NAHB Survey Reassesses Regulatory Burden on Multifamily Development
According to the latest survey findings, the National Association of Home Builders (NAHB) has determined that regulatory requirements represent more than 40% of the total expenditure associated with constructing a new multifamily residential project—an essential metric utilized in advocacy efforts directed toward federal, state, and local government officials to oppose regulatory measures that increase housing development costs.
Nevertheless, given that this frequently referenced figure originates from 2022, the NAHB has announced plans to undertake a comprehensive survey to refresh this data and respectfully requests your participation in this initiative.
Multifamily residential development is governed by a comprehensive array of regulatory requirements established across federal, state, and local governmental jurisdictions. Although certain regulations serve essential purposes, it remains valuable to understand their financial implications, particularly given the current environment characterized by escalating construction costs and deteriorating housing affordability conditions.
Generating an updated assessment requires substantive contributions from multifamily development professionals, making your participation indispensable. All individual submissions will be maintained in strict confidence, with only aggregate data and statistical averages presented in the final report.
Examining Total Cost of Regulations
Significantly, certain regulatory requirements may discourage developers from undertaking construction projects in the very markets experiencing the most acute housing shortages. Such circumstances can become exceptionally challenging within an environment characterized by escalating expenses. To illustrate, 47.9% of multifamily developers reported that they circumvent building in jurisdictions implementing policies including inclusionary zoning, while 87.5 percent will refrain from building in jurisdictions where rent control measures are enforced.
Additionally, substantial impediments to development exist at the community level that are independent of governmental regulatory frameworks. Specifically, our analysis demonstrates that “Not in My Backyard” (NIMBY) resistance to multifamily development contributes an average of 5.6 percent to overall development expenditures and postpones the completion of new housing by an average of 7.4 months.
Although the majority of Americans acknowledge the necessity for increased housing supply and housing that is affordable to middle-income populations, many reconsider their position when new housing development is proposed within their own communities. The degree of opposition intensifies when that housing comprises rental units.
The initial substantive engagement between a multifamily developer and governmental authorities generally commences when the developer submits an application for zoning authorization to permit multifamily residential development on a designated land parcel. Regulatory expenditures during this phase encompass fees remitted to the local government entity for participation in the approval procedure, as well as market analyses and environmental assessments that must be procured from external consulting firms.
In certain instances, a developer may obtain land already zoned to accommodate multifamily structures without necessitating rezoning or obtaining a special exemption. Nevertheless, this circumstance remains uncommon, with 93.9% of survey participants reporting that they must allocate resources toward rezoning land to facilitate multifamily development. When such costs are incurred, they represent an average of 3.4% of aggregate development expenditures.
Following the commencement of site preparation activities, local jurisdictions frequently impose an array of fees or mandate supplementary studies. Fee categories may include impact fees (charges levied exclusively on new development projects for capital infrastructure improvements) or utility impact fees. The substantial majority of respondents (98%) indicated that they incur certain of these expenses in their standard undertaking, averaging 8.7% of total development costs when applicable.
The majority of respondents (91.8 percent) were obligated by their respective local jurisdictions to incorporate specific design elements into their project plans that exceeded standard practice. Such requirements encompassed energy-efficiency enhancements or prescribed facade specifications. Where applicable, adherence to these mandates constituted an average of 5.8 percent of aggregate development expenditures.
Governmental authorities may also mandate that developers allocate a portion of the development site for public sector utilization or maintain it in an undeveloped state. This stipulation diminishes the quantity of developable land, thereby eliminating revenue potential from that area, which must consequently be offset or compensated through alternative means. Approximately half of respondents (51%) encountered this requirement; when applicable, it accounted for an average of 4.7% of total development costs.
Local authorities frequently impose fees upon completion of site preparation to authorize the commencement of building construction. Such expenses include charges associated with building permit applications or fees for supplementary utility connections. Nearly all respondents (95.9%) indicated payment of some form of fee during this development phase, averaging 4.6% of total development cost when incurred.
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