The Link Between Environmental Regulation and Housing Costs

This chapter reviews the federal concern about the role of environmental regulation as a barrier to the production of housing that is affordable to the largest number of households, summarizes research on the relationship of regulatory barriers to the production of affordable housing, acquaints the reader with the evolution of the residential subdivision process over the past century, and notes the conundrum of ensuring a high-quality environment while also meeting housing affordability needs. The chapter also describes a key consideration from the developers' perspective: how developers decide to proceed with a development proposal. The chapter continues with a review of the research design that guided the study leading to this book. In brief, in addition to extensive literature review, the research relies on a case study and on focus groups to inform its policy analysis.

While often motivated by good intensions, some local, state, and federal government rules and regulations can increase the cost of housing in certain communities. Although this book is not concerned precisely with affordable housing as defined by the U. S. Department of Housing and Urban Development (HUD), we think it is useful to look at HUD's idea of what constitutes a regulatory barrier to affordable housing. These are the requirements that frequently, without intending to do so, prolong the completion and raise the costs of new construction and rehabilitation.

THE FEDERAL CONCERN

The issue of regulatory barriers is not new.

In 1991, the President's Advisory Commission on Regulatory Barriers to Affordable Housing, popularly known as the Kemp Commission, published its report, "Not in My Backyard": Removing Barriers to Affordable Housing (1991). Its basic finding—that exclusionary, discriminatory, and unnecessary regulations constitute formidable barriers to affordable housing—is still evident in HUD's update of the report, Why Not in Our Community (2005).

The Kemp Commission report stated that, as a result of inefficient implementation, environmental protection regulation processes pose significant barriers to the availability of affordable housing. The report cited the following inefficiencies: (1) conflicting environmental regulations; (2) prolonged review processes; (3) lack of a clear rationale or justification for environmental decisions, and (4) regulations that extend beyond the scope of goals they seek to achieve. These four inefficiencies can result in increased unpredictability, delays, reduced land availability, and increased construction costs. Interestingly, the Kemp Commission report cites very little rigorous research but reports numerous anecdotes as the foundation for its claims and basis for its recommendations. In April 2004, HUD sponsored a Research Conference on Regulatory Barriers to Affordable Housing (the proceedings of which were published in Cityscape vol. 8, no. 1), which reaffirmed these environmental barriers as a major issue requiring systematic research (Schill 2005; Listokin and Hattis 2005; Quiqley and Rosenthal 2005; Been 2005; Kiel 2005; May 2005).

The major federal mandates that affect housing development include environmental impact statements, water quality management (especially stormwater management), air quality management, wetlands protection, floodplain management, coastal zone protection, endangered species protection, and site contamination. Many states in turn have added their own requirements, which increase the layers of regulatory review and even conflict with federal efforts.

SETTING THE CONTEXT: A SURVEY OF RESEARCH ON REGULATORY BARRIERS

Housing developers and affordable housing advocates have raised numerous concerns about the impact of regulation on housing production and especially on producing affordable housing. A 1998 survey by the National Association of Home Builders (NAHB) of its members found that about 10 percent of the cost of building a typical new home is attributable to what respondents describe as unnecessary regulation, regulatory delays, and fees (U.S. House of Representatives, Committee on Small Business 2000). Luger and Temkin (2000) used a more refined research approach to find that development costs associated with their definition of the "direct cost of excessive regulation," including delays plus financing costs affecting residential subdivisions in New Jersey, added $10,000 to $20,000 per new housing unit (in 2000 dollars)—roughly 2 to 4 percent of the sales price of new homes.

To assess trends over time, Eran Ben-Joseph (2003) replicated a survey undertaken in 1976 by Stephen Seidel (1978). In both 1976 and 2002, nearly 75 percent of the development community respondents cited "government-imposed regulations" as one of the three most significant housing problems. One area of particular concern for respondents was the time it takes to process residential subdivision approvals. Ben-Joseph's data indicate that between 1976 and 2002 the national average time to process approvals increased from fifteen to seventeen months, with much of the increase attributable to securing various forms of zoning relief (rezoning, variance, special exceptions, and so on.). One-fifth of the respondents to his 2002 survey noted waiting more than two years for approval. Luger and Temkin add further insights about the sources of delay for residential subdivisions in their surveys of New Jersey and North Carolina planning officials, noting:

"Organized citizen opposition" to subdivisions was cited by the greatest percentages of respondents, respectively followed by contractor or development error, inadequate staffing, and unspecified sources of delay in negotiations.... In response to other questioning, from one-third to over one-half of the respondents cited complexity in regulations or regulatory processes as a major factor in delays in regulatory approvals. (2000, 57, 61)

However, the extent to which environmental regulations affected housing costs—if at all—was not noted specifically.

May (2005) notes that solid research about delays is hard to come by with most allegations about delays being more anecdotal than empirical documentation—and the research team learned from local officials that the biggest source of delay is untimely submission of complete...