Avoiding Real Estate Development Landmines
Real estate developers and investors who have been in the business for any length of time often use a variety of labels to describe the planning and zoning departments of the cities where they develop projects.
These labels may be as simple as “pro-growth,” “anti-growth,” or “costly.” Or they may refer more to the process or the manpower: “understaffed,” “backlogged,” “efficient” or “well-managed.”
If the word is out that a city’s planning and zoning department isn’t up to snuff, it can certainly damage the municipality’s reputation and ability to attract quality development. Would-be real estate investors must do their due diligence to know what they're getting into before they buy land and start the often long process of new construction.
As an example, the city of Denton, a midsized city just north of Dallas, is dealing with a two-year backlog of engineering reviews affecting 145 projects. To its credit, the city brought in an outside engineering firm to help cut through the backlog but its process is still broken.
“The department is working to address its part in Denton’s long-running reputation of not being ‘business-friendly’ among some builders, developers and businesses,” noted an article about the issue in the Denton Record-Chronicle. Now, the city is negotiating with another professional engineering firm, this one from out of state that won’t have conflicts with local projects, and who can also help revise the department’s workflow.
Local zoning and land use regulations can reduce new home construction by constraining the type and density of new housing allowed, according to the Joint Center for Housing Studies of Harvard University. Local governments also add to costs by delaying approvals and charging sizable fees, said JCHS, which wrote about impediments to home building in its report, “The State of The Nation’s Housing 2018.”
“For example, a 2015 Duncan Associates survey of 271 communities found that the average impact fee for construction of a moderate-sized single-family home was $11,900, with charges ranging as high as $31,800 on average in California. While new residential developments should contribute to the costs of providing infrastructure and public services, high fees make it even more challenging to provide housing.”
Unexpected delays and excess planning fees affect the bottom line and real estate developers talk with one another about these issues. If a city isn't serious about attracting projects, there are other cities actively investing in technology and innovating to make development more transparent, expedient, and ultimately less costly.
See the city of Riverside's One-Stop-Shop concept launched in 2017 as part of its Streamline Riverside initiative. Riverside placed their Planning and Zoning, Building, Fire, Public Works, Public Utilities, and Business License check divisions all on a single floor at City Hall. Instead of running all over the city, the one-stop concept greatly simplifies the process and shortens timelines. Other cities are taking notice.
"We've had a number of out-of-state tours since we launched," reports Assistant City Manager of Riverside, Rafael Guzman.
Riverside even asks developers for feedback as they exit the planning department. At a 96% average rating, Riverside is clearly on to something.