Regulations Top 40% Of Total Apartment Development Costs, Report Finds
Regulations are eating a greater share of total multifamily development costs, rising more than 26% since 2018.
Regulations at all levels of government account for more than 40% of multifamily development costs, according to a new survey by the National Multifamily Housing Council and the National Association of Home Builders. That marks an 8.5 percentage-point jump from a similar survey done by the organizations in 2018, which asserted that slightly more than 32% of costs were due to regulations.
For the most recent survey, the organizations asked 49 multifamily developers nationwide to self-report regulatory costs and other cost-related matters. The NMHC is on record favoring "strategies that reduce barriers to new construction and rehabilitation to address housing supply shortages," though its policy statements don't specifically decry the existing regulatory environment.
About 48% of multifamily developers said they avoid building in jurisdictions with policies such as inclusionary zoning, and 87.5% said they avoid building in a jurisdiction with rent control.
The survey broke down various kinds of added costs, including applying for zoning approval, affordability mandates, labor regulations, required studies, fees of different kinds and changes to building codes over the last 10 years.
Building code changes turned out to add the most expense of any category at 11.1% of development costs, according to the survey. The next most expensive were fees and studies required when site work actually begins, accounting for 8.5% of development costs.
Affordability mandates, Occupational Safety and Health Administration or other labor regulations, and the cost of land dedicated to public use or otherwise undeveloped each came in at less than 3% of total development costs, the survey found.
Almost all respondents said that complying with regulations caused some sort of delay for their projects. The time to comply with regulations came to an average of 0.5% of total development costs, the survey estimates.
Beyond the cost of regulation, the survey attempted to quantify the cost of NIMBY opposition to multifamily development, asserting that it adds an average of 5.6% to total development costs, as well as a delay in new housing delivery averaging 7.4 months.
NIMBY opposition can take many different forms, the survey acknowledges, such as residents fighting against rezoning attempts or filing lawsuits to attempt to stop development altogether. About three-quarters of respondents reported encountering some form of neighborhood opposition to multifamily construction.
The respondents to the 2022 survey were all members of either NAHB or NMHC, with a slightly higher concentration of the former than the latter. The majority of respondents reported a typical project size of 150 to 349 units, both garden-style communities as well as high-rise buildings.
