An interesting article at TheRealDeal.com gives a peak into the problems caused by zoning and land-use regulations. The article discusses, in part, the plight of developer Arthur Wiener, who spent more than ten years getting the necessary permits to build an apartment building in New York City.
A former employee of the Department of Housing Preservation and Development is quoted in the article:
The actual construction side is not what’s driving these long timelines. You’re talking about most of the time just being spent on getting approvals.
When a developer’s plans are delayed, the result is higher costs. And those costs are passed on to consumers.
One problem that Wiener had to deal with is the city’s limitations on a lot’s floor-area ratio (FAR). A building’s legal floor area is a multiple of the lot size. The premise is that smaller lots should have shorter buildings. The FAR for Wiener’s lot limited how many floors he could build, and the project wasn’t going to be profitable. However, city regulations allow a property owner to sell “development rights” that they haven’t used. Wiener paid a neighboring church $300,000 to acquire permission to build an additional 4,166 square feet of floor space. That cost will eventually make its way into the rents that Wiener charges.
Wiener’s goal was to set aside eight of the buildings twenty-six units for below-market rents. He wanted to make some of the housing in the project affordable for existing residents of the gentrifying neighborhood.
But what if he hadn’t had to endure more than a decade of delays and incur the associated expenses? What if he had been able to start building in five years, or two years, or two months after finalizing his plans? He would have saved an enormous amount of money, and that could be reflected in much lower rents. Imagine what would be possible if every developer in the country were free of the shackles and restrictions imposed by zoning.
The full cost of zoning is impossible to calculate. The additional costs imposed upon developers is only a part of that cost. Many housing projects never see the light of day because delays and permitting fees make it impossible for a developer to make a profit. And so, desperately need housing isn’t built and the housing that is built is more expensive. That is the cost of zoning.