Dislocation and gentrification is hitting Austin hard.
Despondent over an ever-increasing cost of living while on his watch, Austin Mayor Steve Adler recently created a task force to study the factors that drive residents from their neighborhoods in search of new, more affordable places to live. Lagging only behind the beach town of Galveston, Austin median home values exceed the national and large-market Texas average by roughly 26 percent.
Meanwhile, citing a laborious commercial sector building process, Austin-based Dan’s Hamburgers president Katie Congdon said of building again in the city: “Never, never, never.” Echoing that sentiment, co-owner of Amy’s Ice Cream and other establishments, Steve Simmons remarked, “I will never build from the ground up again.”
Congdon’s frustration stems from a litany of permitting, regulation, and delays, all adding to the expense of projects across the city. Her recent experience, a “nightmare,” in her own words, resulted in an extra two months of construction time and adding an unanticipated $100,000 in costs. On the federal level, construction firms are already dealing with controversial rules like the silica rule, overtime wage rule, and Davis-Bacon Act, but increasingly state and local rules are compounding costs and delays in construction, in turn limiting supply and driving artificial rises in rent and home prices.
In an analysis entitled, The Cost of Regulation; The Effect of Municipal Use Regulation on Housing Affordability, Richard Maier describes an actual example of building on a single lot in central Austin:
“The various regulations that overlaid this property were the zoning code, a residential design compatibility ordinance known as the ‘McMansion Ordinance’ (all twenty-six pages of it), impervious cover limitations, ‘Neighborhood Conservation Combining District’ regulations (a twenty-eight page ordinance that supplements the zoning ordinance), handicapped accessibility requirements, sidewalk construction ordinances, a tree protection ordinance and a historic preservation overlay (which threatens even the simplest of structures with the prospect of being labeled ‘historic’ or ‘significant’.)”
In his test case, Maier determines that the overall added cost of regulation for the project would total $112,831.
A closer study of this issue was conducted by The University of Texas at Austin, where research shows that it typically takes 3.5 additional months to receive site plan approval in addition to the code mandated four-month cycle. Contrast that with other parts of the country, where the same delay in Denver was found to be three weeks, and just several days in Raleigh. During this unforeseen 3.5 months, developers paid out-of-pocket for legal fees and overhead, which often results in cost-cutting, lower quality, and greater expense passed on to consumers.
On average, government regulation accounts for almost 25% of the final price of a new single-family home. This was the finding of a new estimate by the National Association of Home Builders, which pegged most of the increase on regulations imposed during lot development, but with a fair share of the blame going to costs incurred after purchasing the finished lot. The NAHB report concludes that “[T]he average cost regulation embodied in a new home is rising more than twice as fast as the average American’s ability to pay for it.” The NAHB tables below indicate cost increases during different stages of a project and the cost impacts.
As developers continue to encounter mazes of regulation and red-tape in liberally-dominated cities like Austin, the state risks sacrificing growth and all Texans will ultimately suffer from the creep of these impediments to the state model of low regulation and taxes. Thankfully, Gov. Greg Abbott has recognized the impact this issue is having and included several related topics in his first called special session of the Texas legislature, from expedited permitting, to limiting changes in local rules during construction.
One response to the call, a bill filed by State Sen. Konni Burton (R-Fort Worth) aims at tackling part of the problem by amending state law as it pertains to local permits. Senate Bill 13 would shorten the deadline for review and approval of municipal building permits, provide for reconsideration of a denied application, require disclosure of the reasons for denial, set county permitting time limits, and seeks to include these time limits in sections of statute that address uniformity.
With legislation still being filed during the inaugural week of the first special session, several other bills have and should emerge to tackle this set of issues that the governor is justifiably pushing. Time will tell if enough lawmakers demonstrate that they truly grasp the problem or are beholden to anti-competitive interests and central planners instead of property owners and free enterprise.