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Welcome back to Trust the Process podcast, where we talk about real estate market, new home construction, and everything in between.
Today, as we talk about those in-betweens, we're going to look at codes and regulatory standards that are affecting the build process, both here in Nevada as well as nationally.
We're going to look at the Nevada ones today and kind of talk about that, but we know that it's happening across the entire country.
Everything is changing. Building standards are changing, and the number of codes and regulatory standards that are being put in place, how that affects things, and what that means for us as a builder and for the future of building as a whole.
Yeah, it's, um, boy, what a lead, and we're going to talk about building codes and regulation.
I think I'll say, I think only I could get excited for that episode. I tune in.
So, I, what I, what I wanted to talk about today was on the heels of our last few episodes, which are, have a somewhat of a negative tilt and a negative tone about when it pertains to codes and regulation.
I feel like I might be a little jaded, and even I might lose sight in what codes are for and why we need them.
I read a great quote. I can't remember who it was attributed to, but he said, codes are painted in blood.
Actually, I think the quote is codes and regulations are painted in blood.
It's dark, right? And when you think about why we have regulation and you look at maybe other countries or other eras in history when we had zero regulations and how fast fire swept through houses and how fast cities
burn and how homes could fall into the coastline and how things would just fall over or before streets were regulated.
And air travel was regulated. I don't even think twice to get on a plane because I trust obviously the regulations.
And I think there's an argument without going too far down the rabbit hole that in a true free market, the market would regulate itself, right?
You would be a competitive firm by putting out a quality experience or product.
However, because of barriers to entry to certain industries, you might find industries dominated by one or two players.
Therefore, you need a third party and adult in the room, i.e. government that regulates it for you because I can't go start a jetliner company tomorrow.
Although don't put it past me.
That's true. But I think.
Don't give me any ideas.
But if you look at industries that are controlled by a few players and that's honestly largely every industry.
Look at the automotive industry and how many cars there are versus how few players there are when you really look at, oh, well, Jeep is part of Chrysler, part of Dodge, part of Ramford.
It's Stalantis and you think, well, all those cars fall under that umbrella and everything that Volkswagen controls. And so you think about how few players there are in any industry.
And in our other episode where we talked about how many publicly traded home builders there are just nationwide and how many homes they put out and how much they can corner the market.
One large publicly traded company in our market controls about 20% of new rooftops and I won't name them. But it starts with a D and ends with an R.
And they control about 20% of our market. So yes, the free market should regulate everything.
But that's with the assumption that there's enough choice in the market to allow customers to walk with their to vote with their feet and to say, well, you don't build a sound home.
So I'm going to choose this other home. So I understand the need for regulation.
And I do love the idea that homes are better today than they were 30 or 40 years ago. And I appreciate the energy that leaps and bounds we've made with energy efficiency and how much more earthquake resistant, fire resistant, weather resistant,
age resistant, our structures are today versus even 40 years, 30 years in the past, let alone 100 years in the past, where the adage of they don't build them like they used to, which makes my hair in the back of my next stand up because tar apart at home built from 1955.
That thing is built out of cardboard and paper.
That is not great.
So they're not grateful.
They're not grateful.
They're not built like that. You could punch a hole in the siding and your fist would go through into the bedroom.
Sometimes they didn't even have insulation. So we're looking at the other extreme of it.
I understand and I have to take a step back and breathe as to give as to give myself context in terms of why we have these regulations.
And you can't you can't count on the free market to iron all those hiccups out, take a trip to a third world country and get in a 1984 Sentra that is your Uber driver and drive through those streets and alleyways that are not regulated.
Some are seven feet wide and some are 70 feet wide and the structures that are built over top of each other with the laundry hanging out.
And you think, well, I don't want zero regulation because this is what it looks like.
And just a standardized right. There's a just to know that there is a general safety component that's been considered before that's right.
That's right. It does give you a great sense of comfort to know that.
So while we're doing it temper while we're dealing with the temporary pain of building the structure, which is a nine to 18 month process, we have to think that structure is going to be there for 100 to 200 to 300 years.
We don't know. And there's homes in England that are 500 and 600 years old.
So I understand why and I want to, I wanted to give our viewers that context that I'm not anti regulation. I love the idea that we have better building standards today than we did even 2025 years ago.
So that being said, I want to trash the codes for a while.
I think that no, I think that's a good point to make though. I mean, it isn't an anti regulation. It's a hurdle crossing.
It is. And I think what gets what does get a little frustrating is that there's never a push to cut any regulations at all. That is so unpopular.
And there's really no will in the regulatory agencies because by doing that they're shrinking their footprint.
So the Department of Building and Safety wants robust codes. It's job security. And most home building permits are minimum of $5,000.
Not really could go up to 12, 15, 18, $20,000.
And you look at a municipality like Clark County, now it's broken up. Sometimes the city, Henderson gets that permit fee or you know, there's always, county always collects a certain impact fee, but there's always something collected on every rooftop.
And we know that last year we built around 12,500 rooftops by 10,000.
And my math doesn't even go. My mind doesn't work in numbers that commas that long.
So I think that we have to remember that there are some perverse motives that people don't want to see regulations.
And if any regulations roll back in fact, they have a vested interest in increasing regulations and I feel that certain agencies locally might exist for that purpose.
And you might see them growing for the sake of growth. So I thought of something last week that I found exceptionally clever, but you might not.
I just said well.
Regulations, i.e. building codes in our industry is kind of like a garden. And once you plant it, the garden just keeps growing and germinating a bigger garden.
Right. And of course, it wants to grow bigger. It's just naturally plants and weeds want to grow. It's not all crop. It's just growth.
So if you have a garden and you're watering it, it'll grow. It might not be the stuff you want.
So you could make a case for that garden and say it's choked out by the weeds and that's kind of how I feel that many times when I'm scratching my head or beating my head against the wall, quite frankly.
I wish I was only scratching it. It's not. It's a lot of that. It feels like regulation and regulation for regulation's sake.
And I think that that's where my biggest frustrations come from because I believe in the spirit of regulations and I believe in the spirit of building codes.
But I did a little exercise on our local Clark County building codes and what is referenced on a general set of stamped blueprints that I submit to the city.
And without boring our readers, I'm going to borrow them. 2021 International Building Code, 2018 Universal Mechanical Code, 2018 International Energy Efficiency Code, 2018 International Residential Code,
2018 Uniform Plumbing Code, 2021 International Wildland Urban Interface Code, 2020, we'll talk about that, 2021 International Fire Code, 2017 National Electric Code, and the 2009 ICC, which is kind of an accessibility, how structures are accessible to the population.
And all have to be referenced on a set of plans that we've reviewed these plans to these codes. Then I did a little exercise if our audience is still awake as to how many pages those codes encompass total.
Okay. If you had to just guess all those codes, how many pages, if we printed them out, how many pages would all those codes take up?
How many reams of paper? Yeah, I'd say probably 500 pages. I mean, if you're thinking it would sum up to you libertarian, there is no way in hell it's only 500 pages.
There is no way. It is 4,912,000 pages of code, 4,912 pages of code. That's pages of code. If you printed out all the codes that I just mentioned, mind you, those are the codes in their entirety.
All of our codes have a parentheses that says with local amendments. So 2021 International Building Code with local amendments.
So that's saying, yes, all of these codes, we're also going to amend it to our codes that pertain to this. So the uniform plumbing code is something that is observed nationwide.
But then Clark County, our local jurisdictions, your local jurisdictions are going to have additional overlays and amendments on top of that. I would imagine that's another 3,400 pages were over 5,000 pages of code.
I thought I was thinking big when I said five. I was like, gosh, there's so many.
If I didn't have this when we were talking in our previous episodes, I would have thought it was on the order of three to 700 pages worth of code. And I just didn't really put my head around it until I pulled up a set of blueprints and found that all of these code books are referenced.
And it's nine, by the way, it's nine code books. And I thought, wait a minute, if it's nine books of code, how many pages of code is that? And that's how we come up with, I mean, for instance, the International Building Code is 832 pages.
The International Wildland Urban Interface Code, which is a code for when properties are built. Yeah, it's a face only regulator, could love.
That code is for basically growth impeding into nature. And it's 78 pages on codes related to your building this subdivision. And on the other side of it is nature, desert, forest, whatever, nothingness, whatever it is.
And there are 78 pages of code for that. And certain things that you need to address.
So it is bloated to say the least. So although I believe in the spirit of the codes, and I know that we need to be a well regulated industry.
After all, people live in these structures, these structures are meant to be here. It's not a coffee mug. This coffee mug, if it's inconsequential, right?
If the coffee mug fails, terrible, throw it away, get a different one. It's not meant to last 100 years.
And they're also major investments. And their insurance liabilities, right? Every home that's built needs to be insured.
So when you think of it under that context, is this growth in codes part of what has helped our real estate become such a bulletproof asset?
Because it's presumed that when they're built to 4,900 pages of code, that they are going to be here for a while and that that investment is safe.
Is that part of why we've seen homes go from a place to live to an asset class in really two generations?
They were not an asset class. A home was worth what it could be either lived in for or rented for.
It was never considered a speculative investment until probably maybe the 70s, right?
The idea of a landlord being anything more than, oh, my grandmother left me this home in her will and now I rent it to a tenant.
And it's worth the $500 a month that I get from that tenant. That's what it's worth to me.
And then it's worth to someone else what it saves them in rents and housing policy.
It became something that was a utilitarian good to something that became a wealth creation juggernaut, honestly.
And I just wonder if, and that's why I wanted to be introspective and fair to say, is it part of why there's such wonderful wealth generating machines?
Is because when insurance companies see 4,900 pages of code, they know, OK, well, this home, and that's when you look at insurance rates.
One of the single greatest factors for dictating insurance rates is the age of the structure, not the size, not the location.
It's the age of the structure. It's just presumed that there's less neglect, but also that they were built to 4900 pages of code.
Different standards, great way to sum it up succinctly.
So I think that when I look at it through that lens, I try to be a little fair to say, yes, it is frustrating.
Do I think we could cut 4,900 pages of code down to, I don't know, 4,800 pages of code?
I'd settle for that, maybe.
And I think it's only growing.
That's what worries me is that I remember building to 2014 International Residential Code in 2018.
And last I heard, we're going to start adopting 2021 International Residential Code.
And then there's other things that best laid plans, right?
So there's a push for energy efficiency, and it's very important, completely understand it.
Do I wish the free market handled that more?
Do I wish that the free market valued energy efficient homes and then would pay accordingly?
We didn't have to legislate energy efficiency into homes.
Yes.
Is that a luxury a lot of home buyers might have when their budget constrained?
Probably no, but the buyer's in the pain for it anyway.
And if you look at a lot of the regulations from 2010 onward.
So a lot of the low hanging fruit needed to be addressed.
Certain R values in the ceiling and just insulation in general, window R value, things like that.
That all matters, and it does.
However, if you look at new regulations, because they're never going to pull back environmental and energy efficiency regulations, they only add to them.
Since 2010, those, the new regulations on the books, I can't remember which think tank did a study on it and it's worth the researcher that did it.
So I hold it with, you know, you never, you can pick these things apart.
But it's estimated that new energy efficiency pushes are about 86 years worth of time to recoup the added cost of those initiatives.
So it's definitely a thought that that's why I said best laid plans.
The intentions are there and I get it.
But when you look at it overall cost, what is the functional lifespan of a home before it would have a substantial renovation anyway?
Taste change, functionality changes, zoning changes.
Now it's allowed.
You can do two family home there and tear it down and put it to families.
So things change and is that beyond the average lifespan even of a home before you have gotten back to zero on that energy investment.
So there's definitely an argument on both sides for it.
And when we're in an affordability crunch, yes, it feels a little counterintuitive to keep increasing to say why is a home built to 2018 standards no longer relevant?
Do we really think we've come that far in technology?
What has changed that cost that's associated with each of those?
So while we're not building homes like we were, they're also not the same cost that they were for that building standard.
Exactly.
Because we're now having to meet because each new code assesses another X number of...
There's a multi on it.
Or it's a different product type or it's a different engineer that has to look at it or whatever it is.
Of course.
Another set of cost slows it down.
Even if nothing else, it just slows it down and adds more.
And at the end of the day, that home is going to cost more to put out to the market because it costs you more to build.
And so are we going to go further from bridging our affordability?
The short answer is yes.
I mean, you can only change two things, right?
Your inputs and your throughputs to get to the same output.
So if your inputs are higher, eventually the market will see you say, well, it doesn't.
Great example, in 2020, it became mandatory in the entire county to have fire suppression, active fire suppression.
So fire sprinklers, whereas it was a Henderson only, which is one of our suburbs, a Henderson only jurisdiction.
That jurisdiction was the only one that required sprinklers.
And then all of Las Vegas and Clark County, which represents probably 75% of the Las Vegas metro population.
So this was a new thing for us.
And it added about 12 to $22,000 worth of cost, hard construction costs for me, hard construction costs to the cost of every single house, even a entry level home, 10% below the median sales price.
It added that to that home because there's a certain just to do fire suppression is $10,000.
And then the size of the home starts to factor in, but just doing it is $10,000.
And then it costs more, you know, as it goes up in terms of square footage and how much suppression you're installing, but there's a certain kind of action potential.
So every home, yes, the entire time we're home, every new permit from 2021 onward.
So when you look at that, yes, it did automatically mean that homes became $15,000 more valuable.
No, but what it does is put supply constraints into the marketplace and then the market adapts quickly and says, so builders like myself, just you add it right on to the price.
The first people to feel it are new construction buyers because the bill is just going to say, you know what it is.
I was already going to get 1,750,000.
I'll get 1,765,000 and someone will still pay it.
And it puts that upward pressure on prices.
That's one example.
So if you think about what that looks like.
And that you're using a million dollar home as the.
That's right.
As a percentage of that.
Let's take that back to the percentage of 375 versus 390 or the $400,000 entry level home.
What, that's a huge margin.
Now you're the same number to that greater percentage.
And again, that buyer is who.
That's right.
And it's best laid plans.
The intentions are pure.
They, who wants to lose their home in a fire?
Nobody wants to lose their home in a fire.
And then there's an insurance piece that.
That's right.
That there's a savings that comes with insurance.
So now is, does it come up?
However, if you talk to actuarial or actuaries and insurance companies,
they see it as a net zero most that I've talked to.
Because now you have all this running water in your ceilings and water loss is a bigger
loss leader for insurance companies in fire.
So it's actually about a zero, like a zero to zero some game here.
So as using that as an example, just to, it's to me,
that's just a great relatable example.
And when you look at that times 4900 pages of code, you can imagine why it's challenging.
So I get it.
And I understand we need codes.
Our first building codes, I have to sprinkle in a little bit of history.
Okay.
About 1700 BC, Hammurabi's code.
17, I didn't think we'd be supposed to.
We're just going farther and farther back in time.
There were codes for construction standards and the penalty for building a home that was
substandard and collapsed or killed someone was death.
So thankfully, I feel over.
I think we've regulated, but I don't think I'm as regulated as a trust home builders,
Hammurabi stuff.
Yeah.
So I understand.
And I just feel like there's, can we, can we thin, can we thin it down a little bit?
And get some of these off the books or send them a little bit.
Literally, the weeds start choking out the,
The weeds start choking out the garden because you've made this fertile soil.
So that one regulation breeds two, two, four.
It is just they kind of,
Are they just regulations for the sake of regulation or how they really move the needle in terms of the,
the end quality of the home that's being built?
Exactly.
And how much of that would have been market driven anyway?
So that's kind of the balance, right?
Maybe people would have paid more for spring homes with sprinklers.
And what kills me is that we have all this housing stock.
Las Vegas is a relatively new market when you think about most of our growth has been since 19,
Right.
So a lot of our housing inventory here is under 30 years old.
And you look at the standard of a 1995,
The home to 2025,
The home while the different,
But we have all this housing inventory and housing stock that is inferior in the eyes of these codes.
I mean, technically, right?
So why is it okay for this is two or 2.3 million people here?
Why is it okay for 2 million people to live in this squalor?
Right.
You mean you don't have our 19 and you're come on,
How do you even get up on?
How do you get out of bed?
So there's just a lot of,
A lot of that pondering that I do to think how much of the free market have taken care of and how much are we worsening the housing?
Yeah. And we haven't even talked talked about zoning codes and land use codes.
And that's something that I have a really hard time reconciling when you have old outdated zoning laws that favor suburbia that favor big cul-de-sac set.
Let kind of the market decide what the market wants instead of the city over regulating it.
And we'll talk about that.
And maybe in our land podcast,
In our land episode,
But there's these are just Department of Building and safety codes.
This is not the amount of codes,
Conclusive list of codes that exist in our town.
This is just for new residential construction.
There's no ADA codes in here.
Nothing for commercial, right?
Because these are residential only structures.
So there's a ton of codes and there's a ton of land use codes.
We have something odd in Henderson and our Henderson suburb of a hillside overlay.
So if a certain percentage of your parcel is subject to the hillside,
Then you have to do 3D maps and renderings and you have to say how many desert scorpions are going to be displaced.
You have to do an environmental study and you have to say,
Oh, this is I'm clearing off 18 dead sagebrushes.
That's the environmental impact of it's a lot.
It adds another 50,000 and six months worth of work to an average parcel and average five acre subdivision.
So there's a lot of and that's another set of codes.
So it's a lot.
It's challenging to navigate through, but we do it.
I'm looking at it from that.
I mean, I'm thinking about that, that specific example.
These are gr...
It's, if you think about it, without getting them a soapbox,
The types of people who are writing these codes are generally not business minded people.
So they might be looking at it from a very limited lens.
They're not economists.
They're looking at it.
Someone gets in their ear and says,
Henderson has some beautiful hillsides and some beautiful mountain ranges.
And we need to ensure that we develop those properly.
And again, best laid plans.
Of course, we want to keep the city desirable,
but maybe let the market determine that instead of legislating it.
So something like that was just a person got in the air of a lawmaker and it was,
You know what?
That's a really good idea.
I think we should do that.
We don't want unfettered development of our hillsides.
I mean, if you drive 15 minutes outside the city,
you'll see all the mountains and hillsides you want.
We need them in Henderson.
But, and I do understand, I completely understand development standards.
When you're talking about the other codes, again,
I think it's the intentions are there.
It is not the city's job in their mind.
It's not their mission statement to make the city marketable,
to make building pencil out.
Their job is to preserve the life of their citizenry and to protect their safety.
And another kind of interesting thought,
and this is way down the rabbit hole,
but the city kind of owns your property too.
You're basically in business with your city.
And if you don't think that,
just stop paying your property taxes for a while and that house becomes theirs.
So really every home that's built, the city might see as their home.
They might have a vested interest in that home as well.
It's their tax base.
So they might own that house one day if you're not careful,
if you don't have your taxes set up on auto pay.
So that's, I don't know if that's where their minds are at,
but I do feel like that potentially was where it started to say,
we need regulation, we need standardization.
We're tired of deploying our entire fire crew because someone was running a business
in the second floor of their house.
Okay, now we need a zoning code.
Okay, you can't do that here.
Oh, they had all these combustible materials and there were no fire escapes
and people died and kids, you know, fire crews couldn't get in there
and the floor collapsed.
And I mean, how many of those do I say regulations and codes are painted
and are written in blood?
You can see again, the intentions are pure,
but regulations tend to breed regulations and codes tend to breed codes.
So I feel like that's where we let, we opened up Pandora's box.
So what is it?
Is a sweet spot?
Is it a happy medium?
Obviously, do I want to go to a model of pure free market and you can build anything anywhere?
And do I want to live in a city like that?
Do you want to live in a city like that?
Probably not, but do you want to live in a place where it takes three years
to get a home approved or where there's a stack of codes this thick
just because 500 feet of your five acre parcel might have a slope greater than 25%
and that's hillside?
Probably not either.
So I think it's just like everything, it's common sense reform.
And we had a massive lawsuit with the city of Las Vegas that it's about a half a billion dollar settlement
for one of our golf courses that went belly up and was sold to a developer.
And the city, as the judgment said, deprived him of his use to develop that
and his enjoyment to develop that parcel by putting these roadblocks in
to prohibit the development starting back from 2008, I believe.
And the settlement just came down the line in 2024, so we're talking,
it was a, what is it, 16 years worth of litigation going back and forth.
So that's some of the most egregious examples that might maybe wake up the city to say,
look, we have to find a happy medium here.
We are a growing city.
We're a desirable city.
And ultimately people deserve peaceful enjoyment of their property and that includes improving it
and making it better and putting it into the city itself.
Otherwise we're a city of just raw land and then we're not a city.
So it's interesting.
It's kind of a fine line to walk.
We want the safety and the, you know, we want the standardization and the right.
Safety, the standards, right.
All of that that would come from.
We want to live in a beautiful city.
That's such a hindrance to some of those.
It is. Yeah.
It is. It's challenging.
So I, again, again, I do full wholeheartedly believe that regulators and wall makers have
good intentions when it comes to building codes.
I don't think that there's any nefarious cause it's really hard to track who benefits from it.
It's just that they're not wired that way.
Right. They do. Right.
But, but are there some, are there things that don't make sense anymore?
Right. Exactly.
That maybe the fair market would, would bear out.
So I find it interesting. Yeah.
It's interesting conversation and things that I haven't considered.
I do know that the codes are growing. I do know how nefarious those can be.
I do know that they're all in place and challenges for a lot of things,
but hadn't really considered the, the big play on all of that.
And when you look at those two things as the, the two sides of the coin,
you know, the regulations and, and try to be fair.
Let's just try to be fair to say, okay, well, I can belly ache all day long about 5,000 pages of code,
but what are, what's their perspective?
Play the, play, play the devil's advocate.
God knows they don't play devil's advocate for me,
but I'll play devil's advocate for that.
So it is interesting and it's something that I ponder a lot at night, you know,
before when, when everything gets quiet, you think I am building their city.
Cause cities don't do much building.
They don't do much in the way of building, right?
They might build some of the municipal buildings, but for the most part cities are built by private enterprise.
Cities are built by developers.
Cities are built by people improving on their own land.
We are the city.
And it's interesting that sometimes the city is your biggest enemy.
So great.
Multiple perspectives and lots of thoughts, provoking topics and conversation there.
So love it.
Thank you.
Yes.
And thank you guys for joining us.
Hopefully you learned something today too.
And kind of get your thoughts going on how those things come together and what builders and developers are up against in terms of the codes and the regulations that go into each home bill.
Thanks for joining us again today and we'll see you next time.
Bye bye.
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