Government regulations make up about a third (32.1%) of the cost of multifamily development, reported the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC) this week. In the joint report, nine in 10 multifamily developers said they incur costs from:

  • Delays due to “long approval processes”
  • Stringent construction requirements
  • Building code changes
  • OSHA requirements

The developers cited a variety of sources for these costs, including:

  • Government entities
  • Zoning departments
  • Affordable housing departments
  • Community fees for utility hookups
  • “Impact fees”
Building Code Changes are the Biggest Cost Contributors

The study indicated nearly all (98%) of developments must allocate just over 7% of their budget to building code changes. The NAHB has criticized federal agencies for making changes that “remove flexibility and limit builders’ options,” such as requiring increased energy efficiency but not necessarily creating a market situation in which it benefits manufacturers to create energy efficient building materials. Energy efficiency is classified as an “out-of-the-ordinary development requirement” and, on its own, represents 6.3% of the budget in 95% of projects.

What Do Higher Development Costs Really Mean?

The authors of the report warned rising multifamily costs translate to “higher rents and reduced affordability of rental housing.” They added, “Multifamily developers cannot secure financing to build projects unless they can demonstrate to lenders that the rents will be sufficient to cover costs and pay off the loans.”

The groups emphasized “the purpose of this article is not to argue that all regulation is bad and should be eliminated, but to raise awareness of how much regulation currently exists, how much it costs, and to encourage governments to do a thorough job of considering the implications for housing affordability when proposing and implementing new directives.”

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