Home prices are once again on the rise—and so are concerns about housing affordability.
Many factors contribute to the cost of housing, from outdated ordinances that limit the range and mix of housing types, to environmental requirements at all levels of government that constrain land supply, to an increasing array of fees imposed on new development.
Another key factor, often left unconsidered, is the length and complexity of the development approval process itself. In many areas of the country, development approvals have gone from taking a few months to two years or more years to obtain. It is not uncommon to hear that it takes four to seven years from start to finish.
The review and approval process is an important component of the risk and expense of development, because it is not only lengthy but also unpredictable. It ties up capital and accumulates interest expense and other carrying costs before even one shovelful of dirt is moved.
These costs add significantly to the overall expense of housing, often without a commensurate benefit in return, and threaten the very feasibility of a project. They present an especially difficult challenge for affordably priced housing: With a lower return on investment, such projects suffer disproportionately from costs associated with approval processes. As a result, fewer affordable housing units get built. The process ties up public investment dollars, too.
Over the years numerous task forces and commissions have investigated how land development costs might be minimized through increased efficiency and better coordination of development review and approval procedures. But NAHB found no recent explorations on the issue, and so retained the well-credentialed firm Abt Associates to take a fresh look at it. The results are contained in a NAHB report Development Process Efficiency: Cutting Through the Red Tape.
Minimizing these costs has been called “streamlining the process” or “regulatory barriers removal” in the past. NAHB recast the issue as “development process efficiency,” because the older terms have come to hold a negative connotation.
Abt Associates compiled a comprehensive list of approaches currently being used across the country, based on an extensive review of popular and professional media, Internet searches, and interviews with practitioners, administrators, and industry observers.
Overall, Abt found that much of the frustration related to land development review and approval involves:
- the complexity of the process,
- lack of information about what the steps are,
- what documents are required at each step, and
- how long each step will take.
A more efficient land development review and approval process benefits builders, developers, and most importantly, home buyers. But time is money for the public sector, too. Multiple, overlapping, uncoordinated approval procedures both increase government’s administrative costs and make it look incompetent.Increased process efficiency also benefits municipalities, government staff, and taxpayers–it’s a win-win for all. Government agencies save money by reducing redundant reviews and time-consuming procedures that have little added benefit. It improves staff morale and retention both by eliminating confusing and stressful procedures, and by improving relationships between review staff and developers.
Process efficiency can also directly improve a local jurisdiction’s bottom line, as shorter review times bring in more revenues from developments and allow the community to better compete with neighboring jurisdictions for economic development. It returns foreclosed property to productive use more quickly, and can help developers rapidly adjust a project to meet changing market conditions.