Quantifying the impacts of regulatory delay on housing affordability and quality in Austin, Texas

Date
2015-05
Authors
Shannon, Megan Elizabeth
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Abstract

Regulatory delay during site plan review of multifamily projects in Austin has three primary impacts: 1) it generates unexpected development costs which increases housing prices over-time; 2) it stifles innovation and decreases quality of development; and 3) it promotes exurban growth. These impacts reduce affordability and quality of life for all Austinites and thwart the goals of the Imagine Austin comprehensive plan. As regulatory delays have increased remarkably since 2009, strong rent growth has compensated for this growing uncertainty throughout the Austin market. If regulatory delays are eliminated and developers receive approvals for multifamily projects within the 120 day mandate instead of the 223 day average, renters could see relief of 4-5% on their rent, or an average of $60 per month or $720 annually in Central Austin. Interviews with 14 Austin-area residential developers confirm these delays, costs, and impacts on their projects. On average it takes 3.5 additional months to receive site plan approvals in Austin in addition to the code mandated four month cycle. Austin's peer cities fare differently. The average delay in Denver, Colorado is three weeks, and is just several days in Raleigh, North Carolina. Whereas land use regulations theoretically generate positive externalities, delays in administering those regulations generate no benefits to the community. During this unforeseen 3.5 months, developers accrue unexpected costs such as legal fees, and developer overhead which includes the opportunity costs of not pursuing other deals. Construction costs increase during delays, and developers must continue to pay for land options and carry costs. In the short-term, developers pay for these unexpected costs out-of-pocket, and by reducing construction costs, which can result in lower quality materials or amenities. Unexpected costs roll into the project's overall budget, resulting in more expensive development projects. More expensive projects require higher rents in order to maintain the development team's expected yield on cost. Further, interviews with urban designers and civil engineers reveal that regulatory delay stifles private sector innovation in the built environment. Developer interviews and case studies suggest that regulatory delay promotes exurban growth instead of urban infill in the Austin metropolitan area.

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