residences to be electric-ready for heating, cooling, cooking, clothes drying and water heating systems. California and certain
of its local governments have implemented restrictions on or disincentives for new suburban and exurban residential
communities, generally in favor of higher-density, urban developments that can be attractive to some buyers, but in many cases
are on smaller parcels with higher building costs and more complicated entitlement requirements and may be subject to
affordable housing mandates, prevailing wage requirements, greater local opposition and/or additional site remediation work.
These efforts have and could further significantly increase our land acquisition and development costs and, along with
competition from other homebuilders and investors for available developable land, limit our California operations’ growth,
while making new homes less affordable to potential buyers in the state, including as a result of its public utilities commission’s
decision to significantly reduce net metering payments to homeowners for the rooftop solar power they export to the grid from
systems installed.
Climate Risk. While there is considerable debate over its drivers and magnitude, and about the physical, regulatory and/or
technical/scientific mitigation or adaptation measures, if any, that should be implemented, global climate change and responses
to it present potential risks to our operations, ranging from more frequent extreme weather events to extensive governmental
policy developments and shifts in consumer preferences, which could individually or collectively significantly disrupt our
business as well as negatively affect our suppliers, independent contractors and customers. Experiencing or addressing the
various risks from climate change may significantly reduce our revenues and profitability, or cause us to generate losses. For
instance, incorporating greater resource efficiency into our home designs, whether to comply with upgraded building codes or
recommended practices given a region’s particular exposure to climate conditions, or undertaken to satisfy demand from
increasingly environmentally conscious customers or to meet our own sustainability goals, often raises our costs to construct
homes. In evaluating whether to implement voluntary improvements, we also consider that choosing not to enhance our homes’
resource efficiency can make them less attractive to municipalities, and increase the vulnerability of residents in our
communities to rising energy and water expenses and use restrictions. We weigh the impact of the costs associated with
offering more resource-efficient products against our priorities of generating higher returns and delivering homes that are
affordable to our core first-time and first move-up buyers. We also consider whether our buyers may face higher costs for, or
may be unable to obtain, fire, flood or other hazard insurance coverage in certain areas due to local environmental conditions or
historical events. In balancing these objectives, we may determine we need to absorb most or all the additional operating costs
that come with making our homes more efficient and/or from operating in areas with more extensive regulatory requirements,
such as California, or certain climates. While our years of experience in sustainable homebuilding, as discussed above under
“Sustainability Principles and Practices,” and ability to leverage economies of scale may give us an advantage over other
homebuilders in managing these absorbed costs, they may be substantial for us.
Beyond the commercial pressures implicated by climate change concerns, our operations in any of our served markets may
face potential adverse physical effects. For example, California, our largest market, has historically experienced, and is
projected to continue to experience, climate-related events at an increasing frequency including drought, water scarcity, heat
waves, wildfires (such as the unprecedented wildfires in the Los Angeles County area in January 2025), and resultant air quality
impacts and power shutoffs associated with wildfire prevention. In addition, based on an Arizona state order in June 2023, new
housing subdivisions will not be permitted in some parts of Phoenix unless developers, like us, secure water supplies other than
local groundwater. While we have health and safety protocols in place for our construction sites and take steps to safeguard our
administrative functions, including our IT resources, as described below under “Information Technology and Information
Security Risks,” we can provide no assurance that we or our suppliers or trade partners can successfully operate in areas
experiencing frequent or persistent adverse climate-related conditions, and we or they may be more impacted and take longer,
and with higher costs, to resume operations in an affected location than other homebuilders or businesses, depending on the
nature of the conditions or other circumstances.
As discussed above under “Strategy Risks,” and below under “Legal and Compliance Risks,” international, federal, state
and local authorities and legislative bodies have issued, implemented or proposed regulations, penalties, standards or guidance
intended to restrict, moderate or promote activities consistent with resource conservation, GHG emission reduction,
environmental protection or other climate-related objectives. Compliance with those directed at or otherwise affecting our
business or our suppliers’ (or their suppliers’) operations, products or services, could increase our costs, such as with
California’s requirement that all new homes have solar power systems and agency requirements for all-electric readiness and
plans to potentially eliminate natural gas appliances in new homes built in the state by 2026; delay or complicate home
construction, for example, due to a need to reformulate or redesign building materials or components, or source updated or
upgraded items or equipment, or specially trained or certified independent contractors, in limited or restricted supply, which has
been a challenge for us in certain cases in the past few years, such as with paint, garage doors, insulation, electrical materials,
cabinets, HVAC equipment and water heaters that have been out of stock and delayed home construction or required us to
install or use temporary or permanent substitutes due to the supply chain disruptions we have experienced; or diminish
consumer interest in homes mandated to include or omit certain features, amenities or appliances, particularly if home prices
increase as a result.