SAW housing stock group – Looking askance

Developers finally get a seat

(Reading time: 8 minutes)

The past year has not been kind to people concerned about Staunton’s shortage of affordable and working-class housing. Despite an initial outpouring of interest about the issue, with a couple of hundred people turning out for two housing “summits” focused on the Staunton-Augusta-Waynesboro (SAW) region, attendance at working groups spun off by the summits has dwindled month by month. A much-awaited regional housing study, expected last summer, was finally released a couple of months ago and promptly sank from sight due to its leaden content. Staunton’s housing strategy group managed to stretch four 90-minute meetings across seven months without anything more to show for its efforts than a dozen “strategies” that could have been cooked up over a weekend, most of them built on on verbs like “explore” and “develop”—strategies, in other words, that are still in the early conceptual stage.

And then, of course, there’s this year’s federal torching of an already inadequate social safety net of grants, vouchers and other resources that much of the local planning didn’t anticipate. Expect much back-pedaling and wheel-spinning in the months ahead.

It therefore may come as a surprise, amid all the doom and gloom, to learn that this past Thursday’s meeting of the SAW housing stock working group had a breakthrough, of sorts, with the invited presence of two local developers. Although it might seem obvious that any serious exploration of housing issues would require participation from the supply side of the demand-supply equation, virtually all local discussions on the subject have been dominated by everyone except those who actually plan, build and sell the housing that everyone else laments is in short supply. So—genius. And good news, too.

The bad news is that this belated course correction was attended by only half-a-dozen working group members, with three more patching in via Zoom. The further good news is that the entire session was taped, and is accessible here: SAW Housing Stock Work Group Meeting-20250508_100405-Meeting Recording.mp4.

The developers who broke out of their comfort zone were Scott Williams, of the Crescent Development Group in Charlottesville, and Tommy Shields of Ivy Ridge Developers, in Waynesboro. That their attendance was unusual was evidenced by group member Rick Kane’s earlier efforts to recruit three other developers to address the group, none of whom could be bothered to respond to his first and second emails, Kane’s long history as a local real estate broker and former builder notwithstanding. Developers, as Williams readily acknowledged, tend to keep a low profile. Virtually anything they say, no matter how responsive to community concerns, tends to be quickly discounted as self-serving, and no one wants to be a punching bag.

Yet that’s been our loss. Who else, after all, is better positioned to tell us what it would take to get more affordable housing built?

THE EASIEST ANSWER TO THAT QUESTION, according to both Williams and Shields, is simply this: encourage greater housing density.

While not dismissing other development hurdles, such as a shortage of skilled workers or high fees and interest rates, the two developers agreed that the quickest way to get more housing is to increase the allowable “number of units per linear foot of road.” That’s why so much recent construction in the SAW region is of townhouses, which require lots that are only 20 feet wide, versus the 80 or 90 feet that a single-family home needs. Smaller frontage requirements mean more housing units per acre. And more housing units mean a broader base over which to spread costs, resulting in a lower cost per unit. Fifteen or 20 homes on one acre can be sold at a significantly lower price than just two or three single-family homes built on the same lot.

But off-setting the construction math is an equally straight-forward political calculus that occurs when high-density development is proposed for an area of low- or even medium-density zoning—and in Staunton, that covers a lot of ground. (The city’s most recent comprehensive plan indicates that 63% of Staunton’s vacant/undeveloped land is zoned for residential use, with two-thirds of it designated R-1 or R-2, both low-density classifications that allow only detached single-family homes on large lots with extensive setbacks.) Any developer seeking a waiver to exceed density limits can expect an angry crowd of nearby homeowners, gripped by visions of plummeting property values, to descend en masse at public hearings to oppose any change. And public officials, no less than developers, don’t want to be punching bags.

The upshot? Despite a successful downtown core of relatively dense, mixed-use development that exists only because it predates current zoning restrictions, much of Staunton resembles a suburb more than an urban district. Absent, by and large, is what developers refer to as “the missing middle” of housing options, a diverse palette of housing options along the affordability spectrum that includes duplexes, fourplexes, bungalows, cluster homes, cottage courts, courtyard apartments and living/working combinations, such as apartments above street-level stores and businesses. Nor, despite all the recent attention to the issue, is that likely to change, given widespread fears of public backlash—yet as Williams observed, “If you create policy based on never having the phone ring, we’ll never get to where we need to be.”

Indeed, Staunton’s housing market has been shaped by decades of these and other policy decisions baked into its zoning code that send a clear, if not always intended, signal to developers. Many municipalities, for example, have ordinances enabling the creation of planned unit developments, which can include a wide variety of housing styles as well as commercial and office space. Staunton does not. And while city officials say they are open to such designs, developers must file for special-use permits each time they want to build a mixed-use development, sending a very clear message that this is not a normal course of business. Small wonder that little changes.

City housing planner Rebecca Joyce attempted to put a positive spin on this approach by explaining that requiring special-use permits enables city planners to “help the developers tailor their projects” to Staunton’s often quirky lots and challenging topography. But this presupposes that developers aren’t up to the task on their own, or that they won’t ask for help if they need it. Moreover, as Williams pointed out, every special-use permit application amounts to a bespoke mini-ordinance, eating up city staff time and causing costly delays for developers, whose financing costs don’t get suspended while the bureaucracy grinds on.

What became clear Thursday, as Williams and Shields shared their frustrations, is that Staunton is caught between a relatively inflexible approach to zoning that is more suitable for suburbia, on the one hand, and an exploding need for the kind of housing that suburban zoning can’t accommodate, on the other. The city can have one or the other, but it’s hard to see how it can have both.

DESPITE THIS BASIC BUT LARGELY UNNOTICED TENSION, Staunton has in fact made some strides recently towards grappling with its growing housing needs. Perhaps most notably: whereas just a few years ago the city maintained it had no role in assuring an adequate housing supply, there now is at least a recognition that city policies and regulations can enhance or hinder how the private sector plays its role.

So, for example, the city council recently reduced its parking space requirements for new construction, thereby allowing more developable land to be used for housing rather than asphalt. It has started exploring the possibility of creating a land bank and a land trust, which would enable the city to condemn abandoned properties and rehabilitate them. It is discussing adoption of an accessory dwelling unit (ADU) ordinance, which would allow homeowners to build or to convert part of their property into a second, smaller dwelling. It is contemplating establishment of a city housing commission.

But if the housing strategy workgroup it created last year is any indication, progress on these and other initiatives will be slow and fitful. Aside from its leisurely meeting schedule, the workgroup—like the SAW working groups—was further hampered by the conspicuous absence of builders and developers at the table. Its agenda was set entirely by the city planning department, with no noticeable initiative by group members, no examination of competing values or perspectives and little if any dissent from agenda assumptions. No wonder, then, that the city’s own role in creating the current, unacceptable housing crisis was never questioned, much less addressed.

While creation of the housing strategy workgroup can be viewed in theory as a progressive step forward, its undifferentiated makeup and spoon-fed content ensured a conservation of the bureaucratic status quo. In the absence of anyone like Scott Williams or Tommy Shields, city planners had no one holding up a mirror for them to contemplate their own role in perpetuating the problems they purportedly were addressing.

Get serious about the stats we use

(Reading time: 9 minutes)

The housing stock working group has been tasked with two assignments in advance of its May meeting. The first is to collect ideas on misconceptions about—well, that’s not entirely clear, but it has to do with housing. The second is to review a supposedly detailed study that analyzes the costs of home building regulations. This is the “study,” formulated by the National Association of Home Builders, which concluded that regulatory costs and fees add $94,000 to the price of a new home.

It seems, therefore, that our second assignment fortuitously satisfies the first. The idea that the NAHB study is either detailed or has any relevance to the SAW region is a glaring misconception that the working group should be wary of promoting in any way.

As I wrote earlier, the NAHB study is deeply flawed because its respondents were woefully few in number and were self-selecting; because it is completely opaque about where the respondents were located or what kinds of housing they had built; and because it is, in any case, using data that predates the pandemic and the subsequent run-ups in housing costs, wages and interest rates. Its only apparent virtue is that it provides an easy if meaningless talking point, which endows it with a zombie-like persistence.

The question of whether regulatory costs and fees are excessive and therefore contributing to the unaffordability of new housing is a legitimate one, deserving of serious consideration. Unfortunately, doing anything in a serious way usually takes work, and it’s really tempting to avoid that kind of exertion when a supposed authority or expert offers an answer already gift-wrapped and tied up in a bow. So let me counter with another study, one that will take some effort to peruse and which superficially, at least, has even less relevance to the SAW region than the NAHB effort. For all that, however, I promise it can teach us all something useful.

“The High Cost of Producing Multifamily Housing in California,” which can be downloaded at https://www.rand.org/pubs/research_reports/RRA3743-1.html, was published earlier this month by the RAND Corporation’s Center on Housing and Homelessness. Its mathematically dense goal is “to identify policy reforms than can lower production costs and increase housing affordability in California,” which as the authors note, had seven of the ten most expensive metro regions in the U.S. in 2021. It does this by looking at data from more than 100 multifamily housing projects in California, Colorado and Texas and—hold on, here comes the wonky stuff—uses a regression-based statistical model to account for differences in development costs according to building type, size, whether financing was private or public and other variables.

In other words, the RAND study takes great pains to describe its sample base and methodology in a way that the NAHB doesn’t even acknowledge, much less detail. And while its greatest relevance is to California policy makers, its conceptual framework and analysis are applicable to all housing markets. At the very least, therefore, the RAND study provides a model for how to interrogate our own housing needs.

WHAT DISTINGUISHES THE RAND effort from its anemic NAHB cousin is its understanding—and willingness to explain—the complex interplay of cost-drivers that result in a final price tag for a housing unit. How much does it cost to build a multifamily housing project? Well, there are construction costs, which include labor and materials. There is the cost of the land itself. And there are “soft” costs, which include architectural, engineering and legal fees, the costs incurred by filing required environmental reports, inspection fees and regulatory compliance costs, financing costs and, in many jurisdictions, development or impact fees. The RAND study finds that, on average, 70% of the cost of a multifamily housing project is tied up in construction, 10% in the land and 20% in soft costs.

It is this last category that many people think about when they refer to burdensome regulatory costs, and there is some basis for that. Inspection fees, regulatory compliance costs and impact fees are all obviously the result of policy decisions that can be increased, modified or erased, depending on community standards. Likewise, architectural and engineering fees are sensitive to a community’s design and permitting requirements.

But land and construction costs are also sensitive to community policies. Restrictive zoning can easily drive up the cost of land. Hard costs can be driven higher by building codes that require certain construction materials or installation of life safety systems, like alarms or sprinklers, as well as landscaping or parking requirements. And labor costs can vary considerably, depending on minimum wage laws and whether subsidized housing projects are required to meet prevailing wage rates.

The point of detailing all these factors is to underscore the difficulty of teasing out how much a project’s costs are the result of regulatory and other policy decisions, which are almost always unique to that project in that location at that point in time. That’s why the NAHB “study” is so pointless, and why there is nothing comparable on a state or county level. There are too many variables, and it’s a moving target to boot.

So does that mean we’ve hit a brick wall? Not exactly. Not if we collect a significant amount of data in a targeted area and sort it according to certain specific categories. That’s what RAND did, categorizing multifamily units into four groups by dwelling size across the three states it targeted, further divided between those built with private funding and those participating in the low-income housing tax credit program. The results were starkly disparate:

Total development costs (TDC) per net rentable square foot (NRSF) for market-rate developments in Texas were $167, compared with $531 in San Francisco (2019 dollars). TDC for low-income tax subsidized units was $236 in Texas, versus $731 in San Francisco.
Total development costs per apartment in Texas averaged $133,000 for the market-rate units, $96,000 for the subsidized ones, indicating that the latter were considerably smaller in size. The comparable figures for San Francisco were $485,000 and $487,000, again indicating a sharp reduction in size of the subsidized units.
Average predevelopment time in Texas was 13.1 months, average construction time was 13.9 months, for a total time to completion of 27 months. The California (not just San Francisco) equivalents were 27.9 months in predevelopment and 21 months in construction, for a total time of more than four years before a project is completed.

Keeping in mind the earlier discussion about unique variables affecting every project, it should be noted that these comparisons are hardly apples to apples. Construction costs in San Francisco, to pick just one of the most obvious differences, are affected by seismic standards that you won’t find in Dallas. Real estate costs more in California, wages are higher, etc. etc.

Yet for all that, the disparities are too great to be explained away by such factors alone, as RAND’s regression analysis found, and their consequences are that average rental prices in California are nearly twice those in Texas. Why? Lower construction costs leave room for lower rents. And according to RAND, “Discretionary local impact fees are dramatically lower in the state [of Texas], at least in part because of strict oversight of these fees. But substantially lower levels of regulation overall and state policies that tightly constrain approval times likely play the most important role.”

WE CAN LEARN AT LEAST TWO things from all this.

First, the Texas and California statistics provide us with two extreme data points for total development costs, as well as extremes of production time. If local builders report development costs or production times closer to those found in Texas, there’s probably not a whole lot to be gained by second-guessing existing regulatory policies and procedures. Any gains from doing so would be marginal.

If, on the other hand, local production times and development costs are more comparable to California’s, clearly that opens up some ideas for addressing our affordable housing deficit. The RAND report’s recommendations, although explicitly intended to lower multifamily housing production costs in California, could have relevance to us, depending on which excessive regulatory cost-drivers are identified locally. Among the more intriguing:

Adoption of a policy, similar to state law in Texas, requiring local jurisdictions to approve or deny a proposal for a housing development within 30 days of submission. Failure to meet the 30-day deadline would result in automatic approval.
Promotion of policies to speed construction timelines, such as having synchronized rather than sequential inspections.
The returns on municipal impact and development fees, if any, should be weighed against potential gains from increased property tax revenue and other revenue and welfare gains from more new housing.
Adoption of large-scale upzoning to lower per-unit land prices and increase overall production. Even modest reforms, such as allowing duplexes or fourplexes where only single-family homes are allowed, can make a significant difference.

There doubtless are other conclusions that can be drawn from this study—it runs to 58 pages, and there’s a separate 48-page annex for anyone who really wants to get in the weeds—and there is abundant talent within our group to make that happen. But that will take work.

That work also would benefit from the input of developers and builders who looked to build in our area but have concluded they just couldn’t make their ideas pencil out—assuming, of course, that this has happened. If our group has had one continuing weak spot, it has been the lack of an industry voice to identify what could be done at the policy-setting level to encourage more affordable housing construction. That’s not entirely our fault—one of our members invited three different developers/builders “to join in the discussion about cost of regulations/what we can do for them/holdups in construction processes/etc.” but none responded—but it does create an information vacuum.

As a result, we don’t really know if a “regulatory burden” is an important reason why we don’t have developers breaking down our doors to build multifamily homes. The RAND study should at least help us formulate the right questions to ask, and also could help us decide that this is an area of inquiry that isn’t worth our efforts.