Backyard Battlegrounds: What Builders Need To Know, Learn, And Do About Zoning
Builder confidence is one odd duck.
A widely-accepted measure of it, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), clocked in Monday. Taken both in a seven-year context and in isolation, the number–albeit down slightly from the prior month–is solid, moving sideways on a constructive pathway.
Accounting for signal-vs.-noise factors such as one month’s reading does not a trend make, the June HMI data print essentially means that what builders are seeing and reading in the tea leaves about current conditions and prospects for the next six months is way more positive than negative.
- This, as the Federal Reserve enters a pivotal stretch. They’re poised to decide if and when to kick into “we’re-from-Washington,-and-we’re-here-to-help” mode on monetary policy, stimulating access to low-cost borrowing to goose a slowing economy.
- This too, as the pace of development and building cost increases versus household wage gains widens the housing attainability and access gap. This fissure has become so profoundly pervasive that it’s now an almost-every-news-cycle headline in national and local media and social network platforms, fueled further by far-reaching new local policy measures to upzone on the one hand, and, on the other, clamp down hard on rental property owners’ prerogative to dial up rents to keep pace with their expenses. It’s an issue that’s reached national scale as a political talk-track item.
- What’s more, builders express positive sentiments about what they’re seeing, feeling, hearing, and sensing is going on with clear knowledge that forces underlying some of those development and building cost increases are growing more inimical by the day, and can be expected with plausible confidence to grow worse, not better in the coming years.
A “steady state” in builder sentiment, one may guess, may spring from a conviction and some evidence that two agents–forever dirt cheap interest rates and seller discounts, incentives, free upgrades, and other tactical mechanisms–appear to be working at warding off the lurking menace of cyclical gravity. At least for now.
Which brings us back to the reason we’d say home builder sentiment is a strange animal.
Against a backdrop of intensifying uncertainty, signs of weakening global economic momentum, and consumer demand that has proved it will flinch under provocation–a messy collision of mixed signals and loud, conflicting noise–builders remain relatively optimistic about what’s going on and what they think is next.
Which, one would gather, means at least one thing. They’re reconciled to upwardly moving targets on what they’re paying upfront for essential resources to do what they do–land, skilled people, materials, and financial capital–because they presume there are enough people in households or desiring to form households who will continue to ante up, cover the new expenses, and keep them in business.
A survey of multifamily developer, builder, owner, and property manager executives about current business conditions and forward-looking expectations would, very likely, read similarly. Fundamental demographic pluses outweigh any and all of any number of known and potential minuses.
They’d sooner think opportunity lies ahead for their business models to thrive because sheer fundamental demand can and will withstand risks to those business models due to multiple spiraling cost curves.
Leaders of most of both the single- and multifamily business models–such as they are today–can only conclude that they’re in business for those who can pay a lot for their ownership and rental experiences today, and who’ll pay even more in the days, months, years ahead. One doesn’t solve affordability, attainability, or any other housing ability without beginning to unpack the black box of land use constraints communities use to regulate new housing. By all rights, this means they’re largely out of business for middle-to-lower income households, for laborers, for anyone whose household earnings fall below 120%, or more likely 130% of local area median incomes.
For example, a vast majority of the more than 20 million people who’ve been added to U.S. private and public sector payrolls in the more than decade-long economic expansion are in jobs that pay them below that 120% of area median income level.
The working American household, including many college-debt laden young adults who’ve been pouring into workplaces for the past 10 years, as well as many city and town essential workers, school teachers, first-responders, sanitation and other municipal department workers, not to mention those who work in retail, restaurants, office staff, etc., is a non-starter for most of new residential investment, design, development, and construction, whether it be to-own or for rent.
Are they–either single family for-sale folks or those on the new, for-rent side of housing’s business model equation–confident that policymakers, elected and appointed officials, voters, and other regulatory stakeholders will be part of the solution to “bend the cost curve” to expand the market for people and their access to residential options?
No, they’re not.
Quite the opposite.
Instead, builders and developers of new residential housing believe regulators–writ large and including everybody from the local building inspector, to the county environmental protection agency, to the code officials, to the zoning boards, to the historical and landmark commissions, to the mayors, and the city managers, and a dozen offices of the Federal government–heap costs in time, money, and aggravation on to every project, and into every unit. They control footprints, elevations, hook-up fees, front porches, roof pitches, exterior materials, etc., etc. etc.
An all-too-familiar lament runs similar to this assessment from Andrew Clark, vp for government affairs for the Home Builders Association of Virginia, carried in the Washington Post:
The proliferation of local barriers to housing over the past several decades has played a significant role in reducing the ability of many housing markets to adequately respond to growing demand.
Unfortunately, Virginia is not an outlier in this assessment. Around the state, antiquated zoning codes and land-use restrictions, off-street parking requirements, unnecessarily slow permitting processes and zoning ordinances that mandate larger-lot developments while stifling consideration of developments with a denser mixture of uses are restricting housing supply by making land significantly more costly to develop and making it near impossible to build housing stock that is attainable for individuals and families across the income spectrum. A Northern Virginia Affordable Housing Alliance analysis demonstrated the bifurcation of development patterns in Alexandria, Arlington and Fairfax, with a majority of land zoned for low-density single-use development with high-density mixed-use development concentrated along major transportation corridors. With a few exceptions, that report found that “inner-Northern Virginia’s baseline zoning makes more naturally affordable housing types more difficult to build.” There are examples of holistic, modern approaches to zoning in the region. Many of our planning departments in the region recognize the impact of their outdated policies and work tirelessly to refresh their approach to land use, but these departments can do only so much. The rise in a vocal minority’s outright hostility to any new development in some localities has created a politicized environment in which we, the broader community, strive to create or reinvigorate our neighborhoods.
Builders and developers believe regulators and “vocal minorities” have hijacked the business. And it’s really no wonder they believe that.
They publish data on how much regulation of all sorts adds to the price builders and developers need to charge and owners and renters need to pay–25 cents of every asking-price dollar for a new home, and 32 cents of every development and construction dollar for every new multifamily rental unit, passed along in monthly lease payments.
They say it’s astronomical. They say it’s highway robbery. They say these town officials, and agencies, and departments, and divisions of county and regional and national environmental, water, and transportation commissions are the ones to blame for the fact that new homes and new apartments in more and more markets serve a shrinking, exceptional strata of society.
And almost all of them say it’s only going to get worse.
Their response, overall, is capitulation. They walk away. They withdraw investment. They take their business somewhere else. They develop farther into the suburbs, or in some other market, or, as we’ve seen for the past five or six years, only for higher-end, discretionary customer segments who’re more apt to absorb the “regulatory burden” residential real estate investors, developers, and builders pass along.
This is short-sighted. It’s an understandable reaction, but it’s not only the wrong move for now; ceding America’s working class households to the clutches of draconian land use and design and construction regulations is a slippery slope into an ever more untenable future. A smaller and smaller and smaller segment of America’s population will tolerate paying more, and more, and more for their housing preferences; a larger and more meaningful massive percentage of society won’t and can not be counted on to pay this freight.
America’s residential builders and developers should have access to and offerings for America’s workers, people with ordinary jobs. Said another way, the investment, development, and construction industry should not tolerate being forever priced out of the business of making new, dynamic, progressive, and sustainable communities for working people.
The present fact that they are–ostensibly by nameless, faceless legions of regulators–is a mark not only on our present, but a dark and expanding blotch on society’s ability to motivate, incentivize, inspire, and catalyze the kind of striving, dynamism, and focused pursuits that compose the essential make-up of the American story.
So, what do builders and developers need to know, learn, and do amidst the growing scourge of regulatory burden’s impact on costs.
One idea might be to recognize that at the root of these legions of regulators, voters are the ultimate arbiters of what does or does not happen with respect to development, affordable, attainable, or otherwise.
Current property owners tend to vote with their feet, their mouths, and with any means possible to protect what’s theirs and the growing value of it.
Developers and builders need to make it part of their business to know voters, their journey, their values, their needs–including need for their home and community to appreciate in value over time, and including their need, perhaps unknown to them, for their children and children’s children to be able to afford to live in their communities. Voters want an improved life, for themselves, their loved ones, and their legacy. It’s a core business challenge, and a huge opportunity, for builders and developers to think about those voters and their needs as they plan new residential initiatives.
Knowing this could cause builders and developers to look at their investments in communities differently than a one-and-done transactional relationship–a land price, tax payments, etc. Look, instead, at the local job opportunities created, look at a more permanent role as a stakeholder in the total economic growth and well-being of that neighborhood; look at putting in on an ongoing, reliable, and enterprising invested way, rather than simply as buyers of property that meets the goals of business model inventory turns, or ongoing real estate cash flow.
The learning part is this. The dynamics of many local, regional, and national debates that connect private sector investment enterprises in residential development and regulation have taken on the tenor and tone of a sad, sordid divorce proceeding. Irreconcilable differences. This owes in part to a reflexive “binary” fix that many of us are in. Things are right or wrong, good or bad, viable or futile, etc.
What to learn, however, is that life and people and society are about taking any number of differences, even ones that seem irreconcilable, and finding ways to patch together a way forward, one that looks not only at costs and benefits now, but also looks down the road at what our decisions today mean to generations to come.
This is how many apparently irreconcilable, incongruent, unsolvable conflicts take on a new constructive light. People who at first can seem dead set against one another might just see that what they really want–when they say they want property value appreciation–may be an opportunity for their children’s children to have a good, healthy, rich life.
What to do?
Two things. One is to not give in, give up, and say that regulation and its widening gyre of costs and time and burdens on builders and developers is an externality you can do nothing about.
Another, may be to begin studying the exceptions, the bright spots, the glimmers of progressive and illuminated policy making and accommodation, examples of which you will find in this brief analysis from Meyers Research director of economic research Ali Wolf.
She looks at three cases–Longmont, Colo., Austin, and Minneapolis–where local policy and regulation officials made a successful case with their voter constituents to think about what would be good for them in the long run. In each case, voters supported local officials in measures that help jump the fences of fear, impulsive opposition to density, and protectionism in favor of building more homes more workers might attain access to.
These cases are the exception. Easily double or triple are the number of cases where municipalities–driven by their resident voter constituents–are speeding ahead in the opposite direction.
Builders and developers should trade some of their confidence that households’ price elasticity will allow them to pass along higher and higher charges for some bold new belief that they can influence voter blocks in more and more municipalities to support attainable housing options for working people that will be the lifeblood of those cities, towns, and communities tomorrow, and tomorrow, and tomorrow.