How Building Codes Have Helped Create Gigantic Supply Gaps.

The affordable housing crisis in the U.S. is worsening, as reported by the Joint Center for Housing Studies of Harvard University. While several factors contribute to the rise in cost-burdened homeowners and renters, the limited supply of housing continues to keep housing costs high.

Many attribute strict zoning regulations in most cities as the primary obstacle to new housing construction. The YIMBY (“Yes In My Backyard”) movement, with bipartisan support, aims to relax zoning laws in cities across the nation.

Local governments have responded with a wave of zoning reforms, including changes that allow ADU development in many cities. However, some research indicates that these reforms have minimal impact on housing supply, and developers continue to face regulatory hurdles.

Recent revisions to standard building codes have had a substantial impact on multifamily development costs over the past decade, according to a report from the National Multifamily Housing Council (NMHC) and the National Association of Home Builders. Developers, builders, and operators surveyed believe that building codes significantly affect the cost and feasibility of new projects.

The complexity of the issue lies in the lack of a straightforward solution. Building codes serve a crucial purpose—primarily ensuring the health and safety of residents. Completely repealing them could result in unsafe living conditions and a further reduction in housing supply due to the uncertainty in quality affecting local housing markets. Building codes themselves are not inherently costly, but there is growing scrutiny on whether newer code updates, including energy efficiency and aesthetic standards, impose unnecessary costs on new development without commensurate benefits.

While problems vary from one market to another, here are six key issues with building codes that could be negatively impacting housing affordability.

Standard Building Codes Lack Flexibility, While Local Nuances Pose Challenges for Developers

Flexible building standards that consider climate, local housing markets, and building types can enhance the affordability of new developments. For instance, applying the same fire safety standards to small and large apartment buildings can burden developers of smaller buildings unnecessarily.

Most municipalities utilize the International Building Code (IBC) for buildings with more than two units, mandating sprinkler systems. This cost eats into profits and may render affordable fourplex development infeasible in certain markets.

Moreover, specific climate threats in a jurisdiction may necessitate enhanced standards, but uniformly applying them to all communities can impose undue costs in some areas.

For example, areas prone to tornadoes need building components that can withstand high wind speeds. The location and footprint of a building determine the minimum requirements for safe construction. Designing for high wind speeds is costlier, so adapting the building code based on the area’s threat level is prudent.

However, some states enforce statewide codes without allowing local amendments, leading to a lack of flexibility that can drive up costs unnecessarily. As climate threat considerations are factored into code revisions, this inflexibility becomes expensive, affecting housing affordability.

While a uniform standard adds costs, developers also face challenges from local variations in building codes. An overwhelming 92% of NMHC survey respondents cited jurisdictional requirements variations as significant obstacles in their business, with issues like differing fire codes and interpreting nuanced codes across different jurisdictions.

A performance-based code could provide more flexibility than a prescriptive code, enabling designers to use methods that best achieve the code’s intended goal instead of mandating specific materials or techniques.

While the ICC Performance Code for Buildings and Facilities is performance-based, its limited adoption in the U.S. poses challenges. However, building based on intent could introduce interpretability challenges for developers, underscoring the need for solutions that enhance both adaptability and clarity.

The Mismatch Between New Building Codes Rollout and Advancements in Materials and Technology

The International Code Council updates building code standards every three years, whereas developing new materials that meet standards can take longer and may become obsolete after the next code update. Rapid changes in energy efficiency standards further exacerbate this inefficiency, leading to unnecessary waste and project delays.

Conversely, building codes’ slow adjustment to new materials and processes that reduce costs hampers affordability. Jessica Lauren, a construction contractor and real estate investor, highlighted how 3D printing could lower construction costs but faces approval delays due to the absence of tested safety standards for affordable housing projects using the technology.

Lauren mentioned delays in approving two low-income housing projects in Cleveland due to the absence of standards for layered concrete. The lack of tested standards complicates decision-making for the choice of foundation material and laying method for the new housing units.

Labor Union Requirements Impact Cost-Effective Processes

Labor unions often resist technology that could reduce work opportunities for skilled laborers. Stephen Jacob Smith, founder of the Center for Building in North America, explained how unnecessary costs like elevator installations in apartment buildings underscore the broader influence of building codes on construction expenses. Disagreements between elevator manufacturers and unions over preassembly limit efficiency, resulting in inflated costs and time wastage.

Union actions obstructing innovation to preserve certain job sectors can have adverse impacts on the economy by inflating costs and impeding progress. The strict licensing requirements for construction crews in urban areas requiring dense housing limit access to lower-cost unlicensed labor, further enabling unions to oppose cost-effective processes.

New Building Code Recommendations May Not Prioritize Affordability

While safety is paramount, recent code updates incorporating energy efficiency and quality standards may escalate construction costs. Some jurisdictions enforce the latest recommendations without assessing cost-benefit ratios, slowing down affordable housing development. States like Indiana opt for older standards to protect affordability, illustrating the dilemma between standards and affordability.

While low-income households benefit from reduced energy bills and consumers generally value energy efficiency, the higher initial development costs associated with energy efficiency could hinder homeownership in the short term. Policymakers grapple with the trade-off between energy-efficient housing and affordability, as it may take a long time to realize energy savings.

Policymakers are increasingly scrutinizing the costs of new building code recommendations, and researchers are developing tools to help state and local governments better understand the impact of building codes on housing markets, given the complexities involved in measuring costs and benefits.

Material Requirements Influence Compliance Costs

Building codes may restrict the use of affordable recycled materials in favor of limited costly alternatives, impacting compliance costs. Standardizing the use of recycled materials can reduce construction costs and waste, benefiting both the industry and the environment.

However, builders and developers face challenges in sourcing materials that meet code requirements, with a majority reporting difficulties arising from material requirements. Addressing these challenges can streamline construction processes and promote sustainability.

Code Enforcement Challenges Deter New Development in Urban Areas

Disagreements between city inspectors and contractors over code compliance delay development across jurisdictions. Major urban markets face additional regulatory barriers, from permit backlogs to environmental reviews, creating costly impediments for developers.

Cities burdened with regulatory hurdles, despite a pressing need for affordable housing, witness increased costs passed on to residents due to slow permit approval processes. Permit delays impact housing affordability, with some cities experiencing a shortage of affordable homes due to regulatory inefficiencies.

Conclusion

While building codes are essential for resident safety, reassessment of recent stringent code updates is imperative. Conducting research on the costs and benefits of specific requirements, providing technology support for local code adaptations, assisting developers in interpreting and complying with codes, and implementing new standards reflective of housing development innovations can enhance affordability while preserving public health and safety.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.