Development

Local regulations make new housing more costly

by Lisa Sturtevant and Agnès Artemel   •   November 28, 2012 2:47 pm

Obtaining local government approval of a development plan is often a complex, costly, and time consuming process. It is no wonder that new housing units in the Washington area are increasingly unaffordable for households below the Area Median Income (AMI).

Photo by Keith Williamson on Flickr.

The full approvals process can easily add $30,000-$50,000 to the cost of a new single-family unit, and $10,000-$20,000 to a multi-family unit. In certain locations and under certain circumstances, the cost can be considerably higher than that.

Almost all new housing development approvals come after a lengthy review process culminating in a public hearing. This initial process starts with the property owner paying application fees. Governments and/or residents then ask for formal proffers, negotiated contributions, and special conditions, each of which have their own cost, before giving final approval.

The land development approvals process that then unfolds adds more application, review, and inspection fees, as well as fees that are highly particular to individual jurisdictions. Applying for building construction permits also involves additional application and review fees and costs. Taken together, the layers of development review add tens of thousands of dollars to the cost of a finished housing unit.

The table below identifies commonly-used categories of fees and costs encountered during stages of development approvals. They are based on a survey of 15 Washington-area jurisdictions, and in depth case studies in Montgomery County, MD and Fairfax County, VA.

Maryland and Virginia approach land use regulation quite differently, and each jurisdiction's charter gives it different authorities. Individual cities and counties set their own fee schedules, create their own methodologies to evaluate the adequacy of public facilities, determine their public priorities, calculate the specific impacts of proposed development projects on their budgets, and make requests for developer contributions.

Thus, the fees developers pay in the course of obtaining development approvals vary considerably, both in the types of fees and contributions, and in the amounts requested. Some jurisdictions, particularly those that continue to have large undeveloped areas or are relatively un-urbanized, use a formal proffer or impact fee system to provide basic infrastructure and core services.

In recent years, several jurisdictions have moved to a system of negotiated conditions. The development project offers to provide or pay for a large number of items not tied to specific impacts, but rather defined as "community benefits." This system has the unfortunate effect of being unquantifiable up-front, as the specific items negotiated evolve in the course of the review of the project concept, application details, and citizen reaction to the proposal.

Residents even sometimes make requests at the final moments of the approval process, during the public hearing before the jurisdiction's governing body. Developers working under this system often plead for an alternative that gives them more certainty and predictability. Some even prefer the large proffer numbers in rural or exurban counties over the ad hoc layers of requests unrelated to the project they encounter in the more urban jurisdictions.

Complexity adds to the cost of obtaining approvals

In addition to the direct expenses associated with the various permitting processes, obtaining development approvals is complex and risky. Completing the process often involves multiple overlapping and sequential approval steps, several community meetings to obtain public input, dealing with multiple agencies at different levels of government, and rounds of refinement or revision.

Approvals are generally very specific, and frequently rely on a proffered development plan that spells out the minute details of the project, including specific elevations and building materials. A minor change can trigger a need to go back through the process to amend previous approvals.

Timeframes for approval may be as long as 3-4 years

The layered and complex public development process means it often takes a very long time to gain full approval and start construction on a residential project. It is not unusual for a proposed development project to take 3 to 4 years to go from concept, through rezoning and associated approvals, to land development review, and finally to building permit review and approval.

This extended timeframe has its own costs. The attorneys, architects, and engineers must work with local staffs, prepare countless revisions, and explain the project in the course of community meetings (which can be large meetings covering an entire neighborhood, or be highly focused meetings involving as few as one or two particularly interested citizens). All charge their time to the project, burdening it with unpredictable extra costs.

An additional consequence is that if the timeframe is extended too far, the project risks missing its window of opportunity for market demand. For example, the last condominium building approved just before a downturn in demand for a condo product is likely to never get off the ground.

Housing costs more than it should, and we are having trouble producing units of the right type at the right locations

Costs are highest, complexity is at its peak, and timeframes are the longest in exactly the areas where many argue we need new housing units the most—in activity centers near transit. Land use plans and zoning have not evolved, but instead are frequently still redolent of greenfield development.

As a result, developers of urban mixed use projects or multi-family buildings of more than a few stories have to seek a rezoning (and in some jurisdictions, a master plan or comprehensive plan amendment). The rezoning then triggers a cascade of fees, proffers, public input cycles, and time delays. Housing affordable to people below the median income then becomes a casualty of the process.

Our earlier articles discussed how much housing, and the types of housing, the region needs. It will become increasingly difficult to produce the necessary numbers of multi-family units, rentals, less expensive units, and smaller units at activity center locations. The local government regulatory process is one factor that contributes to the mismatch between what the region needs and what can actually be built.

The detailed studies of Montgomery County, MD and Fairfax County, VA are available on the Center for Regional Analysis website.

Next in this series: What stands in the way of meeting the region's housing needs?

Lisa Sturtevant is Deputy Director of the Center for Regional Analysis at George Mason University. Dr. Sturtevant's primary areas of research include housing, demographics, and economic development. Prior to working at the GMU Center for Regional Analysis, she spent four years as County Demographer in the Arlington County Department of Community Planning, Housing and Development.

Agnès Artemel became interested in revitalizing cities after growing up in France and Germany, where livable and walkable have always been the norm. She is a founder of the Northern Virginia Streetcar Coalition and Alexandrians Delivering smart growth Around Metro (ADAM). Her professional focus is on market and feasibility studies, real estate development approvals, and economic development partnerships. Agnès has a Masters in urban and regional planning.