Nearly One-Third of Multifamily Development Costs Stem From Regulations

Regulation imposed by all levels of government accounts for an average of more than 32% of multifamily development costs, according to new research released today by NAHB and the National Multifamily Housing Council (NMHC). In fact, in a quarter of cases, that number can reach as high as 42.6%.

Apartment and condo development can be subject to a significant array of regulatory costs, including a broad range of fees, standards and other requirements imposed at different stages of the development and construction process. However, until now there had been no previous research done to analyze the extent of this regulation. This joint research effort surveyed NAHB and NMHC members to quantify how much regulation exists and how much it is adding to the cost of developing new multifamily properties.

Breaking down the government regulation costs showed that an average of

  • 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 non-refundable fees charged when site work begins.

“The home building industry is one of the most highly regulated industries, and the multifamily sector is particularly subject to these obligations,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “Housing affordability is a huge issue throughout the county, and this new research only further illustrates how the layers of excessive regulation translate into higher rents and reduced affordability for consumers.”

Although local governments generally have authority for approving development and adopting building codes, state and federal governments are increasingly becoming involved in the process and layering on additional levels of fees and regulations.

“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. “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.”

Developers can almost certainly expect average costs to be higher now or in the near future due to the effect of recent regulations that went in place at the end of 2017, such as the new Silica Rule. Further, the survey does not account for other price-influencing factors such as the effects of recent tariffs on building materials, or the extent to which local jurisdictions empower citizens to oppose multifamily development in their communities.

Read the full study.

Comments (1)

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  1. Lee McLaren says:

    We are landscape architects and civil engineers focused on the site related issues faced in MF development. Over 40 years of designing MF projects we have seen the quality of the communities we design deteriorate as the costs increase due to development regulations. In objecting to those regulations we hear that they bring added value to the projects or to the broader community, and are therefore worth the added costs. That is just not true in a vast majority of cases. We see urban guidelines unwisely applied to suburban sites, leading to more streets which are not needed by either the general public or the projects. The resulting extra paving and sidewalk replaces what was once saved trees and natural area. Result is more water runoff, air pollution, higher development costs, higher costs to public for public street maintenance, etc. Just one example. Public passes these regulations then bemoan lack of affordable housing. Sad state of affairs!

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