INSIDE REAL ESTATE: The cost of regulation on housing starts
During a recent presentation in Anchorage, Robert Deitz, chief economist for the National Association of Home Builders, reaffirmed several trends in housing, construction and land development that Anchorage has been experiencing the past few years.
The most startling is that regulatory costs continue to rise — up 29 percent over the last five years. The increase of costs on a single-family include the total effect of building codes, land use, environmental and other rules.
During development, horizontal construction of roads, water and sewer, as well as pre-development expenses for entitlements constitutes 18.8 percent of the cost of a home. Regulatory costs during construction amounts to 30.3 percent.
Although no actual survey has been done for the Municipality of Anchorage, builders and land developers agree that the cost of delays, permitting, re-inspection and changes to the Title 21 land use ordinance, as well as continued updates to the Design Criteria Manual, put Anchorage in the same category of regulatory costs as the rest of the nation.
Although the availability of 1-4 unit residential construction loans has slowly increased over the past three years, the year-over-year growth rates has outstripped availability. Housing starts are also outstripping the supply of lots. There is almost twice the demand for lots than there is availability.
Anecdotally, local developers and planners agree that it now takes 18 months at a minimum to rezone, plat and get approvals for new residential developments, as opposed to the previous nine months in past years. Years ago, the Planning and Zoning Commission gave up much of its authority to a platting board and urban design commission, requiring more stops along the way for the approval of any new development. Time is money, particularly when it is borrowed for acquisition at commercial rates.
Single-family building permits continues its slow slide downward. The highpoint of mid-year building permits occurred through July 2013 with 204 permits. For the first seven months of 2017, only 113 permits have been issued, a 44.6 percent decrease. This low permit number is not reflective of the mild recession Alaska is currently experiencing but rather the bottleneck due to overregulation.
Single-family residential sales have declined only 10 percent from 2,026 in the first seven months of 2013 compared to 1,819 in the same period of 2017, according to Multiple Listing Service statistics.
In July 2014, 65 units for duplexes were issued. In 2017, for the same time period, only 32 units were permitted, or less than half. Without a doubt, Anchorage needs more and less expensive housing of all types. The way forward requires less regulation without sacrificing health and safety requirements.