How Building Codes Have Helped Create Gigantic Supply Gaps.

The affordable housing crisis in the U.S. is getting worse, according to a new report from the Joint Center for Housing Studies of Harvard University. While many factors are to blame for the increase in cost-burdened homeowners and renters, experts agree that constrained supply is keeping housing costs elevated. 

Many point to the strict zoning ordinances in most cities as the primary barrier to new housing construction. The YIMBY (“Yes In My Backyard”) movement, which has support from both sides of the political spectrum, 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. But, some research shows these reforms have a limited impact on the supply of housing, and many developers have called attention to the regulatory hurdles that remain. 

Recent revisions to standard building codes have had the largest impact on multifamily development costs over the last decade, according to a report from the National Multifamily Housing Council (NMHC) and the National Association of Home Builders. In addition, a recent NMHC survey of developers, builders, and operators found that 89% of respondents believe building codes affect the cost and feasibility of new projects. 

It’s a complex problem that doesn’t have a straightforward solution. Building codes have an important purpose—primarily, the health and safety of residents. Repealing them entirely could lead to unsafe living conditions and even further reduce the supply of homes due to the effect of quality uncertainty on local housing markets. Building codes aren’t inherently costly, but local governments are beginning to question whether the newer code updates, which include energy efficiency and aesthetic standards, add unnecessary costs to new development without delivering sufficient benefit. 

Problems vary from one market to the next, but we’ve identified six key issues with building codes that may be negatively impacting housing affordability. 

Standard Building Codes Lack a Necessary Flexibility, but Local Nuances Are Also a Problem for Developers

Building standards that are flexible depending on the climate, housing market, and type of building can improve the average affordability of new developments. For example, applying the same fire safety standards to small apartment buildings as large apartment buildings puts an unnecessary cost burden on developers of small buildings. 

Most municipalities use the International Building Code (IBC) for buildings with greater than two units, which requires the installation of sprinkler systems. That cost cuts into profits and may make it infeasible to build an affordable fourplex in some markets. 

Likewise, enhanced standards may be necessary for the specific climate threats of a particular jurisdiction, but uniformly applying those standards to all communities may induce an unnecessary cost burden in some. 

For example, building components need to withstand high wind speeds in areas at risk for tornadoes. The geographical location and footprint of a building determine the minimum requirements for safe construction. Designing for high wind speeds is more expensive, so it pays to adapt the building code according to the threat level of the area. 

However, several states have statewide codes and don’t allow for local amendments. Below is a visual of how codes are adopted by state.

As code revisions account for climate threats, that lack of flexibility is becoming costly. Building for the maximum wind speeds in the state, even in areas of lower threat, negatively impacts housing affordability. 

But although a uniform standard creates unnecessary costs, developers report being burdened by local code variations. An astounding 92% of respondents in the NMHC survey said variations in requirements between jurisdictions create significant challenges for their business. Fire codes that vary according to the individual fire marshal, for example, make compliance difficult. In addition, 82% reported difficulty with interpreting the nuanced codes of different jurisdictions. 

An entirely performance-based code could offer more flexibility than a prescriptive code, allowing designers to use the methods that best accomplish the intended goal of the code rather than requiring specific materials or techniques. 

The ICC Performance Code for Buildings and Facilities is performance-based, but it’s not widely used in the United States. However, building based on intent could create additional interpretability challenges for developers. Policymakers should focus on solutions that improve both adaptability and clarity. 

The Rollout of New Building Codes and the Development of New Materials and Technology Are Mismatched

The International Code Council updates building code standards every three years. It can take longer than that to develop new materials that meet standards, which may become obsolete on the next code update. Energy efficiency standards may change particularly quickly. This inefficiency creates unnecessary waste and prolongs development timelines. 

On the other hand, because building codes don’t generally prioritize affordability, standards may be slow to catch up with new materials and processes that reduce costs. Jessica Lauren, a skilled construction contractor and real estate investor at Fire Damaged House Aid, told BiggerPockets that 3D printing could potentially decrease construction costs, but the lack of tested safety standards interferes with approval timelines for affordable housing projects that use the technology. 

Lauren says two major low-income housing projects in Cleveland are still awaiting approval due to the lack of standards for layered concrete. “The current problem facing Cleveland deals with the choice of foundation material for the new 3D units and the method of laying down the foundation for the new housing,” she explains. “The council has research from other builds, but currently, there aren’t any tested standards to guide their decisions.”

The Requirements of Labor Unions May Play a Role in Impeding More Cost-Effective Processes

Unions often object to technology that would reduce available work for skilled laborers. In a recent guest essay for The New York Times, Stephen Jacob Smith, founder of the Center for Building in North America, explains how the unnecessary cost of installing an elevator in an apartment building echoes the wider impact of building codes on construction costs. He explains that the elevator union prohibits “even basic forms of preassembly and prefabrication that have become standard in elevators in the rest of the world.” 

In Smith’s example, elevator manufacturers argue with unions over whether they can predrill holes in their factories. Most other countries favor prefabrication, which allows for better quality at a lower cost. Manufacturers are already making partially preassembled elevators for foreign markets, and they allow mechanics to take apart certain components just so U.S. elevator union members can put them back together at the work site. 

In most cases, a unionized attempt to deter innovation and progress in the defense of a specific sector of jobs will negatively impact the wider economy by inflating costs. It also wastes time. 

At the same time, in cities where dense housing is needed, the stricter licensing requirements for construction crews on multifamily buildings means developers can’t rely on the lower-cost, highly available labor of unlicensed workers, such as immigrant laborers, who often contribute to building single-family homes. The shortage of skilled laborers gives unions more power to oppose new, lower-cost processes.

The Latest Recommendations Don’t Prioritize Affordability and May Not Be Cost-Effective

While building codes generally prioritize safety, recent code updates also include energy-efficiency standards and minimum quality standards that may increase construction costs. Some jurisdictions use the latest recommendations, even if the costs outweigh the benefits, and the result is a slowdown in new affordable housing construction, while other states, such as Indiana, have chosen to stick with older standards to protect affordability. Cities that require the latest energy-efficient codes can expect to deter about half of developers, investors, and builders, according to the NMHC survey. 

Low-income households can certainly benefit from lower energy bills, and surveys generally indicate that consumers value energy efficiency. Policymakers shouldn’t ignore the long-term social cost of energy-inefficient housing, but the higher development costs associated with energy efficiency may put homeownership out of reach for many households in the short term, especially because the savings are only recouped after a long tenure. “Standards save energy, but the cost-benefit bottom line means people can’t afford housing that meets energy standards,” says Lauren. 

Policymakers are increasingly turning their attention to the costs of new building code recommendations, and researchers at Purdue University are planning to build a tool for state and local governments to better understand the impact of building codes on their housing markets, as the costs and benefits can be difficult to measure. 

Material Requirements Impact the Cost of Compliance

Building codes may prohibit the use of readily available and affordable recycled materials, instead only allowing limited options that may be costly or scarcely available. 

“The original materials met international codes for safety, but the materials collected from demolition sites may not,” explains Lauren. “Recycled concrete, bricks, and wood can be used for ornamentation but not for primary construction materials. A standard code for recycled materials would make construction cheaper—and reduce what goes into landfills.”

Meanwhile, the selection and availability of materials that do meet code requirements present a major challenge for builders and developers, with 79% of NMHC respondents reporting that material requirements caused them difficulty. 

Problems With Code Enforcement Make New Development Unappealing in Many Cities

In just about every jurisdiction, disagreements between city inspectors and contractors about code compliance can delay development. But many of the major urban markets have even greater problems—the regulatory hurdles created in an effort to enforce building codes, such as permit backlogs and environmental reviews, can make development a costly headache. 

Often, cities with the biggest regulatory burdens are the places that most desperately need more affordable housing. For example, Denver, a once-affordable city that has seen home prices double in less than a decade and is now grappling with a serious shortage of affordable homes, has been plagued by a slow permit approval process in recent years. The city auditor found that the delays have led to increased costs, which contractors pass to residents, as well as unpermitted work. And in California and Washington, the open appeals process for challenging project approvals based on environmental impact can slow projects to a halt. 

All this means that many developers would simply prefer to work elsewhere, which spells trouble for a supply-constrained market.

The Bottom Line

Building codes are necessary. We shouldn’t throw them away entirely just because they’re difficult to comply with and enforce, or because they ultimately increase the cost of housing development. 

But the rigidity and complexity of recent code updates may represent an overreach. More research on the costs and benefits of specific requirements, technology to assist local governments with code adaptations and help developers interpret and comply with local building codes, and new standards that reflect innovations in housing development all have a role to play in improving housing affordability while maintaining public health and safety.

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