Menu Items on the Free Lunch Smorgasbord

Last week I published “Lean Urbanism and the Bureaucratic State,” a post that described a New Urbanist project to rectify the baleful effects of excess regulation upon urban re-development efforts. Questions arose in the comments regarding this initiative. What were these terrible regulations? Were the New Urbanists exaggerating the costs they imposed? Reader Richard N. Maier, a real estate manager for a major Central Texas homebuilder, contacted me to share his experience trying to redevelop a single property in Austin a few years ago. I republish this with his permission. Remember, this is Texas, where it is easier to build than almost anywhere in the country. — JAB

Bungalow for rent in Austin, Texas
Bungalow for rent in Austin, Texas

The Cost of Regulation: The Effect of Municipal Land Use Regulations on Housing Affordability

by Richard N. Maier

One of my professors at the University of Chicago told the class on the first day, “I don’t expect you to remember everything I talk about here, so my suggestion is for you to walk out of here with one takeaway from each class.” I can’t really say I did that every time, but sitting at convocation at Rockefeller Cathedral, I decided the one takeway that trumped all others was, “There is no free lunch.”

Throughout my career it has intrigued me how many of us travel through our careers and personal lives thinking otherwise.

A discussion of “affordable housing” is a perfect platform for testing this statement. While attending the University of Pittsburgh as an undergraduate, I worked for the Allegheny County Housing Authority in Pittsburgh. Our mission was affordable housing. The Authority constructed, rehabilitated and managed thousands of housing units aroud the count. This program was provided courtesy of the Federal government (a/k/a the American taxpayer). After getting my Bachelor’s degree, I entered the private sector and began my lessons in the practicalities of how such programs became re-titled as “exactions,” “incentives,” “impact fees,” “water quality preservation” and so forth. While I understand that various governments believe their regulations, laws and ordinances serve a variety of purposes that are in the public interest (neighborhood and historical preservation, safeguarding of public safety and the environment, “saving” resources, and so forth), the cost of that menu of delicacies can be expensive to the homebuyer and therefore a tax on the economy.

Inasmuch as my career the lat twenty-five years or so has centered around Austin and Central Texas, my examples will be drawn from that experience.

If life in the development/homebuilding business were simple, we could find a property, get it properly zoned, develop the lots or building sites, and construct the homes. But then it’s not, in fact, simple.

Let’s start with an actual example of building on a single lot in a central city residential neighborhood in Austin. A few years ago we contracted to purchase a lot in an area known as North Hyde Park. This example is utilized to illustrate the extreme costs incurred when developing in the central city, an area of high demand and low supply. The various regulations that overlaid this property were the zoning code, a residential design compatibility ordinance known as the “McMansion Ordinance” (all 26 pages of it), impervious cover limitations, “Neighborhood Conservation Combining District” regulations (a 28-page ordinance that supplements the zoning ordinance), handicapped accessibility requirements, sidewalk construction ordinances, a tree protection ordinance and an historic preservation overlay (which threatens even the simplest of structures with the prospect of being labeled “historic” or “significant”). While each of these eight regulation categories (which I consider to be menu items on the free lunch menu) have what the municipalities or jurisdictions consider to be public purposes, in many instances they are very costly to the ultimate homebuyer and contribute to the reduction in home affordability. As such, they are certainly not free. The following addreses a few of these categories and their impact on development.

Menu Item #1: Historic Preservation

The building lot in this real example in the City of Austin, Texas, was 80′ x 130′; approximately 10,400 square feet in total area. Situated thereon was a bungalow constructed in the early ’40s. It was about 90 square feet in size, had no particular architectural significance (there are probably a hundred similar structures within a mile and a half), was generally rented to students at the University of Texas and was acquired for the value of the land ($266,000) for new home construction. Despite the builder’s determination that the structure was beyond its useful life, the demolition permit was opposed by a neighbor (a renter, in fact; it should be noted that none of the neighbors who owned their homes opposed the demolition). This neighbor posited to the municipality that the structure to be demolished was historically significant and should be preserved. This declaration launched the seller of the house into an entirely new and unanticipated process of having to fight historic designation of the structure. The process from start to finish took approximately nine months during which time the property was left empty.

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One response to “Menu Items on the Free Lunch Smorgasbord”

  1. larryg Avatar

    Well I give you credit for coming up with an example and there are no shortage of these but are there any more.. worse… in urban areas than non-urban areas?

    do these regulations – that are widespread and not just restricted to urban areas have different, disparate impacts in urban areas… whereas the same regulation applied in an exurban area would have any different impact.

    or.. let’s even go one step further and ask if regulations are more in number and stricter in application in urban areas than exurban areas and that, in turn, drives development to the exurban areas?

    I do not see evidence of a disparate impact myself.

    I just see more or less the continuing generic claims that regulation is bad… hurts investment, etc… and in the current political environment – advocacy to roll it back – usually long on rhetoric and short on specifics.

    To be fair – since we have gotten a new, more Conservative BOS – the Planning Depart (and others) have been called in – over and over – to explain why there are so many steps in the approval process, not to mention serious fees like $5000 for a special use permit – no matter the size of the business.

    so they’ve been methodologically reforming the regs … one stop permitting, and justification of the fees – which is premised on the developers paying for the administration of the approval process – even when they are basically meeting the imposed requirements on them from the planning dept.

    this is happening in exurbia. I do not see why it cannot be done the same way in urbania…. and I certainly am not yet convinced that rules, bureaucracy in urbania are worse than in exurbia.

    and let me give a counter example.

    we had a project proposed – and the process in the county is for the developer to notify people within 2500 feet of their project – and to hold one community meeting to answer questions.

    guess what? some of those developers just blow the whole thing off – and then citizens are showing up at the hearing complaining that they were not notified.

    the point here is – that you, as a property owner are not entitled to build your project if your neighbors object. your “property rights” end where others “property rights” begin… and THAT’s where regulation comes from.

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