The Watchdog interviewed a residential real estate developer / builder recently who believes that government has gone overboard with many unnecessary regulations that are not cost effective and increase the price of a typical new house as much as 15 – 20%, say $30,000, as compared to two decades ago:
Below are some of the developer’s observations:
1) Sprinklers – life safety issue. Doesn’t believe people die in single family housing fires, especially if they have smoke detectors and carbon monoxide protectors. (To the extent a few do die each year, the cost savings can be used to save many more lives elsewhere.) Also desirable are fire extinguishers in the kitchen. All are inexpensive methods of protecting lives and property. So the real issue is the protection of house itself from fire damage. Sprinklers are costly to maintain and, when accidentally triggered, can cause considerable property damage, which is a reason why insurance companies are not prone to offer lower rates. The cost of simply installing sprinklers, several thousand dollars for a typical home, does not provide a reasonable economic return as compared to taking the above precautions and having property insurance.
2) Moreover, not only are sprinklers required, but often the water supply has to be upgraded to provide sufficient volume and pressure. This can require holding tanks and pump systems, thus thousands of dollars more.
3) Storm water management: Tthe level of intensity of requirements is dramatically higher in the last year or two than previously. This is both state and federal. Along with managing the water, developers are now asked to impact the quality of the water being managed. This alone may add an average of a thousand dollars per new home site. Example: New storm water regulations require that any storm water running from the newly developed property downhill requires an easement agreement from every property owner until you get to a stream, creek or waterway of the commonwealth.
4) Recreation facility costs to serve subdivisions have been increase, in some cases tenfold. This can amount to over $2000 per house.
5) Expansion of bureaucracy in various federal state and municipal areas has caused a need to keep people busy, made worse by our current housing depression. This has led to an elongation of the approval process and much enlarged engineering costs and lengthily delay in approvals, often multiple years, adding perhaps $12,000 to a house.
6) Legal expenses to complywith requirements such as the state Planned Community Act can add another $500 per site.
7) Excessive requirements cause engineering costs to often equal and at times exceed the cost of the raw ground, where in the past they may have been 25% of the cost of the land. This adds say $5000 per site.
8) Rigidness of subdivision and utility regulations can add $2,000 a lot for utilities. An example: specifications for backfilling trenches can be excessive and onerous.
9) Delay increases interest costs and risks due to fluctuations in housing market. By the time subdivision, sewer, water, various environmental and building permits are acquired, it takes an average of five years.
10) Risk to developer is far greater than in the past, because uncertainty of changing and also intensifying regulations, and also delays cause missing the better years of the building cycle. This probably adds several thousands more and discsourages all but the brave or fool hearty.
11) These difficulties, even in better times, are concerns to potential lenders and make financing less available.
12) Requirements are so many and so diverse, that earlier approvals obtained often expire while developer is still seeking later approvals. It is like a dog chasing its tail.
13) Furthermore, entire investment can be largelhy wiped out because one of the approvals suddenly is no longer forthcoming due to changes in governmental regulations.
