At Big Homebuilder, Megalomania Rules

This long and rambling New York Times story on Toll Brothers has some interesting highlights. "Even as housing sales slowed in late summer, it remained clear that the idea of a bubble wasn't really worrying the people at Toll Brothers. But why? Bob Toll conceded to me that Alan Greenspan, chairman of the Federal Reserve, had a good point: some housing markets were frothy and infested with speculators. Toll agreed that the mortgage industry needed to tighten up its lending practices and stop pushing interest-only loans to high-risk clients." "At the moment, Toll controls enough land for nearly 80,000 houses. Its competitors, which tend to build lower-priced houses on smaller lots, have even larger accumulations. K. Hovnanian has land for more than 100,000 houses. Pulte Homes holds 350,000 sites. Still others, Lennar, Centex Homes, D. R. Horton, KB Home, control hundreds of thousands as well. And all of them are in ferocious pursuit of more." "The company's expected production of around 8,600 houses this year will expand to at least 15,000 houses by 2010." "(Tolls) conclusions carry a whiff of new-paradigm thinking, but he nevertheless seems convinced that Europe's present-day reality is America's destiny. I asked Toll what our children, my kids are both under 8, I told him, would be paying when they're ready to buy. 'They're going to live with us until they're 40,' Toll said matter-of-factly. 'And when they have their second kid, then we'll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income.'" "I grew alarmed. Was he kidding? He assured me he was not. 'It's all just logic,' Toll said. 'In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half.' The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they're going to get only half as much. 'And that average, million-dollar insane home in the burbs? It's going to be $4 million.'" "In midsummer, he predicted that some metropolitan areas, 'New York and Washington and Phoenix and San Fran and L.A. and Las Vegas and Naples and Boca', were about to slow down painfully. 'Investors will get creamed, and they'll get out of the deals,' he said, noting that a subsequent recovery would take anywhere from 3 to 10 months. But beyond that, a catastrophic crash? 'Why can't real estate just have a boom like every other industry?' Toll asked in complaint. 'Why do we have to have a bubble and then a pop?'"