Overreaching governmental restrictions including high fees, lengthy permitting delays, and hefty down payment requirements are three very real concerns faced by the homebuilding industry right now as it struggles to deliver affordable new housing product in response to millennial household formation, boomer move-ups, and domestic empty nesters.
1. My Permit Is Not Ready Yet!
According to the Wall Street Journal, a study by Trulia reflects that the supply of new housing in the U.S. isn’t keeping up with demand in part because of the local delays in getting building permits approved.
The average permit delays in major Florida cities were reported to be 6 months in Orlando, Tampa, and West Palm Beach and 8 months in Miami and Fort Lauderdale. To view the study table go here http://www.trulia.com/blog/trends/elasticity-2016/
Most cities are aware that permitting is an absolute priority and have taken steps to improve the situation mainly by the addition of staff. Time adds to the cost of a residential construction project and those costs typically get passed on to the end buyer.
It may be too late during the current cycle to make major overhauls, but governmental entities should consider making plans to revamp outdated systems during the next market downturn when things slow down. That way staff is less overburdened and modern efficient systems can be integrated into the process with the least interruption to the public it serves.
2. A $10,000 Bat Study? Holy Impact Fee Batman!
As home builders pick up the pace after a punishing downturn, they face a load of new regulations and higher fees governing everything from environmental quality and park access to requirements for a bat study to determine whether endangered bats are on the property. The cost? $10,000 or more according to a recent Wall Street Journal article.
Further, according to the National Association of Home Builders, the average cost for builders to comply with regulations has risen nearly 30% over the past five years. Housing research firm Zelman & Associates calculated that local “impact fees” charged to homebuilders 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.
These higher costs are passed on to prospective purchasers and as a result most builders have eschewed moderate priced entry level housing for high end luxury product that is less impacted by burdensome government fees and costs.
Impact fees and related studies are a way of life. Most home builders understand it and build it into their costs. Hopefully, forward thinking governmental entities will explore more ways to trade off fees and costs or provide incentives or subsidies in return for delivery of more affordable housing to a community.
No Loan for You!
In a recent article by the South Florida Business Journal, it was reported that Fannie Mae’s mortgage terms for Florida condos are more restrictive than in any other state. According to the Miami Association of Realtors, a condo buyer in Florida has to put 25 percent down; in all other states, its only 10 percent. That means the typical millennial couple would have to come up with $45,000 more than their counterparts in any other state. Not easy.
It is acknowledged that some of the governmental lending and underwriting safe guards borne out of the Great Recession may have helped keep the Miami condo market from getting too overheated although that is still playing itself out. Now may be a good time for governmental leaders of all parties to revisit some of those policies to find a balance between over regulation, providing thoughtful policy that helps the market finds its natural center and provide more moderately priced housing to those who need it most.
Walter Duke + Partners is a leading provider of valuation advisory and market metrics to the commercial real estate market in Florida. Celebrating its 40th year in business, Walter Duke + Partners has completed over 15,000 assignments in excess of a total of $30 billion in assignments from start-ups to Fortune 500 companies. www.walterdukeandpartners.com