as Michael mentioned will

395
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carry out through both Las Vegas Valley and nationally so it will be interesting

396
00:31:33,800 --> 00:31:39,000
to watch and we thought it was worth bringing up and and I appreciate your

397
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take on it yeah that's you know the entities that are making some decisions

398
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and well after go from here so it will remain to be seen remains to be seen I'll

399
00:31:47,400 --> 00:31:51,400
look forward to checking back in when it's no longer dominating that once to

400
00:31:51,400 --> 00:31:55,920
say how did that work out did the Coastal Commission remain defanged and did

401
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they speed up permitting it'll be interesting to watch so well we'll keep

402
00:32:01,680 --> 00:32:05,320
watching it with you and give you updates as time goes if there is anything

403
00:32:05,320 --> 00:32:08,960
that we're noticing in the numbers here in the Las Vegas Valley or otherwise

404
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so thank you for joining us on this episode of trust the process and we will

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look forward to seeing you next time thanks bye bye

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thanks for tuning into the press the process podcast make sure to follow us

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00:32:25,320 --> 00:32:29,640
on Spotify to stay in the loop with the latest insights project updates and

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00:32:29,640 --> 00:32:42,800
everything in between see you next time