Regulation and Development Costs in Houston

Regulation and Development Costs in Houston 713.397.0117 jerry.tipps@gmail.com Preserving the American Dream Conference Houston, Texas – Friday, May 16

In 2003 Charles Euchner, Executive Director of the “Rappaport Institute for Greater Boston” at Harvard University found “that the current regulatory scheme [in Boston] raises the cost of construction, which in turn restricts the production of housing. States and localities need to recognize that they often pose unreasonable barriers to housing development. If they want families to be housed at reasonable cost, they need to reduce the time, expense and frustration posed by the myriad regulations governing housing development and rehabilitation.”

The three factors that most impact the feasibility of any development are: • Time • Expense • Frustration (Doubt)

As recently as 1993 Houston voters, despite opinion polls to the contrary, rejected zoning by a vote of 53% against and 47% for

“Post-mortem analysis turned up an interesting phenomenon. A large number of voters with moderate incomes and diverse ethnic backgrounds had the quaint notion that property owners are more capable of controlling their real estate destinies than a panel of bureaucrats with the proper political connections.” -Bill Schadewald, Houston Business Journal, April 2006

Pressures for Increased Regulation • Re-development and Gentrification of Houston’s “Urban” areas • Government officials do not agree on what the urban area in Houston is • Storm water and flood plain management • TSARP • Increasing traffic congestion and access management • Impact to and adequacy of existing infrastructure • Regional planning efforts

Historic Regulatory Control in Houston • Deed Restriction • Controls development at the “lot” level • Design Professional or Owner swears that the project complies • City Legal Department enforces • Flood Plain Development • Mitigation and Detention waived for small sites (under an acre) • Traffic and Transportation • Civil Engineer designs in accordance with City of Houston design standards, submits, reviews, gets approved is compliant

Historic Regulatory Control in Houston • Platting • Civil Engineer/Surveyor submits. • Reviewed for compliance with design standards • Plan Review allowed concurrently with platting • Water and Wastewater • Application for Water/Wastewater and Storm Water discharge made • Reviewed and Impact Fee assessed • Few Environmental Challenges to development

Historic Regulatory Control in Houston • Building and Occupancy Codes • Design Professional submits plans based on International Building Code • Review and approval process is objective • Permit and Impact Fees • Assessed and Paid • Code Enforcement • Project is reviewed for compliance with approved documents • Or, Project is reviewed for compliance with Occupancy Codes

Historic Regulatory Control in Houston • Typical Permit Duration • For a medium sized commercial development or small housing development is three to six months

Proposed Regulatory Control in Houston • Deed Restriction • Controls development at the “lot” level • Design Professional or Owner swears that the project complies • City Legal Department enforces • Discussion about compliance with the “Master Plan” (Zoning) • Flood Plain Development • Mitigation and Detention no longer waived for small sites • Flood Plain reset by TSARP (Tropical Storm Allison Recovery Project) • New Floodway Boundary makes developed and some undeveloped sites un-improvable and reduces market value

Proposed Regulatory Control in Houston • Traffic and Transportation • Traffic Impact Analysis required for all Commercial and mid to large residential projects • Project reviewed for impact to roadways • Ashby Tower • Impact Fee Assessed • Developer required to expand and improve infrastructure • Payment plan still debated • Civil Engineer designs in accordance with City of Houston design standards, submits, reviews, gets approved

Proposed Regulatory Control in Houston • Platting • Civil Engineer/Surveyor submits. • Reviewed for compliance with design standards • Plan Review not allowed concurrently with platting • Water and Wastewater • Application for Water/Wastewater and Storm Water discharge made • Reviewed and Impact Fee assessed • Few Environmental Challenges to development • Building and Occupancy Codes • Design Professional submits plans based on International Building Code • Review and approval process is objective

Proposed Regulatory Control in Houston • Permit and Impact Fees • Assessed and Paid • Code Enforcement • Project is reviewed for compliance with approved documents • Or, Project is reviewed for compliance with Occupancy Codes

Typical Permit Duration For a medium sized commercial development or small housing development is four to nine months

Houston, TX (Current Regulation Set) Time to permit: three to six months. Cost to comply (permitting process): 2.5K Time to market: eight moths to one year Cost to build (land cost exclusive): $1.2M Compliance + Construction Cost per foot: $300.63 $psf

Austin, TX • Zoned. Heavy environmental regulation. Sustainability required through Austin Green Building program. • Time to permit: nine to twelve months • Cost to comply: 35K • Time to market: seventeen to nineteen months • Cost to build (land cost exclusive), $1.5M • Compliance + Construction Cost per foot: $383.75 $psf • Cost Relative to Houston: 128% • Time to Market Relative to Houston: 180%

Rowlett, TX Zoned, highly subjective code interpretation dependent on opinion of building officials. Time to permit: fourteen to eighteen months Cost to Comply: $36K Time to market: twenty-two months to twenty-seven months Cost to build (land cost exclusive), $1.4M Compliance + Construction Cost per foot: 359.00 $psf Cost Relative to Houston: 120% Time to Market Relative to Houston: 245%

Reno MSA, NV Zoned. Heavy environmental regulation. Water rights must be negotiated. Owner pays for extension of service to site and impact fees to system. Highly subjective review for architectural (appearance) compliance. Time to permit: eighteen months to two years Cost to comply: $45K Time to market: twenty-seven months to almost three years Cost to Build: $1.6M Compliance + Construction Cost per foot: $411.25 $psf Cost Relative to Houston: 137% Time to Market Relative to Houston: 315%

New Regulations Must be Coordinated and Well Designed • A single point of contact within the city needs to knowledgeably inform and direct the process of regulatory change and enforcement. • Every effort needs to be made to insure that the process is objective based on code and ordinance rather than subjective based on form and opinion. • As new regulation is contemplated two questions need to remain up front: • how will this improve the quality of life for the citizens and users of the city, and • how will it impact the ability of developers to rapidly, predictably and economically bring new product to market

Regulation and Development Costs in Houston