HUD Wants it Both Ways, but Builders don’t Build Affordable Housing thanks to the Feds

Introduction by Smith Young “:)” HUD AFFH mandates that communities accepting grants create opportunities for minorities (ref AFFH for Dummies), but builders say many of the new federal government requirements are well-meaning, but added up they translate to higher costs that are passed on to prospective purchasers.  Builders have also focused more on the move-up and premium markets throughout the economic recovery, meaning a tendency toward larger, pricier homes.  Mr. McConnell, president of Healthy House of Georgia. “I don’t build affordable houses anymore.”

Below are the facts.

WSJ click – Regulatory Costs Inflate New-Home Prices, Builders Say

Fees for park space, stormwater devices, endangered-species surveys; ‘I don’t build affordable houses anymore’

By CHRIS KIRKHAM
July 22, 2016

As the cost of construction permitting has risen over the past decade, Atlanta home builder Dennis McConnell has taken a new approach with customers.

He now itemizes the regulatory costs so buyers can see firsthand why the price tags for his houses are so high. Among recent charges he has outlined: $8,000 for a new type of storm-water capture device required for each house, $3,500 for customized architectural plans required on every lot and about $15,000 to remove a tree from the property.

With every new regulation, “the more expensive it becomes,” said Mr. McConnell, president of Healthy House of Georgia. “I don’t build affordable houses anymore.”

As home builders pick up the pace after a punishing downturn, they face a bevy of new regulations and higher fees governing everything from environmental quality and park access to regulations on the amount of brick on a home exterior. Builders say many of the new requirements are well-meaning, but added up they translate to higher costs that are passed on to prospective purchasers.

For the past five years, the median new home price has been 32% to 38% higher than the median price of a resale home, according to data from the U.S. Census and the National Association of Realtors, the largest such gap since the figures started being tracked in the 1960’s. Compliance costs are one of many factors affecting prices of new homes, economists said. Builders have also focused more on the move-up and premium markets throughout the economic recovery, meaning a tendency toward larger, pricier homes.

Several recent studies have documented how increased regulatory and permitting costs affect prices. A report by John Burns Real Estate Consulting in Irvine, Calif., concluded that new homes have become “permanently more expensive to build” because of increased regulations.

The study surveyed more than 100 building-industry executives, asking for examples of costs that didn’t exist a decade earlier. New regulations included a survey required in some areas of the Midwest to determine whether endangered bats are on a property, which builders said can cost $10,000 or more for each new development.

A report in May from the National Association of Home Builders found that the average cost for builders to comply with regulations has risen nearly 30% over the past five years. A study from housing-research firm Zelman & Associates calculated that local “impact fees” charged to builders and developers to pay for services such as roads, sewers and parks have climbed 45% since 2005 to an average of $21,000 per home across 37 major markets.

City officials argue that regulations and fees have increased at a reasonable rate and account for a much smaller portion of final home prices than costs such as land and labor.

“Impact fees don’t set the price of a home. The market sets the price of a home,” said Ed Hunzeker, administrator of Manatee County, Fla., which recently voted to raise impact fees for new developments by 80% or more over the next three years after cutting them during the economic downturn. “Somebody has to pay for new growth—the new roads, the new sewer lines, the new infrastructure required.”

In places such as Florida and California, where a 1978 ballot initiative restricts increases in property tax assessments, impact fees on builders and developers have long been a way to fund essential services.

The increases have prompted more pushback from developers in Texas, where fees have historically been lower.

Dallas has been one of the nation’s fastest-growing regional economies, where suburban development north of the city has turned onetime ranch communities operating on septic systems into sought-after, full-service destinations for families.

In the town of Prosper, north of Dallas, the city requires a dedication of one acre of park space for every 35 units (single- or multifamily) and a park fee of $1,500 to $2,000 for each unit.

Last year, the city finalized a 10-year master plan for parks that proposes a new system of trails, ballparks and other recreational sites to accommodate a population expected to increase from 15,000 to 70,000. Nearly half of all residents surveyed for the parks plan said the best way to pay for the services would be through increased fees on developers, while less than 4% said increased property taxes would be the preferred method.

“There’s an expectation in the community that as the town grows, they don’t have to go to an adjoining municipality for a soccer game or for baseball fields,” said John Webb, the town’s director of development services.

Matt Robinson, general manager with Walton Development and Management in Dallas, said developers should pay their share for new services. But too often he feels that developers are an easy target when cities plan for future growth.

“When you do a parks master plan, it’s like asking somebody ‘Do you want a Ferrari or do you want a Geo Metro?’” Mr. Robinson said. “Everybody’s going to want the Ferrari.”

In other cases, builders argue that regulations from different authorities are in conflict. In Atlanta, for example, builders are now required to install underground stormwater devices as wide as 50 feet on every lot to better filter runoff.

The city also has a strict tree-preservation ordinance with penalties of up to $60,000 an acre for illegally clearing trees on lots. Mr. McConnell recently spent an extra three months redesigning a home to both build the stormwater system and avoid a $15,000 charge for taking down two large oak trees on a property.

“It requires these complex site plans not for life safety issues, but so they can control whether or not the house is too tall, whether it has the right look, or if the tree can be saved,” he said.

Write to Chris Kirkham at chris.kirkham@wsj.com