Why Red Tape Reform Is Key To Solving the Housing Shortage

With the landmark 21st Century Road to Housing Act now law, local governments may finally rein in the red tape that is choking off the construction of new homes.

The new law includes a $200 million “innovation fund,” which would be a competitive grant program for local governments that can show they’ve taken steps to reform permitting, zoning, and other programs. Congress will need to fund the seven-year program in future budgets. But it targets an acute problem local governments face, experts tell Realtor.com®.

Local governments have struggled for years to keep up with their own extensive permit and approval systems, while a cottage industry of startups has sprung up to help.

The National Association of Home Builders estimated in a study that permits, building codes, inspections, and regulations account for over a quarter of the average sales price of a new home. Since a new home averaged $499,500 in January, NAHB put the cost of red tape at $131,734 per new home.

The nation is already short millions of housing units, and it would take years to catch up even if the rules went away, according to a report on the housing supply gap from the Realtor.com economic research team.

Beleaguered

Stephen Schoen, development services director of Walton County, FL, can attest to the shortage.

The county population has grown by 75% since 2010, making it one of the fastest-growing parts of the state. But the housing stock hasn’t grown with the population. And workers serving the beachfront communities live farther inland, depriving the county of full-time residents.

That incudes permitting. Getting new housing built means navigating technical codes and permitting rules just to get a project on the drawing board. Developers can’t proceed to review until their project is in compliance with the permitting process. Then, one bad vote at the zoning commission can send them back to square one.

“We have issues with predictability and timing,” Schoen said. “Developers struggle with spending an exorbitant amount of money just to be denied at the tail end of the process.”

NAHB’s data shows that plays out as “death by a thousand cuts.” Regional building codes can change over just a few years, and it will cost tens of thousands in staff time per housing unit to come into compliance.

Then there are architectural and design standards put into place by neighborhood planning groups, like setbacks and specific style designs, which add tens of thousands more.

Local governments don’t have the staff or budget to help expedite the process. As a result, when key personnel retire, as happened in Walton County a few years ago, significant bottlenecks occur while new staff learn the rules.

Cottage business

For Sabrina Dugan, the problem became apparent when she was a University of Florida student, advocating for the university to improve its sidewalks and roads for a friend with cerebral palsy who used a wheelchair to navigate the campus.

She and business partner John Mirkin started an AI company, Swiftbuild.ai, which helps counties automate and streamline their permitting and land development processes. Swiftbuild now serves Walton County and about a half-dozen other Florida counties and municipalities.

A common through line is that the cities often see their permitting processes grow unwieldy over time. That creates further redundancies that frustrate builders. Then someone leaves, and new hires face an inscrutable system.

“Most of the permitting failures start at intake,” Dugan says. “A misclassification or some small detail is wrong, and the plans will never be compliant. It still takes the county 20 to 30 days to get the feedback. But they can’t control if there are empty seats in the department and no one to fill them.”

AI is positioned to help solve the issue, the co-founders say, because it can go through tedious processes and spot minor differences. That’s important because building housing requires navigating many tedious processes, sometimes all at once.

“One county had 400 kinds of permits that accumulated over the years,” Mirkin says. “We got rid of 100 that weren’t needed.”

Safouen Rabah, founder and CEO of Govstream.ai, sees the same thing. His company automates parts of the development application process so city staff can spend more time on reviews. The problem gets worse when the system can be clogged with homeowners trying to get greenlit for simple approvals like a garage.

“With every passing month waiting for approvals, the carrying costs increase,” Rabah says. “And it’s not built for a homeowner who doesn’t speak technical jargon.”