Regulation Accounts for Over 30% of Multifamily Development Costs

New research released last week by the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC) found that regulation imposed by all levels of government accounts for an average of 32.1% of multifamily development costs, reaching as high as 42.6% in one-fourth of cases.

These regulatory costs include a broad range of fees, standards, and other requirements imposed at different stages of the development and construction process. According to the study, 7% of regulatory costs come from building-code changes over the past 10 years, 5.9% is attributable to development requirements (such as streets, sidewalks, parking, landscaping, and architectural design) that go beyond what the developer would ordinarily provide, and 4.2% of the costs come from nonrefundable fees charged when site work begins.

Over 90% of developers surveyed in the research typically incur hard costs of paying fees to local jurisdictions, both when applying for zoning approval and again when local jurisdictions authorize the construction of buildings. The typical projects of almost all the respondents (98%) were subject to costs at the zoning-approval stage, costing an average 4.1% of the total development costs.

The cost of regulations is only expected to increase in the future as a result of recent regulations that went into effect at the end of 2017, such as the new Silica Rule. Plus, newly imposed tariffs will increase the cost of building materials.

Both the NAHB and NMHC note that the numerous fees have a bigger-picture impact on the housing market, citing affordability challenges in particular.

“The current regulatory framework has limited the amount of housing that can be built and increased the cost of what is produced,” said NMHC president Doug Bibby in a statement. “At a time when states and localities are struggling to address housing affordability challenges, public and private stakeholders should work together to streamline regulations and take the steps necessary to expand housing in communities across the country.”

By Lauren Shanesy