U.S. GOVERNMENT PUBLISHING OFFICE

31–574 PDF WASHINGTON : 2018

THE COST OF REGULATION ON 

AFFORDABLE MULTIFAMILY DEVELOPMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 5, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–114 

( 

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(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MACARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

SHANNON MCGAHN, Staff Director 

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(III) 

SUBCOMMITTEE ON HOUSING AND INSURANCE

SEAN P. DUFFY, Wisconsin, Chairman 

DENNIS A. ROSS, Florida, Vice Chairman 

EDWARD R. ROYCE, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

KEITH J. ROTHFUS, Pennsylvania 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

THOMAS MACARTHUR, New Jersey 

TED BUDD, North Carolina 

EMANUEL CLEAVER, Missouri, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

BRAD SHERMAN, California 

STEPHEN F. LYNCH, Massachusetts 

JOYCE BEATTY, Ohio 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

RUBEN KIHUEN, Nevada 

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C O N T E N T S 

Page 

Hearing held on: 

September 5, 2018 ............................................................................................ 1 

Appendix: 

September 5, 2018 ............................................................................................ 33 

WITNESSES 

WEDNESDAY, SEPTEMBER 5, 2018 

Ansel, Sue, President and Chief Executive Officer, Gables Residential, on 

behalf of the National Multifamily Housing Council and the National 

Apartment Association ........................................................................................ 5 

Lawson, Steven E., Chairman, The Lawson Companies, on behalf of the 

National Association of Home Builders .............................................................. 10 

Poethig, Erika, Vice President and Chief Innovation Officer, The Urban Institute ........................................................................................................................ 6 

Schloemer, James H., Chief Executive Officer, Continental Properties Company, Inc. .............................................................................................................. 8 

APPENDIX 

Prepared statements: 

Ansel, Sue ......................................................................................................... 34 

Lawson, Steven E. ............................................................................................ 73 

Poethig, Erika ................................................................................................... 107 

Schloemer, James H. ........................................................................................ 118 

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THE COST OF REGULATION ON 

AFFORDABLE MULTIFAMILY DEVELOPMENT 

Wednesday, September 5, 2018 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING

AND INSURANCE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:04 p.m., in room 

2128, Rayburn House Office Building, Hon. Sean Duffy [chairman 

of the subcommittee] presiding. 

Present: Representatives Duffy, Ross, Posey, Luetkemeyer, 

Hultgren, Rothfus, Zeldin, Trott, Cleaver, Velazquez, Sherman, 

Beatty, Kildee, Kihuen, and Waters. 

Also present: Representative Green. 

Chairman DUFFY. The Subcommittee on Housing and Insurance 

will come to order. Today’s hearing is entitled, ‘‘The Cost of Regulation on Affordable Multifamily Development.’’ Without objection, 

the Chair is authorized to declare a recess of the subcommittee at 

any time. Without objection, all Members will have 5 legislative 

days within which to submit extraneous materials to the Chair for 

inclusion in the record. 

Without objection, Members of the full committee who are not 

Members of this subcommittee may participate in today’s hearing 

for the purpose of making an opening statement and questioning 

our witnesses. 

The Chair now recognizes himself 4 or 5 minutes for an opening 

statement. I first want to welcome our witnesses and thank them 

for participating in today’s hearing, looking at the cost of regulation and barriers preventing affordable multifamily housing development. 

I have read your written statements and appreciate the time and 

effort you put in providing your insight to this subcommittee and 

to the committee as a whole. The lack of development is especially 

concerning because, while we continue to enjoy some of the lowest 

unemployment rates in our history, people are having trouble finding affordable housing in areas where jobs are being offered. 

The Wall Street Journal ran an article on May 30th of this year 

entitled, ‘‘Rural America Has Jobs. Now It Just Needs Housing.’’ 

The story starts with a man who was offered a job in Nebraska but 

had to turn it down because he couldn’t find affordable housing to 

rent. 

That man ended up staying in Iowa at his current job. He was 

making $2.00 less an hour without benefits. So he had housing. He 

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could have gotten a pay raise and benefits, but because there was 

inadequate housing, he wasn’t able to take advantage of that opportunity. 

Another compelling fact from the article highlighted some housing and job numbers. So get this. There were over 990 job openings 

in Platte County, but only 65 homes available for sale in the median listing price. On the tails of The Wall Street Journal article, 

two of the organizations testifying today issued a study about the 

cost of multifamily development. 

That study reported that regulation from all levels of government—Federal, State, local—ccount for an average of 32.1 percent 

of multifamily development costs, 32.1 percent of the cost. Today, 

I expect to hear our witnesses dive deeper into what those costs 

really are. 

It seems a majority of the costs highlighted in the study are at 

the local level where building codes and zoning laws are handled, 

all other costs are the result of requirements from HUD (U.S. Department of Housing and Urban Development) relating to fair 

housing or ADA (Americans with Disabilities Act) compliance. 

While we want to be sure that we are protecting our most important financial investments from catastrophic disasters, we also 

must recognize that building codes add to construction costs, which, 

in turn, increases the cost of housing. 

Testimony from both the National Multifamily Housing Council 

and the National Association of Homebuilders states that on average, 7 percent of regulatory costs come from building codes changed 

over the past 10 years. Mitigation is something I am a strong supporter of. 

We, on this committee, have worked on a comprehensive flood insurance bill this past Congress. Like many things, it passed the 

House and has not passed the Senate yet—we are ever hopeful. 

But doing that work, we saw that for every dollar spent on pre-disaster mitigation, it saves $4 on recovery costs. There are clear benefits to building codes. No one is disputing that here, building codes 

are important. 

But making sure we strike the right balance is critical. And 

when the pendulum swings too far over and costs increase too 

much, what should be affordable all of a sudden becomes 

unaffordable for so many of our constituents and American families. While some people make protecting their homes a top priority 

and spend more than others on construction costs, we must ensure 

that homes already being built to code are not being impacted by 

local authorities with additional regulations or red tape. 

Now, Mr. Schloemer highlights several specific examples in 

which building codes, zoning issues, or permitting approvals have 

impacted multifamily development projects. I point him out because he is from the great State of Wisconsin and I appreciate him 

being here. 

Some of those examples include instances in which cities have required you to pay for the entire cost of a traffic signal as opposed 

to the community living in that neighborhood paying for the traffic 

signal as well, or upsizing a water main for an unknown future development unrelated to the project that you are building at that 

point in time. 

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You said another example in which a municipality in Texas revised three of its zoning districts to specifically exclude multifamily 

as a permitted use. It is these specifics that help paint a picture 

of what you mean by regulatory barriers to building. Before we get 

to your oral statements, I want to thank you all for coming and testifying today. Again, this is a time for us to hear from you on what 

the right balance is for us and what role do we have at the Federal 

level and how this policy trickles down to the State and municipal 

levels. 

What we want to do again is have smart codes, but not too many 

codes that increase the cost of building, which again affect our families and the most vulnerable among us. So with that, I yield to the 

Ranking Member, the gentleman from Missouri, Mr. Cleaver, for 5 

minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman, and I appreciate as 

well your willingness to come and help us as we go through this 

very difficult issue. The Nation is facing a steady and dramatic decline in available and affordable housing, period, certainly multifamily housing is included. 

And it is hard to imagine that it has been a decade since the 

housing crisis of 2008. As I said in here with maybe a few people 

who are here now, Mr. Green, all of us on this side were here and 

it doesn’t appear as if it was that long ago. 

But the economy has greatly improved since that time and many 

families particularly in minority communities were never fully able 

to recover from that crisis. The demand for rental units vastly increased in the years following the Great Recession and the availability of affordable unit, rental units has not kept pace. 

In addition, millennial adults burdened as my children will often 

say with high student loans and limited job opportunities, they 

have put off homeownership and they have made conscious decisions to stay in the rental market. And so, that has contributed to 

the growing rental affordability crisis. According to the National 

Low Income Housing Coalition, there is no State, metropolitan area 

in our Country, where a worker earning Federal minimum wage 

can afford a two-bedroom rental home at fair market rent by working a standard 40-hour week. 

I was the mayor of Kansas City for 8 years and I became very 

familiar with the challenges associated with developing affordable 

housing options. This is a challenge that is not only in existence 

in the urban core, but I represent a large rural area of Missouri. 

And there are some towns in my district where they have not been 

able to have a single new unit constructed in a decade. 

And so it is an issue that I am concerned with. But it also brings 

into play some other issues, like what are we going to do with the 

programs like HOME, CDBG (Community Development Block 

Grant), the National Housing Trust Fund, and the low-income tax 

credit. These all must be preserved and, in fact, enhanced if we are 

going to deal with this crisis. 

And so, Mr. Chairman, at this point I would yield to Mr. Sherman for the remainder of the time. 

Mr. SHERMAN. The rent is too damn high, the paycheck is too 

damn low. Nothing we do is going to make housing affordable unless we increase supply. We cannot repeal the law of supply and 

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demand. By first world standards, Europe, Japan, the United 

States, we have more square footage of housing per person by far 

than any of them. But we live in larger units and we need the 

number of units that we have for the family units. 

This hearing is somewhat mistitled in that it talks up—in that 

it says the cost of regulation, there is also the benefits of government involvement including especially FHA (Federal Housing Administration) Fannie and Freddie loans and Section 8. And if we 

took those away, housing would be less affordable. 

And in addition to the costs where you actually write a check to 

pay for regulation, you also have the density limits and the zoning 

and the prohibition. And I am not sure that that is even included 

in the 32 percent, I believe, that was cited by the Chairman, because it doesn’t cost you more to build a three-story building than 

a five-story building. But if you can’t build a five-story building, 

you can’t pay for the land. 

In my State, we are going to require that all new housing have 

solar panels on it. Now, if lenders will factor that in and say we 

will lend more to build those units because the landlord or the tenant will not have the electric bill and if in fact those solar panels 

create enough kilowattage to pay for themselves, that may be a 

good thing. 

But assuming not, assuming that you just look at how much rent 

is provided and how much it costs to build the unit, this will mean 

fewer apartment buildings will be built in the State that has the 

greatest housing crisis. So I look forward to hearing from our witnesses how we are going to have enough housing units and how we 

are going to prevent NIMBYs (not in my backyard) from prevailing 

except in my district. 

I yield back. 

Chairman DUFFY. The gentleman yields back. We now welcome 

our witnesses. Our first witness today is Ms. Sue Ansel, President 

and CEO of Gables Residential, on behalf of the National Multifamily Housing Council and the National Apartment Association, 

welcome. 

Ms. ANSEL. Thank you very much. 

Chairman DUFFY. Next witness is Ms. Erika Poethig. I hope I am 

saying your name correctly. Vice President and Chief Financial Officer at the Urban Institute. Next witness from the great State of 

Wisconsin, Mr. James Schloemer is the Chief Executive Officer at 

Continental Properties Company. Welcome. And our final witness 

is Mr. Stephen Lawson, Chair of the Lawson Companies on behalf 

of the National Association of Homebuilders (NAHB). 

The witnesses will, in a moment, be recognized for 5 minutes to 

give an oral presentation of their written testimony. Without objection, the witnesses’ written statements will be made part of the 

record following their oral remarks. Once the witnesses have finished presenting their testimony, each Member of the subcommittee will have 5 minutes within which to ask all of you questions. 

You will note that on your table, there are three lights. The 

green light means go. The yellow light means you have 1 minute 

left. And obviously, when the red light turns on, that means your 

time is up. The microphones are sensitive, so make sure you are 

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speaking directly into them and make sure that they are actually 

on. 

Now with that, Ms. Ansel, you are recognized for 5 minutes. 

STATEMENT OF SUE ANSEL 

Ms. ANSEL. Chairman Duffy, Ranking Member Cleaver, and 

Members of the subcommittee, it is my privilege to appear before 

you today on behalf of the National Multifamily Housing Council 

(NMHC) and the National Apartment Association (NAA) to discuss 

regulatory barriers to developing multifamily housing and their impact on reaching our shared goal of addressing our Nation’s rental 

affordability challenges. 

I am the Chairwoman of NMHC and Chief Executive Officer of 

Gables Residential, a vertically integrated real estate company specializing in development, construction, ownership, acquisition, financing, and management of multifamily and mixed-use communities. Gables manages over 30,000 apartment units and over 

430,000 square feet of retail space. 

I see the harmful impact of our Nation’s antiquated, duplicative, 

and costly regulatory systems on a daily basis. As outlined in a recent study by NMHC and the National Association of Homebuilders, 32 percent of multifamily development costs are attributable to local, State, and Federal regulations. And, in a quarter 

of the cases, that number can reach as high as 42.6 percent. 

It is not easy to build apartments. It can take up to a decade just 

to break ground. Outdated zoning laws, unnecessary land use restrictions, arbitrary permitting requirements, inflated parking requirements, environmental site assessments, and more discourage 

housing construction and raise the cost of those properties that do 

get built. Localities impose a variety of fees on new housing, including impact fees, inspection fees, property taxes, inclusionary 

zoning mandates, and rent control rules further discourage housing 

investment. 

These time and cost burdens lead to fewer apartment homes 

being built, and the apartments that do get built require higher 

rents to cover the high cost of development. Make no mistake, 

smart regulation plays a critical role in ensuring the health and 

well-being of the American public. But well-intentioned local, State, 

and Federal regulations are too often onerous and cumbersome and 

increase development and operational costs, sometimes forestalling 

development altogether. 

My written testimony outlines in detail a host of barriers to development and examples from across the country where red tape 

has driven up project costs for both apartment construction and 

renovation. For example, in Texas, Gables was required to replace 

and increase the capacity of a storm line by 75 percent in conjunction with the development of a site and to help address community 

flooding unrelated to the project. 

This resulted in 2 months of additional permit time, 30 days of 

additional build time, and $250,000 in additional costs. While the 

example I cite is a local requirement, Federal regulations also result in additional costs. The aforementioned cost of regulation 

study found that complying with Federal requirements added significant development costs. 

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For example, OSHA (Occupational Safety and Health Administration) requirements account on average for 2 percent of total 

project costs, while costs associated with the changes to building 

codes, which are developed in conjunction with the Federal Government, accounted on average for 7 percent of total development cost. 

My written testimony includes a variety of solutions that would reduce regulatory red tape impacting the development and operations 

of multifamily properties. 

It should be noted that what works in one jurisdiction might not 

work in another. But utilizing outside-the-box thinking and innovative solution-oriented approaches can lead to progress. Some local 

solutions include establishing by right zoning, reducing parking requirements, or providing fast-track permitting approval for affordable housing developments. 

Federal policy solutions range from incentivizing local and State 

governments to partner with the private sector to boost housing 

production at all price points to making commonsense, modest 

changes to the Community Reinvestment Act to remove impediments to obtaining credit for workforce and affordable multi-housing. 

Additionally, Congress could further improve and streamline the 

Section 8 Housing Choice Voucher Program to make it easier for 

property owners to participate and provide increased and adequate 

funding for subsidized housing programs. The National Multifamily 

Housing Council and the National Apartment Association estimate 

that we need to build 4.6 million new apartments by 2030 to meet 

demand. 

Meeting that demand will require both revamping how we build 

apartments and the courage of policymakers at the Federal, State, 

and local levels to implement inventive policy ideas, provide incentives, and reduce impediments. 

On behalf of the apartment industry and our 39 million residents, we stand ready to work with Congress to ensure that every 

American has a safe and decent place to call home at a price that 

enables individuals to afford life’s necessities. Thank you. 

[The prepared statement of Ms. Ansel can be found on page 34 

of the Appendix.] 

Chairman DUFFY. Thank you. Ms. Poethig, you are recognized for 

5 minutes. 

STATEMENT OF ERIKA POETHIG 

Ms. POETHIG. Thank you, Mr. Chairman, Ranking Member 

Cleaver, and Members of the Housing and Insurance Subcommittee 

for the opportunity to be on this expert panel. My name is Erika 

Poethig and I am Vice President and Chief Innovation Officer at 

the Urban Institute, which is based here in D.C. 

We are a non-profit research organization dedicated to the power 

of evidence to improve lives and strengthen communities. The 

views expressed before you today are my own and should not be 

attributed to the Urban Institute, its trustees, or its funders. 

Nearly every county in the United States lacks enough affordable 

rental housing to meet residents’ needs. With expanded rental demand since the Great Recession, this crisis is particularly urgent 

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for extremely low-income households and those living in rural, suburban, and urban counties in the heartland and on the coasts. 

Because of the widespread nature of this problem, increasing the 

supply of affordable rental housing deserves national attention. 

And I am so glad that you are holding this hearing today, because 

I believe this issue deserves that kind of attention. While regulatory reforms can play an important role, they are not sufficient 

to fully address America’s affordability challenge. 

When considering regulatory reforms, I want to make three 

points. First, the multifamily housing supply challenges we face 

are the result of a market failure. It simply costs more to build and 

operate rental housing than many low-income Americans can afford 

to pay in rent. In fact, 11 million households pay more than 50 percent of their income in rent. That is a quarter of all renters. Public 

investment and subsidies are necessary to bridge the cost gap and 

meet the needs of extremely low-income renters, which account for 

70 percent of these households. 

Second, exclusionary zoning and exclusionary practices increase 

the cost of development, drive economic and racial segregation, and 

are grounded in the legacy of racial discrimination. Promoting more 

inclusive housing development will help lower development costs, 

integrate neighborhoods, and begin to repair a long history of racial 

discriminatory practices that still play out today. 

Third, not all regulations are the same. Many housing regulations are grounded in efforts to protect public health and wellbeing, and a growing body of research links housing to health outcomes with ample evidence that healthy housing regulations protect children and older adults. Policy changes to reform regulation 

should retain and expand measures to protect health and wellbeing. 

Between 2010 and 2030, there will be five new renter households 

for every three new homeowners. This increase in demand coupled 

with regulatory limits on housing supply puts pressure on rents. 

These costs the lowest-income Americans like older adults on fixed 

incomes can least afford. While removing barriers to multifamily 

development, such as exclusionary zoning, would increase supply 

and lower development costs, our research shows that these reforms would not be sufficient to close the gap for millions of American families. 

We need to expand rental assistance to all eligible households to 

increase housing stability. Exclusionary zoning and discriminatory 

practices come at a real cost to people. Economic and racial segregation results in unequal distribution of access to opportunity 

and exposure to harm. 

As my colleagues found in studying 20 years of data in Chicago, 

higher levels of economic segregation and black/white segregation 

were associated with lower per capita income for blacks. And additionally, higher levels of black/white segregation was associated 

with lower levels of educational attainment for both blacks and 

whites as well as higher homicide rates. 

This is exactly why the requirement for communities to affirmatively further fair housing is so important. Without a requirement 

to facilitate inclusive communities and housing, homeowners of all 

political stripes oppose change at the expense of low-income renters 

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and people of color. And research shows us that allowing and encouraging builders to create housing that expands choice for all 

households is a win-win scenario. 

We need a more balanced housing policy in this country that 

combines reducing local regulatory barriers to multifamily development, expands Federal rental subsidies to all those that qualify, 

promotes healthy housing, and fully implements the obligations to 

affirmatively further fair housing. I hope this testimony shows that 

rationalizing local zoning and supporting the housing needs of our 

lowest-income neighbors will benefit every community across the 

Nation. 

Thank you for this opportunity to testify before the committee. 

I am happy to answer any questions that you have. 

[The prepared statement of Ms. Poethig can be found on page 

107 of the Appendix.] 

Chairman DUFFY. Thank You. Mr. Schloemer, you are recognized 

for 5 minutes. 

STATEMENT OF JAMES SCHLOEMER 

Mr. SCHLOEMER. Chairman Duffy, Ranking Member Cleaver, and 

Members of the subcommittee, thank you for this opportunity to 

discuss regulatory barriers to affordable housing development. 

These barriers pose significant challenges for developers of apartment housing nationwide. I am Jim Schloemer, Chief Executive Officer of Continental Properties Company. We develop apartment 

communities across 24 States and are recognized as one of the largest apartment developers in the country. 

Continental Properties has a unique business model in the industry. We are a production builder of reasonably priced workforce-attainable apartment homes, delivering over 3,000 new apartments 

each year. In contrast to recent urban core development trends, we 

build only in suburban and second-tier markets, some of the Nation’s most underserved. 

Employing prototypical designs for all locations, we gain efficiencies in construction and operation that allow us to reduce costs, 

resulting in 51 percent of the apartments in our portfolio offered 

at rents affordable to households earning just 80 percent of area 

median income. 

This is a rare price point for new home construction and we believe that a 5 percent reduction in our development costs would 

allow us to offer 62 percent of our apartments at rents affordable 

to households earning 80 percent of AMI (area median income). 

Our apartments are not subsidized, but nearly all of our apartment 

communities are financed with mortgages issued through a GSE 

(government-sponsored enterprise). 

The mortgages issued by the GSEs for multifamily financing 

have proven to be safe and effective in encouraging the creation of 

new multifamily housing. In Continental Properties’ experience, 

the GSE-sponsored mortgages have supported our ability to provide 

new apartments at workforce attainable rents. 

Over the past 5 years, the cost to develop apartment homes has 

increased drastically, dramatically faster than rent increases in all 

24 States in which we do business. This trend cannot be sustained. 

Unnecessary, overly burdensome policies create significant barriers 

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to the development of apartment homes. Their impacts increase the 

cost of development, restrict supply, and ultimately raise monthly 

rents. 

Our industry and our company are constantly seeking ways to 

control development costs. Easing regulatory burden is a critical 

consideration as we explore solutions to close the affordability gap 

in America’s housing. We regularly face hurdles intended to deter 

apartment development at the local level, and even well-intentioned policies promulgated by State and Federal authorities can 

inhibit apartment development. 

My written testimony includes detailed examples of these challenges. Significant barriers exist in zoning rules, permitting systems, gratuitous infrastructure demands, onerous building codes, 

and land use requirements. The entitlement process is often structured against multifamily housing, rarely permitting by right development. 

Municipalities employ arbitrary code interpretation and impose 

open-ended community demands. It is not uncommon for jurisdictions to deny rezoning requests for multifamily development despite documented substantial housing needs in those very communities. In one case, contradictory decisionmaking added 8 months 

to our approval process and increased our total project costs by 

over 3–1/2 percent. 

Municipalities are also increasingly looking to pass along future 

infrastructure costs to developers, while some infrastructure enhancements around a development site may be mutually beneficial, 

jurisdictions often exploit developer resources and, by extension, 

burden renter households. Frequently, arbitrary mandates on 

dwelling size, project density, or site features like enclosed parking 

unnecessarily increase development costs. 

Federal regulation can significantly increase the cost of affordable apartment development. For example, while apartment providers strongly support the goals of Federal accessibility laws, provisions that exceed practical needs for accessibility and impractical 

enforcement policies drive up costs. Compliance is so complex that 

developers often employ consultants to guide conformance. 

Regulations fail to consider conditions that impact sincere compliance intentions such as topography, limitations of construction 

materials, and construction tolerances. By better aligning requirements with consumer needs for accessible homes, development 

costs could be significantly reduced while continuing to protect the 

needs of disabled residents and guests. 

Housing affordability is a critical issue. I applaud your efforts to 

address this problem. Policymakers at every level of government 

have a role to play in removing obstacles to housing production and 

providing a supportive environment for the creation of affordable 

homes. Thank you. 

[The prepared statement of Mr. Schloemer can be found on page 

118 of the Appendix.] 

Chairman DUFFY. Thank you. Mr. Lawson, you are recognized 

for 5 minutes. 

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STATEMENT OF STEVEN LAWSON 

Mr. LAWSON. Thank you, Chairman Duffy, Ranking Member 

Cleaver, and Members of the subcommittee. I appreciate this opportunity to testify today. My name is Steve Lawson. I am Chairman of the Lawson Companies and also a third-generation homebuilder and multifamily developer from Virginia. I also serve as the 

Chairman of NAHB’s Multifamily Council. 

Homebuilding is one of the most regulated industries in America. 

And while there is a very necessary role for sensible regulation, the 

cost of excessive regulation creates a tremendous burden to the 

production of affordable housing. NAHB and NMHC produced a 

joint study to raise awareness of how much regulation currently exists, how much it costs, and also to encourage governments to thoroughly consider the implications for housing affordability when proposing new directives. The study found that, on average, nearly 

one-third of the cost of multifamily development is attributable to 

local, State, and Federal regulations. 

The top regulatory barrier determined by the joint study was the 

compliance with increased building code requirements. These account for 7 percent of total development costs. Agencies such as the 

DOE (Department of Energy), EPA (U.S. Environmental Protection 

Agency), FEMA (Federal Emergency Management Agency), and 

HUD have used the codes’ development process to advance their 

policy goals. In the recent energy code hearings, DOE testified and 

gave public support for code changes that would have removed 

flexibility and increased costs without improving energy efficiency. 

Inclusionary zoning policies are another costly barrier that require developers to subsidize a specific percentage of total units 

within market-rate developments and set income-based rent controls for the subsidized units. IZ, as it is called, has become the 

preferred or only method, it seems, of achieving fair housing goals. 

However, IZ acts like a tax on housing. And when it is used, it 

adds 5.7 percent to the cost of development. In fact, the burden of 

the subsidized unit actually raises the market, the cost of the market rate units, which results in pricing out the middle class. 

Trade issues such as the imposition of a softwood lumber tariff 

on imports of lumber from Canada, a shortage of skilled labor, local 

land use challenges, and NIMBY opposition often kill the development of affordable housing before it even has begun. For example, 

the joint study found that 85 percent of developers experienced 

added costs or delays due to neighborhood opposition. 

Additionally, the homebuilding industry is experiencing a major 

labor shortage. In a recent NAHB survey, 84 percent of builders 

identified the labor shortage as a problem which makes it the industry’s top concern for 2018. What we see on the ground is that 

the skilled labor force is aging and new workers are not entering 

the trades. We need to encourage careers in construction. These are 

good family supporting jobs and NAHB has pledged to educate and 

train over 50,000 new workers over the next 5 years through our 

workforce development arm, the Home Builders Institute. 

The ability of the homebuilding industry to address affordable 

housing needs is dependent on a housing finance system that provides adequate and reliable credit. NAHB urges lawmakers to consider the critical roles that the GSEs, FHA, USDA, and other entinshattuck on FSR297 with DISTILLER

11 

ties play in the housing finance system and take into consideration 

multifamily developments’ access to credit while examining legislation for housing finance reform. 

Last, while regulatory reform will help us lower development 

costs to reach lower income households, it is financially infeasible 

to build new affordable rental units without Federal assistance. 

Regulatory reforms are not a substitute for programs like the lowincome housing tax credit, project-based Section 8, HOME, or 

CDBG. 

I would also be remiss to have this opportunity and go without 

applauding the New Democrat Coalition for releasing a white 

paper earlier this year, which seeks solutions to the chronic problems facing the housing industry. NAHB looks forward to working 

with them as they continue to help grow and support affordable 

housing. 

Thank you again, Mr. Chairman, for the opportunity to testify 

today, we appreciate your efforts to examine regulatory burdens 

and we look forward to working with you to expand the availability 

of affordable housing. 

[The prepared statement of Mr. Lawson can be found on page 73 

of the Appendix.] 

Chairman DUFFY. Thank you, Mr. Lawson, and I thank our 

whole panel for their oral testimony. 

The Chair now recognizes himself for 5 minutes. And, Mr. 

Lawson, I think you bring up a good point in regard to the need 

for more young people to get into the trades. I think the Home 

Builders Institute were at the White House about a month ago on 

that very issue, committing to train more young people to make 

sure that as folks retire, they are being replenished with really 

good paying jobs. I suppose that is a different hearing though, so 

I am not going to get into that, but I want to commend the homebuilders, for that is a problem we are having across the country. 

So, to the panel, we are saying, I think, the study that you cited, 

32 percent of the cost of multifamily projects is from regulation, 

correct? Is this 32 percent or a third of the cost, is that from stupid 

regulation, smart regulation, or a combination of both? I am asking 

this question because if we were in Florida, I want certain regulation in regard to flooding, I want certain regulation in regard to 

hurricanes and wind, right? It is going to obviously increase the 

cost of a home in Florida. 

If you had to break that 32 percent down, what percent of that 

is over-regulation versus appropriate regulation? 

Ms. Ansel, can you answer that question? 

Ms. ANSEL. Sure, I am happy to. Thank you for the question. I 

think it is a combination of both smart regulation and over-burdensome, antiquated, duplicative regulation. 

Chairman DUFFY. You are going— 

Ms. ANSEL. So, it is hard to put a specific percentage to that but 

often it is a combination of local, State, and Federal regulation that 

is often in conflict with each other, is duplicative, and creates additional time and burden. So, over-broad regulation would be what 

I would declare is the biggest problem. 

We need to very carefully look at the unintended consequences 

of the regulation. Smart regulation is important; it is important. 

nshattuck on FSR297 with DISTILLER

12 

We have always been supportive of that but it is time to take a 

look at specific regulation and assess their true unintended consequences. 

Chairman DUFFY. Mr. Schloemer or Mr. Lawson, either one of 

you. 

Mr. SCHLOEMER. I would share Ms. Ansel’s response that it is a 

combination of appropriate and unnecessary regulation. The examples you cited for hurricane protection, for example, in Florida is 

entirely appropriate. But as I cited in one of my examples, if we 

just reduced our cost by 5 percent, we think we could increase the 

amount of housing available to families earning less than the area 

median income by a factor of 20 percent, from 51 percent to 62 percent or an additional 11 percent of all apartments in our portfolio. 

And that isn’t an unreasonable target to be shooting for. Onesixth of that regulatory cost to be reduced, to be reconsidered I 

think is an appropriate target and it certainly represents a number 

that is realistically within the unnecessary or over-burdensome 

regulation. 

Chairman DUFFY. Mr. Lawson? 

Mr. LAWSON. I would agree with previous speakers and also 

point out that I think we need to consider the cumulative effect of 

regulation. I am certainly not, I probably didn’t coin the phrase but 

I have heard people say regulatory creep and that is we add one 

more regulation one year which is a good idea. The next year, it 

is another good idea. The year after, it is another good idea and 

so on and so on. 

And I think what has happened is we have now found our 

place—found ourselves in a place where the cumulative effect is 

detrimental. 

Chairman DUFFY. So, Mr. Lawson, are you in the business of 

doing projects to lose money? 

Mr. LAWSON. No, I am not. 

Chairman DUFFY. Ms. Ansel? Mr. Schloemer? 

Ms. ANSEL. We are not. 

Chairman DUFFY. I didn’t think so. So, obviously, you are going 

to pass these increased costs onto your renters right? 

Ms. ANSEL. We are required to. 

Chairman DUFFY. Right. And so, when we have increased unnecessary costs of projects due to regulation, in the end the people that 

we are trying to help, those who need affordable housing, are the 

ones that are hurt the most. Is that not fair? 

And Mrs. Poethig, I appreciate your testimony and you hit a 

wide range of things. Mr. Cleaver, as you were testifying, we were 

talking about your testimony and I think he is going to hit on some 

of the issues as well. But you would agree with this that we want 

to strike the right balance in regard to regulation, right? 

Ms. POETHIG. Yes. And I think it would be important to study 

the cost and benefits of different regulations because I do think 

they provide some societal benefits, some health benefits, some 

other kinds of benefits to well-being, and we want to take those 

into account, because I think the tradeoffs you are raising are really important in terms of both affordability. But also let us think 

about some of the other benefits that regulations might be providing as we think about ways to rationalize them. 

nshattuck on FSR297 with DISTILLER

13 

Chairman DUFFY. And I think that is important for us to look 

at, and every regulation probably has a do-gooder and pure heart 

behind it, but if we have so many regulations that do so many 

great things but they cause the cost to rise so much that people 

can’t afford to get into the residence, that also is a problem. I think 

we have to look at what is a good policy but what is affordable policy as well. 

Sometimes we don’t all need to have BMWs. Sometimes we just 

may want a Yugo. I don’t think they make Yugo’s anymore but, 

sometimes you just need a simple car to get you to work or a motorbike, and especially if you can’t afford a high-end car. 

My time has expired but one question you guys can respond to 

in writing is obviously, we are very cognizant of the lanes of the 

Federal Government, the lane of the State government, and the 

lane of municipalities, and where a lot of us don’t like to cross that 

lane. But if you have advice to us on what we can do at the Federal 

level through the whole spectrum, from us on down, how we can 

streamline this approach, I would welcome your insight on that, on 

how we can lead the way to have an impact up and down the food 

chain if you will. 

With that, my time has long expired, I now recognize Ranking 

Member from Missouri, Mr. Cleaver for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I am going to be beating up on myself on this a little. I may be 

the only former mayor here. But as we are talking about the regulations, the truth of the matter is most of the regulations actually 

have nothing to do with the Federal Government. Most of the regulations are municipally handled and, to some degree a few, the 

State government, but most of them are municipal. 

I was in San Francisco over the weekend, a city that is I think 

7–1/2 half square miles, and they have less than 10,000 people 

moving in in 10 years because they can’t afford to move in there. 

So, the price of housing has just gone, and my analysis of that is 

that the city made some horrible zoning decisions that made it possible for or reduced the chances of people with low incomes to move 

in. 

So, I connect that in many ways with the need for fair housing, 

and I think that the Brookings Institute study is rather clear. If 

you have poor fair housing decisions, you are going to end up with 

also the municipalities making decisions that would also eliminate—if they also eliminate really serious fair housing issues, you 

are going to wipe out any opportunities for people to come in and 

build new housing and buy new housing, and that is just the way 

it is. 

Am I putting too much on the fair housing issue and should we 

be, as a Federal Government, in any way sending signals back to 

municipalities and State governments about what they need to do? 

We have some issues. I think we need to have low-income tax credits. I think we need more money in CDBG because it offers municipalities opportunities to use flexible dollars from the Federal Government, we need 202 loans for senior housing, all of this. 

But can you focus a little on the fair housing issues and a little 

if you would on what the Federal Government could do to impact 

local government, and are we trespassing? Yes? 

nshattuck on FSR297 with DISTILLER

14 

Ms. POETHIG. Thank you, Ranking Member Cleaver. I see these 

two issues as absolutely connected and my written testimony goes 

into greater detail. Because of the history of racist and discriminatory policies at the local level that are tied to the zoning practices 

and to redlining, the limits that we see on multifamily development 

are entwined with fair housing issues. 

So, the Affirmatively Furthering Fair Housing rule was absolutely intentioned to enable local communities to really evaluate 

and assess those policies, to look for ways in which they could improve the environment for multifamily rental housing, but also to 

increase access to opportunity for all residents in the city. And I 

think we have to understand the history that led us to where we 

are today and the connection between fair housing and the limitations on multifamily development to see the benefits of the Affirmatively Furthering Fair Housing rule to stimulate more rental 

housing. 

Mr. CLEAVER. San Francisco is the second largest or the largest 

city in California, which one it is I am not sure, but the weird thing 

about it is that it is a city that is only 6 percent African-American 

and dropping, by the way. And every decision made by the City 

Council, unless it is with a great intentionality to create opportunities using fair housing as the motivation, we are going to see one 

of our largest cities in the country with virtually no minorities or 

at least no African-Americans. 

I think there is a large population of Asians. And I am hoping 

that from this discussion, and if we had time I would really like 

to know are we trespassing or should this hearing be done in city 

halls around the country instead of here in Washington? 

Ms. ANSEL. Ranking Member Cleaver if I might add, National 

Multifamily Housing Council and NAA have always been strong 

supporters of fair housing, we believe in it completely. The issue 

we have is there is not enough supply in our communities, in our 

apartment homes. And so, we need to find ways to reduce the costs. 

The additional and over-burdensome regulation reduces the 

amount of new multifamily homes that are built. 

Mr. CLEAVER. In cities, these are in cities. 

Ms. ANSEL. In cities. Well, throughout—in cities and in rural 

areas as well. And so, I think there is a piece that the State, the 

local, and the Federal Government can play in this. I don’t believe 

that we are overstepping our bounds. I think the Federal Government can look for ways to incentivize local and State governments 

to partner with private organizations to create the opportunities to 

build more apartment homes. 

The additional supply will solve many of the problems that we 

have discussed here today and there are a number of steps that we 

can take to do that. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the Vice Chairman of the subcommittee the gentleman from Florida, Mr. Ross, for 5 minutes. 

Mr. ROSS. Thank you, Chairman. I thank the panel for being 

here. We are here today not to talk so much about regulation in 

and of itself of the housing industry especially the multifamily industry, but also the overburden caused by certain regulations. And 

I think that the title is correct, it is the cost of regulation on affordnshattuck on FSR297 with DISTILLER

15 

able housing, the cost should have a return and that return should 

be quantified objectively by assessing the health, safety, and welfare of those that we are trying to protect. 

For example, in Florida in 1992, we had Hurricane Andrew, we 

realized our housing stock was flimsy as could be. We imposed the 

Nation’s strongest building code, but as a result we have had a 

great return, lower insurance premiums, but most importantly we 

have kept people from being displaced from having to lose their 

home including in a multifamily housing. 

Look at Louisiana, for example, that lost a congressional seat as 

a result of Hurricane Katrina because so many people were displaced. 

But what I want to talk about here is I think it is important that 

we consider regulations that increase the cost of capital used for 

multifamily housing development. In what ways do regulations 

that increase the cost of financing for these projects, costs that are 

no doubt passed along in some form to the end-users, complicate 

efforts for affordable housing? 

For instance, Mr. Schloemer, would you agree that various regulatory rules relating to financing such as the classification of High 

Volatility Commercial Real Estate or HVCRE loans impose hidden 

fees on the potential housing process and lead to the impediment 

of better housing projects? 

Mr. SCHLOEMER. I think the short answer to that question is yes, 

I would agree. With the introduction of that particular policy, one 

of the things that we saw was a reduction in availability of bankoriginated construction funds. 

Mr. ROSS. Yes. Increased capital requirements with a loan-tovalue of greater than 80 percent and you are impeding the ability 

to meet a demand that the market has stressed on your industry. 

Mr. SCHLOEMER. The cost of the equity component of the financial stack, the capital stack is much higher than the debt portion. 

And so, therefore, by increasing the amount of equity capital that 

was put in, it increased the overall capital cost. 

Mr. ROSS. And then to piggyback on the Ranking Member Mr. 

Cleaver, I think the Federal Government may be, in its own subtle 

way, increasing its regulatory influence on the multifamily housing 

just through the finance regulatory scheme. Would you agree? 

Mr. SCHLOEMER. Yes, I would. 

Mr. ROSS. Mr. Lawson, although local governments generally 

have the authority for building codes, your testimony states that 

Federal and State governments are becoming increasingly involved 

in the process. Do you have some examples of the Federal Government becoming more involved in the local building code process? 

Mr. LAWSON. This is something that our staff has worked on in 

great detail. So, I can’t say I am the most knowledgeable, but I do 

know that the energy codes department has had or the DOE 

through the energy codes process has taken a— 

Mr. ROSS. It imposed a higher burden. 

Mr. LAWSON. Higher burden but taken a very prescriptive approach instead of a more performance-based approach, meaning advocating for certain ways to achieve energy gains, energy efficiency 

gains when what we advocate as the industry is give us a performance measure— 

nshattuck on FSR297 with DISTILLER

16 

Mr. ROSS. And let us meet that. 

Mr. LAWSON. To achieve and let us figure out the best way to do 

that instead of picking winners and losers within the building supply category. 

Mr. ROSS. I appreciate that. Let me follow up on something in 

your earlier testimony, too, that I really want to hit on. And you 

talked about labor shortage. And I have been very concerned about 

this because I have talked with my road builders, I have talked 

with construction, I have talked with many of the service industries out there, and the lack of skilled labor is adversely impacting 

our ability to sustain the GDP growth we are now experiencing. 

You have talked about increasing careers in the construction 

arena and skilled labor. Let me ask you this specifically. That is 

a long-term program. And I think it is a very valid program that 

I support strongly in vocational training in skilled areas, but what 

about the use through an H-2B program, increasing the H-2B program so that we can meet our immediate labor shortage with foreign nationals coming here for temporary purposes? Is that something that you think would be supportive for your industry? 

Mr. LAWSON. Absolutely. 

Mr. ROSS. I appreciate that. 

Ms. Ansel, in your testimony you note that the issue of rent control can be counterproductive and can serve as a disincentive to investing and developing the diversity of housing units that a community requires. 

Are there policy alternatives that you would suggest to rent control or ideas that local governments can consider instead of rent 

control? And I have got 2 seconds. 

Ms. ANSEL. I think there are a number of policy options that are 

available. We talked a little bit about different ways. Again, I go 

back to the issue, why rent control is a problem is because it is 

against economic forces of supply and demand. And it will serve to 

reduce the amount of supply of new apartment homes. 

The thing that we need to do is to find ways to increase the ability for apartment developers to create more supply, that will have 

the biggest impact on our ability to reduce rents and create more 

affordable and workforce housing. 

Mr. ROSS. Thank you. I yield back. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes the Ranking Member of the full committee, the 

gentlelady from California, Ms. Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, and I appreciate the opportunity to share some of my thoughts. Having listened to some of 

the presentations that have been made and particularly reading 

Mr. Schloemer’s testimony, I am absolutely moved to first say that 

most of the Members of this committee are committed to the proposition that we have to have more multifamily housing. I believe 

that this could be and should be a bipartisan issue because I think 

all of our communities all over this country are impacted by a combination of things that all of you are identifying. 

And I am wondering if we could ask you to join with us in helping to eliminate some of these barriers, because I think that you 

have the knowledge. You have the background. And you understand how all of this works. 

nshattuck on FSR297 with DISTILLER

17 

And while I have not had an opportunity to talk with my Ranking Member of this subcommittee or any other Members about this, 

just looking at these presentations, let me just say this. We are focused particularly on this side of the aisle for support for infrastructure development and the funding by the Federal Government 

to improve the infrastructure of this country. 

And while a lot of people think about that in terms of issues like 

repairing bridges, developing new water systems, as I look at the 

testimony, I think there are a lot of things that can be done with 

infrastructure development and repair that would ease some of the 

burdens for the development of multifamily housing. 

In looking at some of this testimony where you are required to 

pay for fire hydrants and even though it wasn’t said here, I talked 

with a developer that had to move a big pole that had to do with 

the electricity distribution and all. 

I think that should be part of what we pay for with infrastructure. Infrastructure helps to reduce the costs and makes it easier 

for our developers if they did not have to be involved with other 

areas other than getting that housing developed. 

And so I would like you to think about that and think about, as 

we move toward support for infrastructure development in the Federal Government, what can you identify that could be included in 

infrastructure development that would reduce the cost of multifamily development in ways that make good sense? 

The other thing I would like you to think about is this, a lot of 

this has to do with the locals. And whether we are talking about 

zoning laws or other kinds of laws that basically discriminate or 

whether we are talking about systems that don’t work, when someone can have something sitting on their desk for a month and not 

move it, and permitting, et cetera. 

I would like us to think about incentives, real incentives for 

locals to get rid of these impediments to development. You know 

what many of them are. And you have experienced many of them. 

Now, I have heard a lot of talk about one-stop shops that could expedite permitting and all of that. But I don’t know if they really 

work as well as they should. 

I think some of the ideas are good, that they want to have onestop shops but in some of my cities, they have one-stop shops but 

they don’t do any better than when they were not one-stop shops. 

And so, what can be included in this permitting and other kinds 

of things that you have to go through that would help to expedite 

the process? 

I believe that we can come together around these issues. And I 

believe that all of us must be committed to the proposition that we 

can develop low-income housing. I, at the Federal level, support, of 

course, Section 8 and subsidies and the Housing Trust Fund and 

all of that because we need money. We can’t do it without the dollars. 

And if we can get together and support the dollars that are needed then I think these other kinds of ideas may go a long way to 

reduce that cost. 

I think Mr. Schloemer, you said you—under certain conditions 

you could reduce by 5 percent development of multifamily housing. 

Let us see, we believe that a 5 percent reduction in our developnshattuck on FSR297 with DISTILLER

18 

ment costs would allow us to offer 62 percent of our apartments at 

rents affordable to households and but 80 percent of AMI income 

level, which I think is significant, significant. And if in fact we 

could concentrate on multiple ways by which to reduce by 5 percent 

or more or some percentage, we could get some of this done. 

So, I would like you not to think purely about the development 

of low-income multifamily housing and not think about these other 

kinds of issues such as get right in the middle of support for infrastructure development with the Federal Government and identify 

specifically, I think you can do that, ways by which you have had 

to pay for costs that you never anticipated or costs that you should 

not have to bear because they want you to do something that perhaps the city could have done or the Federal Government could 

have helped with. 

With that, I yield back the balance of my time. Thank you, Mr. 

Chairman. 

Chairman DUFFY. There is no time left, Ranking Member. 

The Chair now recognizes the gentleman from Missouri, the 

Chairman of the Subcommittee on Financial Institutions, Mr. 

Luetkemeyer for 5 minutes. 

Mr. LUETKEMEYER. Thank you Mr. Chairman and just to follow 

up on the remarks of the Ranking Member. Infrastructure is necessary for any sort of development that you do, so how you structure that infrastructure it pays for is really important. And I agree 

with her to a certain extent, however, I know in my area a lot of 

development is done with tax increment financing, so that the cost 

is not borne by the individuals who do business with the commercial site or the people who rent apartments or homes already from 

whatever that area. 

So they use a tax that whatever commercial development is in 

the area, the increased tax activity pays for the bonds to be able 

to build new roads, new water lines, sewer lines, or whatever, so 

that it is not borne by the people who have to do business with or 

rent apartments from. 

So, to me that is the way that this can be done. I don’t know if 

every State does this in the country, but Mr. Lawson and Mr. 

Schloemer, are you familiar with that? You guys are in the business. 

Mr. SCHLOEMER. I am familiar with that. It has different acronyms in different parts of the country. For the most part, in suburban and second-tier markets it is not used for housing development. 

It is often used for commercial development as you characterize 

it, that shopping centers, office buildings, industrial facilities, and 

not geared toward housing development. So we have not utilized it. 

And it has not been an available avenue for us in any of our housing development. 

Mr. LUETKEMEYER. Mr. Lawson? 

Mr. LAWSON. I would echo those comments. I would also say that 

to get a tax increment financing district established is a very political process and one that takes a long time and a lot of money. 

Mr. LUETKEMEYER. I don’t disagree with you there. A couple 

years ago I went to New Orleans and saw how they rebuilt their 

housing structure down there. And they have a lot of housing now 

nshattuck on FSR297 with DISTILLER

19 

that is the second and third stories, the buildings that they have 

the ground floor for commercial use. 

So I think that is an opportunity if you have mixed use of your 

structures that you could utilize this tax increment financing situation for the building and constructing in these certain areas but 

just as a thought. 

I know the Chairman made a great point a while ago when he 

said good policy is not necessarily affordable policy. And I think 

that is what we are talking about today. Nobody denies that some 

of the rules and regulations are not well-intentioned. It is, can we 

afford this? And does it put more burden on people, businesses, 

whoever, than we can afford to be able to do? 

And one of the things—I Chair the Financial Institutions Subcommittee. And we had a roundtable yesterday with regards to a 

new rule that is being promulgated. It is not yet implemented, although it is going to be done pretty shortly. This deals with how 

banks structure their loan loss reserve for anticipated losses. It is 

called CECL (current expected credit loss). And what it does is it 

causes them to look forward rather than backward as to whether 

they make a house loan on a rural area, a multifamily housing 

loan, whether they are going to have any loss on that, and then 

they have to reserve for that, which you have to reserve an account 

before. 

Now, in discussion yesterday while the tax accountant guys with 

their thick rimmed glasses and Coke bottle jobs really thought this 

was a great idea, all the rest of the folks around the table who deal 

with this in the real world said, Look, this is going to really increase costs. We may actually reduce the ability of us to provide 

services on certain products. If you have seen at the banks, already 

they have gotten rid of a lot of small-dollar lending. Some banks 

no longer do home mortgages at all. So, we have another rule that 

is while it is well-intended here and this is by a separate entity, 

this is not even the government. This is separate entity out here, 

the FASB folks who are looking at this. 

And it is actually going to impact on, we have a discussion going 

about to CRA, which is Community Reinvestment Act, whether the 

banks can comply with some of the requirements of that, if you go 

to CECL, are you going to restrict the ability to loan to certain 

folks because they increased costs. Have you all talked about this 

or are you aware of CECL at all? Ever heard of it? 

Mr. SCHLOEMER. I have not in my role in development, but as a 

bank director— 

Mr. LUETKEMEYER. OK. Are you concerned about it at all as your 

role as a bank director, knowing what it could do to the folks that 

you do business with? 

Mr. SCHLOEMER. Absolutely. The particular bank that I serve on 

the board of is a very financially sound bank but it is the CECL 

requirements and the proposals have had concern over our ability 

to make as many loans and to the extent that the bank would like 

to make loans, further restriction. 

Mr. LUETKEMEYER. So that raises costs, again, that is a cost that 

has to be borne by the developer because you are going to the 

banks, it is going to raise the costs to do the loan to the developer, 

is it not? 

nshattuck on FSR297 with DISTILLER

20 

Mr. SCHLOEMER. Unfortunately, it is not even just borne by the 

developer. It ultimately is borne by the renter household in the 

case of multifamily. 

Mr. LUETKEMEYER. OK. Yes. Are the purchasers of the home, if 

you are doing a homebuilding loan, this is very concerning to me 

and we had a long discussion on it and hopefully we will get some 

consensus. 

Mr. Chairman, my time is over. I thank you very much and I 

yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Miss Poethig, while I agree that streamlining regulations can be 

important, the other side of the aisle often fails to look at the whole 

equation when it comes to affordable housing. Do you agree that 

the drastic cuts that have been made to programs like HOME, 

CDBG, Section 202 Program, Project-Based Section 8, many of 

which successfully combined Federal funding with private sector 

dollars have exacerbated the lack of affordable housing in this 

country? 

Ms. POETHIG. Yes, I do, Congresswoman. 

Ms. VELAZQUEZ. And Mr. Lawson and Miss—I am sorry I just 

can’t see from here, Miss Ansel? 

Ms. ANSEL. Ansel. 

Ms. VELAZQUEZ. I just would like to specifically bring the issue 

of the CDBG and HOME cuts. How have those cuts inhibited your 

ability to produce and preserve additional units of affordable housing? 

Ms. ANSEL. So NMHC and the National Apartment Association 

have been strong supporters for a number of years of not only reducing regulation, but increasing the funding for these programs, 

CDBG, the HOME, Section 8. There are a number of programs that 

can really help increase affordable housing and help those residents of the United States who need the most help. 

So, we would agree completely that it needs to be a two-pronged 

approach to solve this problem. 

Ms. VELAZQUEZ. So it is not enough to try to say here that regulations are the main factor for the lack of production of affordable 

housing in our in our country. 

Ms. ANSEL. We think regulations are important but we think 

there are more steps that can be done to increase affordable and 

workforce housing. 

Ms. VELAZQUEZ. So Miss Poethig, the Federal Financing Bank 

Risk Sharing program has proven to be a successful partnership 

between HUD, the Treasury Department, State, and local housing 

finance agencies. 

And since its formation in 2014, the program has created more 

than 3,000 affordable homes in New York City alone and more 

than 20,000 homes around the country. Yet, the Trump Administration is considering letting this program expire. 

Do you know of any argument that can be presented to us that 

will support the elimination of this program at this time? 

nshattuck on FSR297 with DISTILLER

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Ms. POETHIG. Given the drastic gaps we have in affordable housing, I can think of no argument for canceling that program. 

Mr. LAWSON. And I can say that we have used that program. 

Ms. VELAZQUEZ. Yes. 

Mr. LAWSON. And it has been extraordinarily helpful. Its implementation has been slowed by the uncertainty of future funding. 

Ms. VELAZQUEZ. Yes, right, and that coming from an Administration that is headed by a businessman, so in business, we need certainty, because without that people will not make decisions whether or not to go ahead with a project in our districts. 

So, I sent a letter to the Secretary of HUD, asking them not to 

let this program expire. And I hope that since we are so much interested, in this committee and subcommittee, about the affordability of housing in our Nation, that we invite our Chairman and 

the Members of the Subcommittee on Housing to send a letter to 

the Administration to not let this program expire. 

With that I yield back, Mr. Chairman. 

Chairman DUFFY. The gentlelady yields back. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Schloemer, the Ranking Member talked about some of the 

data that you had in your testimony. I want to go back to it. You 

talked about a 5 percent reduction in your development costs would 

allow you to offer 62 percent of your apartments that are at rents 

affordable to households that earn 80 percent or less of AMI. This 

would be a significant increase from your current 51 percent rate. 

And Miss Velazquez raised the issue of regulations, I want to get 

a feel for the scope of regulations and the extent to which they are 

a factor. What would be the main regulatory cost drivers that are 

impacting your developments? 

Mr. SCHLOEMER. Well, as my written testimony indicated, it occurs at both the Federal and the local levels. And so, I think you 

have to break those down. I think on the Federal level, again, as 

has been stated by everyone here, I think there is unanimity in our 

industry for support of fair housing and accessibility regulations 

and laws, however the implementation may not meet the objectives 

that Congress has set forth. 

And one of my favorite examples, I came down a ramp here into 

this auditorium today that I expect meets the ADA accessibility of 

an 8 percent slope on that ramp, and yet when we build apartment 

communities as opposed to a single-family subdivision that isn’t 

subject to that ruling, we have to maintain a 2 percent slope 

throughout the development. 

I can cite specific examples where the cost for maintaining that 

2 percent slope has probably added 2 percent to 2.5 percent to our 

overall development costs on a project, so just an application of 

maintaining accessibility standards according to the ADA as opposed to the Fair Housing would be one specific example. 

At the local level there has been a lot of discussion by the committee as well as by the people testifying about the importance of 

consistency and reliability of regulations or programs. We find 

often at the municipal level that even after permits have been 

issued, new requirements are imposed upon us. And those are exnshattuck on FSR297 with DISTILLER

22 

amples where we can’t anticipate and it slows, retards, or even 

eliminates development because of the uncertainty of implementation of rules even after a permit has been issued. 

Mr. ROTHFUS. I am wondering if you or anybody on the panel 

might be able to cite some examples of local or State governments 

that have successfully facilitated more affordable housing construction through some type of regulatory reform. Anybody aware of any 

examples that we can point to? 

Mr. SCHLOEMER. There was an earlier mention of the development that occurred in New Orleans after the hurricane and I think 

what was important about that circumstance was the exodus of 

residents, the destruction of housing, and the clear shared recognition that new housing needed to be created, whereas at the local 

level there is often not that recognition of the need for housing as 

people have used the NIMBY-ism term. They would rather see the 

jobs created in their communities and the housing created in another community. 

Mr. ROTHFUS. Ms. Ansel, in your testimony you discussed possible modifications to the CRA to facilitate more lending to affordable multifamily developments. As you noted, the CRA currently 

allows banks to obtain credit for multifamily units serving occupants with incomes of up to 80 percent of area median income, but 

you also noted that income information is not typically captured. 

How would you propose that the CRA be modified to address this 

issue and encourage more lending to affordable housing developers? 

Ms. ANSEL. If you don’t mind, I am going to answer your last 

question first. 

Mr. ROTHFUS. OK. 

Ms. ANSEL. So, I think it is important to note that many municipalities around the Nation are attempting different solutions. And 

while we applaud those different solutions, it is hard today to point 

to one that has been really successful, but we would be more than 

happy to get back to you in written testimony as to the things that 

have been successful. 

With respect to CRA, I would like to do the same thing. I would 

like to provide a written response to you. It is a detailed answer 

and I would like to give you that full answer if I might. 

Mr. ROTHFUS. Appreciate that. Thank you and I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. Ms. Ansel, the National Multifamily Housing 

Council and the homebuilders have put out the study saying 32 

percent of the costs of building multifamily housing is attributable 

to costs of complying with the local, State, and Federal regulation. 

How much of that is Federal regulation? 

Ms. ANSEL. Well, we have identified in the study, sir, two Federal pieces that create the most burden are OSHA regulations that 

account for up to 2.6 percent of total project costs and building code 

compliance was 7 percent. 

Mr. SHERMAN. I don’t think anybody is calling for just eliminating OSHA. 

Ms. ANSEL. No, sir, absolutely not. Yes. 

Mr. SHERMAN. OK. Go ahead. Yes. 

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23 

Ms. ANSEL. As we stated earlier, we strongly believe that— 

Mr. SHERMAN. Go ahead. What is the second? 

Ms. ANSEL. The second piece is the change in building codes, 

over the last 10 years changes in building codes that have been directed in conjunction with the Federal Government have increased 

costs by 7 percent— 

Mr. SHERMAN. You are saying these are requirements imposed by 

the Federal Government for subsidized flood insurance or financing? I am not aware of a Federal building code that applies to everybody. 

Ms. ANSEL. No, examples of those, sir, would be, as you know, 

there are a flood of regulations that impact apartments. 

Mr. SHERMAN. Right, right. 

Ms. ANSEL. So there are diverse Federal agencies, including the 

Department of Housing and Urban Development, Environmental 

Protection Agency. 

Mr. SHERMAN. If the Federal Government is going to insure, 

guarantee its insurance, pay for it, we would have requirements. 

Ms. Poethig, I know a couple dozen ways where the Federal Government can spend money and make sure people have housing. Do 

you know of any way in which the Federal Government cannot 

spend money but still get housing for people, and which would you 

suggest? 

Ms. POETHIG. I can’t think of any. 

Mr. SHERMAN. OK. I know, I think it was Mr. Lawson, might 

have been Mr. Schloemer suggested changing ADA to provide a 2 

percent slope instead of an 8 percent slope. 

Mr. SCHLOEMER. Actually no, if I could just correct that. 

Mr. SHERMAN. Yes. 

Mr. SCHLOEMER. ADA requires an 8 percent slope and FHA, the 

Fair Housing imposes a policy of a 2 percent accessible slope 

throughout a development and that may have not even been in 

code but originated in policy regarding— 

Mr. SHERMAN. So you are saying this is a case where the ADA 

allows for an 8 percent slope but another Federal law requires you 

to just have the 2 percent slope and the 2 percent slope, I assume 

is more expensive for you. 

Mr. SCHLOEMER. That is correct. 

Mr. SHERMAN. OK. So we have at least identified one thing the 

Federal Government ought to take a look at. 

Ms. Poethig, we want to encourage more landlords to participate 

in Section 8. Are there regulations or HUD rules that burden landlords and make them unwilling to participate? 

Ms. POETHIG. I think you have asked a really important question, and the Urban Institute most recently released a report on 

the ways in which landlords are in fact discriminating against Section 8 voucher holders. 

There are certain jurisdictions that have source of income protection for voucher holders, and what we found in our research is that 

in fact, those local laws and regulations are enabling voucher holders to access more units, so those— 

Mr. SHERMAN. Wait, wait. I think my question was more are 

there rules that burden landlords and make them unwilling to participate? And you have identified a situation where landlords may 

nshattuck on FSR297 with DISTILLER

24 

be unwilling to participate. And we could have some regulations 

that force them to participate, which is an interesting answer but 

not to my particular question. 

Ms. POETHIG. Certainly. 

Ms. ANSEL. If I might— 

Mr. SHERMAN. Ms. Ansel. 

Ms. ANSEL. If I might answer that. The cost of the regulations 

that are required by the Section 8 Voucher Program create significant additional operational costs for example. 

There is paperwork that is cumbersome just to get the 

verification for voucher amounts, that is not—and it is dependent 

on the different localities but that varies by market, so that takes 

time and additional effort to understand what the verification 

amount is. 

Members who participate in the Section 8 Voucher Program are 

required to use HAP the contracts which, in many cases, is different than what the other lease agreements that a property operation company would use. 

The inspection process for that Section 8 housing can be slow, 

which requires the owners to maintain vacancy which is lost income. There are additional communications required with multiple 

third parties— 

Mr. SHERMAN. And then that being said, Ms. Poethig, it brings 

up a good example. I think you were saying that in effect, some cities require you to view Section 8 as a source of income to pay for 

the housing instead of excluding that and then excluding the resident as not being, quote, qualified, because they don’t have enough 

income. 

Ms. POETHIG. That is correct and it is intended to address discrimination that the Urban Institute has, in fact, documented happens against voucher holders. 

Mr. SHERMAN. OK, thank you. I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren, for 5 minutes. 

Mr. HULTGREN. Thank you, Chairman Duffy. 

Thank you all for being here. I am grateful for your work and 

your testimony today. 

The first question I want to address to Ms. Ansel, if I may. There 

has been a lot of discussion around the shift from home ownership 

to rental, both those in their 20’s entering the house market and 

Baby Boomers looking to downsize and shed the responsibility of 

homeownership. 

I wondered if you could talk a little bit about, do you believe that 

this growing preference to rent instead of own will continue, and 

if so, what reforms do you view as the most pressing for policymakers to consider when looking at ways to address this shortage 

of affordable multifamily housing? 

Ms. ANSEL. Yes, sir, the demographics, a study by the National 

Apartment Association, the National Multifamily Housing Council 

shows that there is going to be increasing demand for rental property homes because of the shift in demographics. 

There are, as pointed out earlier in the testimony, young adults 

who are coming out of school and are burdened with school debt. 

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25 

Young adults are getting married later in life and having children 

later in life, both of those issues are increasing demand for multifamily on the front end, and a number of older demographics, older 

than 45 are moving back into apartment residency. 

Primarily this is because of lifestyle choices. A number of folks 

are recognizing that having a mortgage-free life is something that 

they would prefer. They are able to move for a job if the job moves 

to a different city. A lot of this has happened since 2008, so we believe that there will be continued demand for apartment housing. 

And I think that we have talked about a number of different 

things that we can do at the Federal level to reduce regulations, 

but other things that I would suggest we consider is that we should 

retain and expand pro-development tax policies, think we should 

support housing finance reform that preserves multifamily mortgage liquidity provided by the government-sponsored entities. 

We should increase funding and support for housing subsidy programs as we have talked about, and we should support funding for 

the FHA multifamily programs. We think all of those will help increase the number of apartment homes. 

Mr. HULTGREN. All right, thank you. 

Mr. Lawson, if I could follow up and I think you have touched 

on a little bit of this, but I know the National Association of Homebuilders Survey referenced in your testimony estimated that regulations account for as much as 30 percent of development and construction costs. And in some cases can exceed 40 percent. 

How do we as a Congress make strides in reducing regulatory 

costs while allowing for independence and flexibility at the local 

level to be able to tailor regulation to the needs of the community? 

Mr. LAWSON. That is an excellent question. And we certainly 

don’t have all the answers. Land use is a local decision. However, 

I do think what we need to do is look at each regulatory regime 

and take an honest look at what the costs of that regime are. We 

need to strike that balance. 

As all the panelists said, there is most certainly a place for regulation. But we need to judge those, the impact those regulations 

have on an economic basis very fairly. 

I think energy efficient initiatives are a great, great example. We 

could demand that every home install a certain type of energy efficiency appliance. If the payback is greater than 10 years, I would 

suggest that that be a tipping point. If the payback is 30 years, 40 

years and I have even heard some people in the industry talk about 

a 100-year payback, that is not something that strikes a balance 

in my humble opinion. 

Mr. HULTGREN. In my last minute here, Mr. Schloemer, if I could 

address to you, in your testimony you discuss how your business 

focuses on suburban and secondary tier markets. These are not always the first to come to mind when you think of underserved markets. 

According to the map included in your testimony, your company 

owns six of these properties in Illinois. We talked about that a little bit, with three in my district. When you discuss barriers to multifamily development you had actually used two instances in Illinois where infrastructure requirements increased the cost of two 

projects, one totaling more than $60,000. 

nshattuck on FSR297 with DISTILLER

26 

I understand that you may not be able to identify specific regulations at your Illinois properties off of the top of your head. But I 

wondered and would be curious to learn more about these Illinois 

examples. And if any other State-specific burdens that your company sees as inhibiting further development in the State? 

Mr. SCHLOEMER. Thank you. As my written testimony indicated, 

there are certain infrastructure improvements that are mutually 

beneficial, whereas others are done to satisfy infrastructure demands that a community has identified and they recognize that 

they can use that, an approval of a project as a lever. 

One of the properties either in your district or adjacent to your 

district required us to put in a new public street that was not necessary to service the property, but in fact, alleviated existing traffic 

burdens that were in the market. 

It is entirely possible with the discussion that was made earlier 

about Federal infrastructure programs that I know are a topic 

here, that the incentive may be tied to those infrastructure support 

dollars that come from the Federal Government entirely related to 

the availability and the speed, as well as the availability of approvals for multifamily improvements or developments within any particular community that utilizes those infrastructure dollars. 

Mr. HULTGREN. Great. My time has expired. I yield back. 

Thanks, Chairman. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Michigan, the 

holder of the new position of Vice-Ranking Member, Mr. Kildee for 

5 minutes. 

Mr. KILDEE. Thank you very much and I appreciate the recognition of the title of assistant to the regional manager. 

Well, first of all I apologize for not having been present for your 

initial testimony. So some of what I may ask may already have 

been covered, and I know it’s covered in part in some of the written 

testimony. 

But if I could start with Ms. Poethig who, we worked together 

in the past, and you are familiar with some of my past work on 

housing development. I wonder if you might comment and maybe 

the others would have some thoughts on this as well. 

On the particular challenges in weak and very weak housing 

markets, one of the advantages of stronger markets when it comes 

to development of affordable units in housing, is the ability to leverage higher market rate rents to help subsidize or support the 

development of affordable units. In really weak markets it is really 

tough to do that. 

And I wonder, that is just one example, I wonder if you might 

comment on a particular Federal involvement in supporting very 

weak markets in trying to address this challenge, where often 

there actually is an oversupply of very low quality housing and the 

question is really quality and affordability. I wonder if you might 

just comment generally on that subject. 

Ms. POETHIG. Certainly and thank you for the question. I think 

you raised a really important issue, which is perhaps, in some markets that are weaker, there may be existing supply of affordable 

rental housing. And the goal is to preserve and improve that housing so that it meets quality standards, but it’s also about prenshattuck on FSR297 with DISTILLER

27 

serving existing subsidy, which is why preserving Section 8 properties in some of those markets is important, because of the point 

I made earlier and that we make in our written testimony is that 

for every place around the country, whether you are a weak or a 

hot market, extremely low-income households face affordability 

gaps. 

And so, that is the reason why I stress in my testimony the importance of expanding rental assistance to all eligible households, 

and I think that would address both weak market and hot market 

affordability challenges. 

And those can be coupled with other affordable existing rental 

housing or they can be a stimulus also to the creation of new housing, because they provide a reliable supply of income over a period 

of time. And I think that expansion of rental assistance could be 

a really good solution in weak marketplaces as well. 

We go into greater detail on this about a new tool that we created called Penciling Out, that I invite the committee to look at 

that allows you to really understand the role that these different 

regulations play, but the role that subsidy plays in closing that 

gap. 

Mr. KILDEE. Thank you. If I could just zero in on another particular point because I am running out of time, as Erika, a lot of 

my background previous to being here was in the development of 

public land-bank authorities. 

One of the advantage that land-bank partners bring to affordable 

housing development is that because it is a public entity it has to 

measure all the externalities associated with development, and because public entities end up paying the high cost, the very high 

price associated with a lack of affordable housing, the concentration 

of poverty, all the associated social and economic impacts that local 

communities face, it makes sense, it made sense to me to have that 

local entity serve as a very patient partner with capital that is 

available to help underwrite the cost and essentially be a partner 

in the development of affordable rental and for-sale housing. 

The problem as I see it and I am running out of time, the work 

that I have done is very narrow and it is very focused and it has 

really never, at least recently we have seen some example, but we 

have never actually seen it come to scale. 

And I know, Erika, you are somewhat familiar with the model 

that I helped to develop. Is there any thought about how to create 

local partnerships that can bring capital into this space on the 

basis that that investment actually saves so much more in terms 

of the negative externalities that come with the lack of affordable 

housing? And we just all pay such a high price, somebody is paying. 

And I wonder, and I am not sure I am making myself particularly clear, but I wonder if you may just comment on how we might 

figure out a way to internalize those externalities and realize that 

we all pay such a heavy price. We hear so much about the cost of 

development and I get that, but what we don’t hear very much 

about—hear so much about is the cost of all the ills, the social ills 

and the economic ills that come from the lack of affordable housing. 

That is a very high price. And we haven’t figured out yet how to 

bring that capital to bear to prevent those costs. Any thoughts? 

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28 

Ms. POETHIG. Just quickly. I think you are absolutely right and 

there is very good evidence about the costs and consequences of 

particularly a vacant land, vacant properties that are causing those 

externalities. So I think there are some interesting ways to think 

about using Pay For Success as a tool to bring capital to really address the rehabilitation of those properties as a way to internally 

do that, because I think there is evidence that points to the health 

benefits and safety benefits. 

I also think that there is a good opportunity to align with the opportunity zones in some interesting ways. And so, I would put that 

on the table as something also to consider as we think about those 

policy options. 

Ms. ANSEL. Might I add on that answer quickly and we are close 

to out of time. The cost, the land cost for development is up to 25 

percent of the total project cost, so if there is a way for the Federal 

Government to incent localities to participate in a public-private 

partnership, to create those land banks and put that under-utilized 

land to work for creating affordable housing, it would create a winwin situation. 

Mr. KILDEE. Thank you and I appreciate the Chairman’s indulgence, it was probably because of the title that you gave, the additional— 

Chairman DUFFY. The gentleman yields back. And I was going 

to note that only the Vice-Ranking Member gets the latitude to 

take 5 minutes and 20 seconds to actually ask his question, 20 seconds over before we hear the response. 

Mr. KILDEE. I have learned from the best, Mr. Chairman. 

Chairman DUFFY. The Chair now recognizes the gentlelady from 

Ohio, Mrs. Beatty, for 5 minutes? 

Mrs. BEATTY. Thank you, Mr. Chairman. And to our Ranking 

Member and to all of our witnesses here, thank you. 

I want to start by echoing the remarks of our Ranking Member 

on the full committee that today is very bipartisan or should be 

with this issue, and it’s certainly been very educational. 

I represent the Third Congressional District in the great State of 

Ohio, and then Franklin County within the Columbus Metropolitan 

area. Central Ohio is expected to grow up to 1 million residents by 

2050, mostly in and around Columbus, which is the fastest growing 

metropolitan area in the Midwest. 

And according to Zillow, the medium-income value in my district 

is up nearly 30 percent and the median rent is up 22 percent in 

just about the last 6 years. A vast majority of Americans around 

the country haven’t had a wage increase in decades, while housing 

costs as you know continue to skyrocket. 

I have repeatedly said in this committee, and in other forums, 

and I will say it again that according to the National Low-Income 

Housing Coalition, there is no State, metropolitan area, or county 

where a worker earning the Federal minimum wage can afford a 

two-bedroom rental home at fair market rent by working a 40-hour 

a week job. And in Columbus an individual would need to make 

$17.50 or more an hour to afford a two-bedroom apartment. 

So I am open to any ideas of how to fix this problem. But certainly, cutting taxes and cutting regulations is not the silver bullet 

that maybe some people might think. 

nshattuck on FSR297 with DISTILLER

29 

You have been very informative here, but a lot of the responses 

to me have appeared to be more things at the local or the State 

level for a fix. So I guess I am going to ask each of you briefly to 

tell me what is the one change you believe that Congress at the 

Federal level that falls within the purview of our jurisdiction, that 

Congress can do to lower the cost of building multifamily housing 

in the United States? 

Ms. POETHIG. I think one interesting idea to consider that would 

be in the purview and has been done within education reform is 

to think about a Race to the Top. To think about some pot of money 

that localities really want, maybe it is transportation money but 

maybe it is in the housing space, and make it available to those 

States that do draft some regulatory reforms that are impeding 

multifamily development. I think that is one idea that would be in 

the purview of the Federal Government. 

Ms. ANSEL. Thank you, Congresswoman. I think that you have 

hit the nail on the head in that we have two issues. One is an income issue and the second is the supply issue. 

And so, I think the Federal Government needs to look for ways 

to create partnerships with the localities and private developers to 

create more supply. I think there are a number of ways to do that, 

some of those that we have identified. I know you have asked for 

one but development is a capital-intensive business, and so, I 

would tell you supporting housing finance reform that preserves 

the availability of capital for multifamily development is one of the 

most critical issues that we can address. 

Mrs. BEATTY. Thank you. 

Gentlemen? 

Mr. LAWSON. I agree that you have absolutely hit the nail on the 

head and this is a three-decades-old problem where housing costs 

have risen faster than incomes. 

I would say that the thing that we could do most easily and there 

is some legislation that has been introduced that would expand the 

housing tax credit. I would say we need to expand and enhance the 

housing tax credit, expand it from a volume perspective and enhance it to reach a much broader array of incomes, and specifically 

not have it face and fall off the cliff at 60 percent or in the case 

now, 80 percent with income averaging. I think we need to address 

affordability on the entire spectrum. 

Mrs. BEATTY. Thank you and I like that. I don’t know if you 

know, I co-sponsored that bill that was a piece of legislation that 

Congressman Pat Tiberi introduced. So thank you for that. I am 

not sure if it went anywhere, so maybe I can get my Chairman 

over here to take a look at that. 

If my colleague could ask for a letter, I don’t want a letter, I 

want legislation, so thank you for that. Last, I have 8, 9 seconds, 

left. 

Mr. SCHLOEMER. One of the benefits of spurring more multifamily housing development is also the jobs that it creates. At our 

apartment communities for example, there isn’t an entry-level 

maintenance person that makes less than double the Federal minimum wage as an entry-level wage and receives benefits on top of 

that. 

nshattuck on FSR297 with DISTILLER

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So by creating more housing we are also creating more family 

supporting wages. So I would like to point that out. 

And then second I made mention of gaining some consistency between ADA and FHA. I think that is a single item, that you asked 

for us to name a single item that the Federal Government could 

do, that would be it. 

Chairman DUFFY. The gentlelady yields back. We will take a look 

at that. 

The Chair now recognizes the gentleman from the great State of 

Texas, Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank the Ranking 

Member and the witnesses for appearing as well. 

I think that Mrs. Beatty has made some salient points with reference to wages, wage stagnation. Unfortunately the benefits of the 

economy seem to be inuring to those who are at the top, and those 

who are at the middle and at the bottom don’t seem to be making 

nearly the gains. 

But let us move to another topic. Federal funding for new construction of affordable housing, what impact has the lack of that 

funding had on the market itself? We are not constructing more 

with Federal dollars. You have fewer houses available. 

Obviously when you have a great demand and the supply is limited, you have an impact. What about Federal spending? That is 

something that we can regulate. How does that impact the housing 

market? 

Mr. LAWSON. I will take a stab at that. I think it simply exacerbates the problem. We know that there is great demand for affordable housing. The statistics have long shown that many, many families are spending far more than they should on housing costs. The 

rent burden, very well documented. All of those things are I think 

a result of our market being out of balance. Simply not enough supply of affordable housing and a high demand. 

Mr. GREEN. Would someone else care to respond? 

Ms. ANSEL. I think as identified in our testimony, NMHC and 

NAA are strong supporters of increasing the funding of the low-income tax housing credit program and also recommend creating a 

middle-income tax housing credit program. The fact that those programs have been receiving less funding has certainly resulted in 

the fact that there are less affordable apartments that have been 

built. 

We have talked today about the ever-increasing cost of building 

apartment homes due to labor and commodity prices, and so, to 

build more supply, the Federal Government has a very real opportunity to help create incentives that allow us to create those additional homes. 

Mr. GREEN. Yes? 

Ms. POETHIG. And I would just add, there is not a county in the 

country where there is a balance of supply for extremely low-income renters. So even tax-credit housing will need some source of 

subsidy to ensure that those households that make less than 30 

percent of area median income which is about an average of 

$22,000 for a family of four across the country but differs, can’t 

find a place to live. 

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31 

And so, it is both, it is a package of the CBDG HOME dollars 

that provide the source of subsidy for the development to make it 

affordable but, more often than that, we are seeing that folks holding vouchers are also utilizing low-income housing tax credit properties. So it is a whole bundle of important Federal assistance that 

is enabling the supply to be built, when it goes down, so too does 

the supply go down. 

Mr. GREEN. And just briefly, assuming that we do construct and 

that Federal Government plays its role, that goes beyond simply 

providing a place for someone to live. It impacts the economy in the 

area. 

When someone gets a job, that person then spends additional dollars, someone has to buy the carpet, that person will be paid, 

there’s a washing machine that is purchased, drapes, there is a 

benefit beyond the living quarters that we will receive when we invest in these kinds of projects. And I think too often we see this 

as simply a handout to someone so that that person will have a 

place to stay, if you will. But it is really more about economic development for a community. 

Anyone care to say just a word in the last 8 seconds I have? 

Ms. POETHIG. I think you are absolutely right. And we have a 

web portal called How Housing Matters where we look at all the 

relationships between how housing is a platform to achieve better 

outcomes for individuals and families and communities that really 

assembles all of the research that underscores all the points that 

you just made. 

Mr. GREEN. Thank you very much. 

Mr. Chairman, you were very generous with the time. I owe you 

22 seconds. 

Chairman DUFFY. I will find some time to take it from you, Mr. 

Green. Thank you for yielding back. 

This concludes our questioning portion. If I could just take a moment of personal privilege, I want to thank Chase Burgess who has 

served on this committee for a number of years. He came here as 

an intern with John Boehner while studying at Miami of Ohio. And 

then he joined the Financial Services Committee as an intern after 

graduation and has worked his way up to legislative assistant and 

now a professional staff member. 

I don’t know why anyone would choose to leave this great committee and go to the outside and do other work, but Chase is doing 

that, but we thank him for his service and dedication to this committee, its cause and to our country. 

So, Chase, thank you. We will definitely miss you. I appreciate 

it. 

And with that, I want to thank our witnesses for their testimony 

today. I would just note that you might think that we never get 

along, that there are no ideas that we can agree to but if you listen 

to both sides of the aisle there is an understanding that we have 

a problem, and there is a pathway forward in a bipartisan fashion 

that we could craft a solution. 

We will look to you and others in this space to help us as we 

move forward to work on a bipartisan piece of legislation. So hopefully this is not the end, this is the beginning of a conversation that 

can have a real impact on affordable housing in America. 

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32 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

Again, thank you for your testimony and your time. And with 

that, this hearing is now adjourned. 

[Whereupon, at 3:50 p.m., the subcommittee was adjourned.] 

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(33) 

A P P E N D I X 

September 5, 2018 

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TES11MONYBY 

SUSAN ANSEL 

PRESIDENT & CHIEF EXECUTIVE OFFICER, 

GABLES RESIDENTIAL 

ON BEHALF OF THE 

NATIONAL MULTIFAMILY HOUSING COUNCIL 

AND THE 

NATIONAL APARTMENT ASSOCIATION 

BEFORE THE 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

HOUSING AND INSURANCE SUBCOMMITTEE 

FOR A HEARING ENTITLED 

THE COST OF GOVERNMENT REGULATIONS ON AFFORDABLE MULTIFAMILY DEVELOPMENT 

SEPTEMBER 5, 2018 
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Chairman Duffy, Ranking Member Cleaver, members of the Subcommittee, it is my privilege to appear 

before you today to speak on behalf of the multifamily rental housing industry, the National Multifamily 

Housing Council and the National Apartment Association regarding regulatory barriers to apartment 

community development. My name is Sue Ansel and I am the President and CEO of Gables Residential. 

Gables Residential is an award-winning, vertically integrated, real estate company specializing in the development, construction, ownership, acquisition, financing and management of multifamily and mixeduse communities. Gables owns, develops and manages communities in high-growth U.S. markets such as 

Atlanta, Austin, Boston, Dallas, Denver, Houston, South Florida, Southern California and metropolitan 

Washington, D.C. Gables also provides third party management services in the New York, Baltimore, 

Tampa, Phoenix, Charlotte, Central and North Florida markets. Gables manages over 30,000 apartment 

homes and approximately 430,000 square feet of retail space and has received national recognition for 

excellence in development, construction, management, sales, marketing, learning and development, benefits and corporate accommodations. These achievements reflect the impact of experienced and dedicated 

team members, superior knowledge of the markets served, and expertise in development and management. 

For more than 25 years, the National Multifamily Housing Council (NMHC) and the National Apartment 

Association (NAA) have partnered to provide a single voice for America's apartment industry. Our combined memberships are engaged in all aspects of the apartment industry, including ownership, development, management and finance. NMHC represents the principal officers of the apartment industry's largest and most prominent firms. As a federation of more than 160 state and local affiliates, NAA encompasses over 73,000 members representing nearly 9 million apartment homes globally. One-third of all 

Americans rent their housing and 39 million of them live in an apartment home. 

I appreciate the opportunity to be here today to present the multifamily industry's perspective on the 

regulatory barriers at the federal, state aud local levels that can prevent, slow or increase the cost of development of multifamily housing units across the country. I will also use this as an opportunity to highlight a wide array of policy solutions that would help increase production of multifamily housing and 

lessen the existing shortage of housing that is affordable that plagues our nation. 

Before I do that, however, allow me to describe some key aspects of the apartment market and how changing demographics will demand policymakers at all levels of government to partner with the private sector 

to innovate our housing development and production process if we are to meet the nation's current and 

future housing needs. 

The apartment sector is a competitive and robust industry that helps nearly 39 million people live in 

homes that are right for them. We help build vibrant communities by offering housing choice, supporting 

local small businesses, creating millions of jobs and contributing to the fabric of communities across the 

country. We are a critical sector in the housing industry and our economy overall. 

Rental Housing- The Supply-Demand Imbalance 

There has been a fundamental shift in our nation's housing dynamics as changing demographics 

and lifestyle preferences have driven more people away from the typical suburban house and towards the convenience of renting. This demand is fueled by a growing population, demand for 

rental housing by younger Americans, immigration trends and Baby Boomers and other empty 

nesters trading in single-family houses for apartments. There are more than 75 million people 

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between 18 and 34 years old, many entering the housing market, primarily as renters.' Similarly, 

many of the over 74 million Baby Boomers and other empty nesters have the option of trading 

single-family houses for the convenience of rental apartments. In fact, more than half of the net 

increase in renter households between 2007 and 2017 came from the 45-plus demographic cohort. 2 Given these demographics, it is unsurprising that the apartment vacancy rate has remained 

at or below five percent for the past four years'. 

5 

4·5 

4 

3·5 

3 

2 

0.5 

0 

2017 

Apartments Needed by 2030 (Millions) 

2019 2021 2023 2025 2027 2029 

--New Apartments Needed --Current Annual Rate (2011-2017) 

Source: Hoyt Advisory Services; NMHC/NAA; U.S. Census Bureau. 

Beginning in the mid-2ooos, the nation experienced the greatest renter wave in its history, as the 

number of households that rent rose by 7-12 million (different Census Bureau surveys show different figures). This increased apartment demand creates a critical need for 4.6 million new apartments at all price points by 2030 according to a study conducted by Hoyt Advisory Services and 

commissioned by the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA).4 To meet that demand, we will need to build an average of 328,ooo new 

apartments every year. Yet we have only hit that mark once since 1989.s 

The western U.S., as well as states such as Texas, Florida and North Carolina, are expected to have 

the greatest need for new apartment housing through 2030, although all states will need more 

1 Annual Estimates of the Resident Population by Single Year of Age and Sex for the United States: April!, 2010 to July 1, 

2016, US Census Bureau. 

2 NMHC tabulations of 2017 Current Population Survey, Annual Social & Economic Supplement, U.S. Census Bureau.· 

' RealPage, Inc. < Hoyt Advisory Services; NMHC/NAA 

s U.S. Census Bureau, New Residential Construction. 

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apartment housing moving forward. Across all markets, the supply of multifamily housing at a 

variety of price points will play a role in promoting economic growth, attracting and retaining 

talent, and encouraging household stability for all American families. 

There will also be a growing need for renovations and improvements on existing apartment buildings, which will provide a boost in jobs (and the economy) nationwide. Hoyt's research found that 

51 percent of the nation's 20 million-plus apartment stock was built before 1980, which translates 

into millions of units that could need rehabilitation or renovation by 2030. 

The growing demand for apartments -combined with the need to renovate thousands of apartment buildings across the country- will make a significant and positive impact on our nation's 

economy for years to come. For frame of reference, apartments and their 39 million residents 

contribute $1.3 trillion to the national economy annually. 6 As the industry continues to grow, so 

will this tremendous economic contribution. 

While many factors influence the apartment industry's health and ability to meet the nation's 

growing demand for rental housing, the existing patchwork of overly complex, costly, duplicative 

and often counter-productive regulations at all levels of government remain one of the biggest 

threats to delivering much-needed housing units across the country. 

Our Nation's Housing Affordability Challenge 

Housing affordability is a significant challenge facing many Americans today who are seeking to 

rent an apartment. The number ofhouseholds renting their homes stands at an all-time high, thus 

placing significant pressure on the apartment industry to meet the demand. This is making it 

challenging for millions of families nationwide to find quality rental housing that is affordable at 

their income level. For many families, the shortage of rental housing that is affordable creates 

significant hurdles that make it even more difficult to pay for basic necessities like food and transportation. Ultimately, this also impacts their future financial success. 

Those at the lowest end of the income spectrum are especially vulnerable to these problems-for 

the one in five renter households that earns less than $15,000 annually, an affordable unit is one 

with a monthly rent of under $400. Yet from 2003 to 2013, 11 percent of these rentals were permanently lost from the housing stock.? This is also the hardest segment to build for without subsidy, given the costs associated with development. 

The issue of lack of housing affordability is not unique to lower income households, however. The 

total share of cost-burdened apartment households (those paying more than thirty percent of their 

income on housing) increased steadily from 42-4 percent in 1985 to 54.8 percent in 2015.8 Consider that the median asking rent for an apartment constructed in 2016 was $1,479. For a renter 

to afford one of those units at the 30 percent of income standard, they would need to earn at 

least $59,160 annually.9 Affordability is an issue impacting the very fabric of communities 

6 Dr. Stephen Fuller; NMHC/NA..A.. "The Trillion Dollar Apartment Industry" 

7 Harvard Joint Center for Housing Studies, "America's Rental Housing" (2015), availab]e at http: 1/W\vw.jchs.haryard.edu/siteslichs.harvard.edu/fiJes/americas rental housing 2015 web.pdf. 8 NMHC tabulations of American Housing Survey microdata. 

9 NMHC calculation based on U.S. Census Bureau, Survey ofMarketAbsorption. 

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nationwide, including our teachers, firefighters, nurses, police officers and their families. 

According to Harvard's Joint Center for Housing Studies, w in 2015 more than one in four renter 

households approximately 11.1 million- paid more than half of their income for rental housing. Setting aside that real (inflation adjusted) incomes in the U.S. are only slightly above their 

2000 levels, clearly the key factor driving the affordability crisis, housing industry leaders agree 

that promoting construction, preservation and rehabilitation are three of the vital ways to meet 

the surging demand for apartment homes. 

Barriers to Multifamily Development and the Cost of Regulation 

Developing real estate, whether multifamily, single-family or commercial, is difficult. Production 

of any kind has its natural barriers. Those are for the most part objective barriers that can, and 

often do, fluctuate, but are predictable enough to still meet a pro forma. Multifamily, however, 

brings with it a level of entitlement subjectivity aud regulation layered on top of these common 

barriers and is much more difficult to predict. 

Plainly stated, many localities have a development preference that works against multifamily 

housing production and ultimately worsens the country's affordability challenges. Multifamily development often faces stiff community resistance, competes with other forms of real estate that 

produce sales tax revenue desired by municipalities and is subject to increasing regulatory barriers at all levels of government. 

In a speech before the Urban Institute in November 2015, Jason Furman, former chairman of The 

White House Council of Economic Advisers, said that the U.S. could build a lot more apartments 

but noted "multifamily housing units are the form of housing supply that is most often the target 

of regulation." In fact, a recent studJC by NMHC and the National Association of Home Builders 

(NAHB) based on responses from a variety of multifamily developers throughout the country 

found that on average, 32 percent of multifamily development costs are attributable to the costs 

associated with complying with local, state, and federal regulations. In a quarter of cases, that 

number can reach as high as 42.6 percent. 

Breaking down the government regulation costs showed that an average of 7.0 percent of regulatory costs come from building code changes over the past 10 years, 5.9 percent are attributable to 

development requirements that go beyond what the developer would ordinarily provide (such as 

complex architectural design, landscaping, and parking requirements), and 4.2 percent of the 

costs come from non-refundable fees charged when site work begins. 

10 Harvard Joint Center for Housing Studies, "The State of the Nation's Housing 2017", Appendix Tables. 

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Interest rosts on refundable fees charged when site work begins 

ott\er~qoO:.reftirnil;ble) fees Charge<! when site wor'k.begins 

Developmef\l tequirementS that go beyOnd the on:flf101"\' 

land dedicated to the government or otherwise left unbuHt 

Cost of complying with OSHA requirements 

Pure cost of delay {i.e., even lf regulation imposed no other type of 

cost) 

50% 

!)3% 

95% 

SO% 

93% 

• 30% 

91!% 

90% 

93% 

6.3% 

4.3% 

2.6% 

0.7% 

These are not regulations that only a few developers face when trying to build new housing. The 

respondents to the NMHC-NAHB survey built in virtually all types of markets-from garden 

apartments in rural and suburban areas to high-rise buildings in the urban core-and at least half 

of developers in the survey responded that they were subject to every cost item but one (complying 

with affordability mandates). At least 90 percent of respondents indicated that they had to figure 

cost of specific regulations into their overall development cost, including the costs of applying for 

zoning approval; non-refundable fees charged when site work begins; development requirements 

that go beyond the ordinary; fees charged when construction is authorized; increased costs due to 

building code changes; and the pure cost of delay. 

While many of the costs associated "ith regulation in the study are attributable to local requirements, respondents reported that federal regulations create costs, including 90 percent of developers surveyed that included the cost of complying with Occupational Safety and Health Administration (OSHA) requirements as part of their total development cost, accounting for an average 

of two percent of the total. And as stated before, the costs associated with changes to building 

codes over the past ten years, which the federal government has involved itself in, accounted for 

an average of 7.0 percent of total development cost. And some local regulations are subject to 

federal requirements as well, including requiring certain conditions at the local level to obtain 

grants. 

Regulatory Red Tape at the Local Level 

Often, well-intentioned local regulations can be onerous and cumbersome, can increase development costs across the board and, in some cases, prevent development altogether. Below is a brief 

summary of some notable barriers to development at the local level: 

Land Cost: In an attractive market-take any major metropolitan area as an exampleland can account for a significant portion of total development costs. Land in those 

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markets is not only fundamentally more expensive to purchase than land in secondary or 

tertiary markets, but it also typically attracts multiple bidders, each seeking to deploy the 

land for diverse purposes, which further drives up costs. According to the Harvard Joint 

Center for Housing Studies, between 2012 and 2017, the price of vacant commercial land 

rose 62 percent; by comparison, the general inflation rate rose seven percent. This cost 

increase can stretch or stress other financial assumptions and, in some extreme eases, even 

make the property impossible right out of the gate. 

Zoning Laws: Zoning laws impact what is permitted to be built at a site. In some places, 

zoning requirements can make it extremely difficult to build new multifamily housing. 

Changing zoning can be onerous and expensive if it is even possible. 

Entitlements: The entitlement process, which covers approvals, zoning and nearly everything in between, is an amalgam of outright costs, additional fees, land-use regulation 

(some of which can date back to the first half oflast century) and code compliance. During 

the navigation of this often-lengthy process, an apartment developer bears both direct and 

indirect costs with no assurance of a successful outcome. In some high-barrier-to-entry 

markets, entitlements can take four, five, six years or more before construction actually 

begins. As an example, according to NAA's Barrier to Apartment Construction Index, development timelines for properties with 50 or more units including permitting, land development, non-conforming use and zoning ranged from an average of three years in Miami to over eight years in San Diego." Some municipalities have tried to fast track this 

process, but they have been met with only varying degrees of success. The long lead time 

and significant upfront investment required to obtain entitlement on land is leading some 

investors to rethink continued interest in multifamily development. Reduced investor demand for multifamily development may lead to fewer units delivered in the future and 

increased cost per unit delivered as remaining investor capital becomes scarce. 

Impact Fees: Impact fees arc payments required of new development by local governments for the purpose of providing new or expanded public capital facilities to serve that 

development. These fees typically require cash payments in advance of the completion of 

development, are based on a methodology and calculation derived from the cost of the 

facility and the nature and size of the development, and are used to finance improvements 

offsite from, but to the benefit of, the development. 

Linkage Fees: A linkage fee is assessed on a development to pay for the cost of providing 

a public service. These fees are attributed to select developments to pay for a benefit 

deemed outside of what is recovered from property taxes. 

Business License Taxes: These are additional municipal taxes assessed on property 

owners that is not assessed on other forms of housing. These are used to justify the cost of 

impacts not covered by property tax assessments. 

Assessment and Inspection Fees: These are additional municipal fees assessed on 

property owners to inspect rental housing for habitability. While these fees are often 

11 National Apartment Association, 'Barriers to Apartment Construction Index,' https:/lwwvv.naahq.org/news-publicaIimlB.LQarriers-apartment-construction-index 

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assessed annually, the rental housing communities often do not realize additional benefits 

reflecting the cost. 

Parking Space Requirements: The requirement to build or offer parking spaces, especially in urban settings, can significantly impact site use and cost and often run counter 

to current resident trends and needs. According to a recent report by NAA entitled "The 

Transformation of Parking," estimated costs to build parking vary widely, with estimated 

price tags of $30,000 to $75,000 per space, depending on the market. The type of parking 

also greatly influences the cost, with surface parking the least expensive, and underground 

parking the mostP 

Environmental Site Assessments: An environmental site assessment is a report that 

identifies potential or existing environmental contamination liabilities. The analysis typically addresses both the underlying land and physical improvements to the property. In 

many local jurisdictions, each development site requires an environmental site assessment, the results of which could require costly remediation and/ or project reconfiguration. Additionally, these assessments have been used by development opponents to frustrate planning and can serve to severely hamper or defeat the entitlement process. 

Housing Affordability Initiatives and Community Barriers to Development 

In addition to the often-used local regulatory fees and processes that can drive the cost of multifamily housing production up, community led initiatives and policy solutions can add cost and 

time to a project that in some cases can prevent much-needed housing from being built. Efforts 

by local officials to impose artificial price controls on rent levels or mandate the construction of 

affordable housing units or developments, while well-intentioned, can have the adverse effect. In 

addition, community opposition to the development of multifamily housing is a great driver of 

project delays and cost. While local input is certainly important, it can often be counter-productive and add a great deal of expense, which in turn drives up development costs and ultimately 

rents. Outlined below are several of the most significant of these challenges: 

Housing Affordability Initiatives: 

o Rent Control: There are various forms of rent control outside of the traditional 

version that most are accustomed to seeing: a rent control board that sets maximum rent for a unit or the maximum amount that rent can be raised annually. Rent 

control, in this context, is any mechanism that obligates a property owner to set 

rental rates for all or a portion of the units on a property. In any form, this policy 

works as a disincentive to investing and developing the diversity of housing units 

that a community requires. There are alternatives to rent control that take slightly 

different approaches but have the same detrimental effect. The most common form 

of these is inclusionary zoning. 

o Inclusionary Zoning: Inclusionary zoning refers to municipal and county planning ordinances that require a given share of new construction to be affordable to 

12 National Apartment Association, "Transformation of Parking," https:/ /\\"W\\'.naahq.org/news-publications/transformationparking 

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people with low to moderate incomes without an investment from the municipality. It is normally a condition of approval of the development. Proponents of inclusionary zoning often fail to acknowledge that these policies drive up costs, and ultimately rents, for the entire project, as developers are forced to raise rents for 

market-rate units to make up the difference from the affordable units to make the 

project financially feasible. 

o NIMBYism: Another substantial cost driver for multifamily housing development comes in the form of community resistance through efforts commonly known 

as "Not In My Back Yard" or NIMBY. The narrative of NIMBYism typically focuses 

on a handful of themes outside of the normal zoning approval process, including: 

>- Traffic impact; 

>- Homeowner property values; 

>- School overcrowding; and 

>- Community character. 

NIMBY opposition can frequently occur during the rezoning process-the 

NMHC/NAHB study cited earlier found that 85 percent of multifamily developer 

respondents had experienced added costs or delays due to neighborhood opposition. In the end, NIMBYism keeps apartments from being built where they are 

needed most and at prices many people can afford. 

All the factors outlined above, or a combination thereof, can lead to increased hurdles for multifamily development. Too often, the combination of local housing affordability initiatives and 

NIMBYISM can lead to a complex, duplicative and costly regulatory landscape that can drive up 

the costs of multifamily housing development and exacerbate our nation's housing affordability 

problem. 

A Snapshot of Multifamily Development 

To give policymakers a sense of the practical challenges faced by multifamily housing developers, 

one has to look no further than a few neighborhoods away from the Capitol Building in the historic 

Shaw neighborhood of Washington, DC. 

The Bozzuto Group, a large regional real estate firm, aided in the development of a transformational multifamily project. As the property manager, Bozzuto provided assistance to the owner 

and lead developers of the project while they navigated a long and painful entitlement process 

only to realize operation after 12 years. The property serves as the anchor to the redevelopment 

of a historic area of our nation's capital, the 0 Street market, which sits on a 3 lfz acre site. At one 

time, it was a thriving public market built in 1881 and served the surrounding neighborhood as 

both a center of commerce and community. After a troubled history following riots and gang violence, the market closed in 1994 and laid empty until the current project got underway. 

In the early 2000s, developers saw an opportunity to reinvent the area and combine the 0 Street 

Market, which is listed on the National Register of Historic Places and 8th Street, which was part 

of the original L'Enfant plan for Washington, DC into one large, iconic and transformational development for DC. The development team collaborated with 3 mayoral administrations to secure 

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approvals, financing and a development program that would accommodate community expectations. 

The lead project developer teamed up with a local affordable housing developer for the development of The Hodge on 8th. Locating all affordable apartments in one building on the site allowed 

for 15% more units to be created. The building now serves seniors with median incomes below 

6o% of the median income. 

Development was not easy-the site was purchased in 2001. Construction began a decade later in 

2011 and both the historic market and the apartments opened in 2013. The market-rate apartments leased up within a year of opening - a record pace by any measure - and the affordable, 

senior housing building, the Hodge, was 95% leased before it even opened and maintains an ongoing waiting list of over 500 seniors. 

The project was financed with a complicated stack of 12 different private and public financing 

sources totaling $315 million which included: 

Private land and cash equity investments 

$102 Million of EB-5 financing 

Mezzanine debt 

$35 million in TIF bond proceeds 

$128 million Section 220 HUD loan - the largest ever granted for a mixed-use development 

LIHTC and tax-exempt bonds from the DCHFA and Home loans secured by the DCHCD 

The mixed-used community now features: 

90K square feet of retail 

549 market-rate apartments -in three buildings 

90 affordable apartments in a 4th building for senior citizens 

182 room/suite hotel 

Preservation of a historic market that houses a Giant grocery store 

The entitlement process, regulatory hurdles at the federal and city levels as well as the need for so 

many different sources of funding for this project took a significant amount of time to overcome. 

And while no two projects are exactly the same, the challenges this project faced often are. In this 

ease, the project is a raging success serving as the anchor to a revitalizing neighborhood and catalyzing over $1 billion in new investment since its inception by bringing new jobs and new businesses to the area. In addition, the developer and construction firms privately funded skills training resulting in 51% of new construction jobs going to DC residents and awarding $192 million in 

project contracts to minority owned businesses. 

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Red Tape Across the Country-A View from the Field 

The following list is comprised of real-world examples encountered by multifamily housing developers as they sought to build or renovate apartments across the country. These highlight the 

complex and tangled web of regulation, zoning requirements and other barriers to development 

that multifamily developers face as they aim to deliver housing for American families. 

In Georgia, one city required a new development project to pay the entire cost of widening a road 

and upgrading the traffic signals. Projected additional costs are approximately $2oo,ooo. 

In Georgia, the sewer capacity was inadequate for the number of units that were being built in a 

new multifamily development. The city had upsizing of the sewer main in their future infrastructure plans, but they could not commit to the timing. The developer took on the task of upsizing 

the sewer line under the highway, through the rapid transit maintenance facility and across railroad tracks into the main basin. The cost was $2 million, and the city agreed to split the cost. This 

took a significant amount of man hours to administer and cost the developer $1 million in pure 

trade cost. It also enabled the city to have an upgraded sewer system delivered at a fraction of 

what otherwise would have been their full cost, labor and administration. 

In Georgia, it is common for inspectors to require additional work that is often not part of the 

code or part of the approved plans. At one multifamily project, the fire marshal required approximately $soo,ooo in additions or changes that were not part of the approved plans. The largest 

single item change was the inclusion of a heat detection system in the parking deck of the project. 

This accounted for an increase of close to $2oo,ooo in project costs. The same fire marshal had 

approved the plans as part of the permitting process and then dictated changes when inspectors 

conducted their review in the field. 

In Georgia, one city required a project to install metal louvers on the parking deck at an added 

cost of approximately $105,000. The metal louvers sit on top of the concrete crash walls. The 

concrete crash walls serve a dual purpose providing vehicular protection and blocking vehicle 

lights from shining into the residential project to the north. Due to close proximity of the adjacent 

building to the north, the required louvers are not visible and do not serve a purpose. 

In Texas, a new development was required to run a water line extension almost 6oo linear feet to 

serve both the multifamily development and future growth in the area. The line was upsized by 

so% to accommodate future growth. All of the $370,000 in cost was absorbed by the developer. 

Additionally, this project was required to have a specific blend of limestone exterior and clay tile 

roof as determined in the zoning process. This requirement added approximately $450,000 to the 

total cost of the project. 

In Texas, one multifamily project was required to replace and increase the capacity of a storm line 

by 75% in conjunction with the development of the site and to help address community flooding 

south of the project. This resulted in two months of additional permit time, 30 days of additional 

build time and $25o,ooo in added cost. 

In South Florida, several municipalities have adopted "Art in Public Places" requirements and 

fees, which range from .s% - 1% of the total hard cost project budget. On a recent multifamily 

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project, the additional cost was over $275,000. The city also required the developer to rebuild and 

restore the public plaza adjacent to the site at an additional cost of $1.2 million. 

In Florida, a municipality required the installation of natural stone in lieu of pre-cast on the 

ground level column wraps and building entrance at one development. The cost of the natural 

stone is approximately a $8o,ooo premium to pre-cast. 

In Florida, at a potential new development, the city is requiring the developer to rebuild a long 

section of public sewer and repave a long section of road that is not part of the development. 

Regulatory Red Tape at the Federal Level 

Our industry, and particularly apartment owners and developers, must balance a wide array of 

concerns regarding project viability, regulatory cost and compliance at all levels of government. 

While many regulatory hurdles and costs such as impact fees, continual environmental reviews 

and antiquated zoning processes lie within the purview of state and local policymakers, there are 

a wide array of existing federal regulations that contribute to making housing less economically 

feasible to develop and operate. 

We believe that regulations must have demonstrable benefits that justizy the cost of compliance 

and that federal agencies should be aware that broad-stroke regulations often have a disproportionate effect on industries that serve as key drivers of our economy. As a highly regulated sector, 

the apartment industry is governed by a flood of regulations stemming from diverse federal agencies such as the Department of Housing and Urban Development (HUD), the Environmental Protection Agency (EPA), Department of Labor (DOL), OSHA, and the Department of Energy (DOE), 

as well as state and local jurisdictions. 

NMHC/NAA members acknowledge the role that smart regulation has in ensuring the health and 

well-being of the American public. In the apartment sector, many such regulations allow for flexibility and complement the goal of building more multifamily housing in an efficient and cost 

sensitive manner. With that said, NMHC/NAA have worked with Congress and the Administration to identizy and seek relief from federal regulatory barriers to multifamily development and 

operation. Excessive regulation and compliance uncertainty results in costly mandates that divert 

resources from the production and operation of multifamily housing. 

Key State and Local Solutions to Address the Nation's Housing Shortage 

Municipalities across the country are at the epicenter of the nation's housing affordability challenges. In that all politics is local, so is housing. Local officials have a leading role to play in driving 

development and reducing barriers to multifamily housing development while protecting the 

health and safety of their residents. 

What works in one jurisdiction might not work in another but utilizing outside-the-box thinking 

can lead to progress. Officials have a range of options at their disposal. They can look to defer 

taxes and other fees for a set period of time to help the developer reduce the rents required to 

make the development viable. They also own tangible assets - buildings, raw land and entitled 

parcels -that can be leveraged to bring down the cost of construction or redevelopment. They can 

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help streamline the development and approval processes with fast-tracking programs. Some additional state and local solutions to addressing the nation's housing shortage and affordability 

challenges are outlined below. These solutions enable the public and private sectors to bring their 

tools and assets into play and increase the likelihood of finding viable solutions to meet our rental 

housing challenges. Not all of these policies will work in every jurisdiction and oftentimes a variety 

of these policies must be utilized: 

Adopt Policies that Leverage the Private Sector to Make Housing Affordability More Feasible: 

o Establish "By-Right" Zoning-Most developments go through a discretionary 

review process such as public hearings or legislative review by the local land use 

authority or board of zoning appeals. Public review is certainly important, but it is 

often duplicative, arbitrary and inefficient, and establishing a "by-right" process 

allows the community to provide input on the character of an area before an individual project is proposed. Reviews also increase the cost of housing by slowing 

down its production or even preventing it from being built. "By right" development 

allows projects, both new construction and rehabs of existing properties, to be approved by local administrators without discretionary reviews as long as they comply with current zoning rules and community development plans. 

o Expedite Approval for Affordably Priced Apartments-Lengthy permitting processes add cost, time and uncertainty to housing construction. Fast-tracking review and permitting ofhousing that includes affordable units is a no-cost way 

for local jurisdictions to expand their supply. 

o Reduce Parking Requirements-Parking requirements are one of the biggest 

costs for a development, particularly in urban environments, ranging from 

$30,000 to $75,000.'3 The Urban Land Institute found that parking minimums 

were the number one barrier to building affordable rentals.'4 Many cities can significantly reduce or even eliminate parking requirements, particularly in transitoriented or urban infill development. 

o Establish Density Bonuses to Encourage Development of Affordable 

Housing- Density bonuses make building affordable housing more cost-effective 

for developers. In return for including a certain number of affordable units in a 

building, the developer can build more market-rate apartments than are normally 

allowed. This allows for the developer to "make up" the difference from the 

1

3 National Apartment Association, "Transformation of Parking," https:/ /vlivvw.naahq.orgjnews-publications/transformationparking 

1

4 "Bending the Cost Curve: Solutions to Expand the Supply of Affordable Rentals," Urban Land Institute, 2014. 

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affordable units without being forced to pass the rent increase on to the marketrateunits. 

o Adopt Separate Rehabilitation Building Codes-Jurisdictions require developers to bring a building up to the current building code when they want to substantially rehab it, often making it prohibitively expensive to upgrade it. Localities 

ean overcome this by adopting separate building codes for rehabilitation projects 

that balance the need to ensure safety and structural integrity, but do not sacrifice 

affordability. They can also offer tax abatement for properties that include affordable housing when property taxes rise because of improvements. 

o Create an Efficient Public Engagement Process-New developments benefit from community input. But the public engagement process ean also result in 

NIMBY opposition that creates long delays, and even lawsuits, that increase construction costs. There is no single model that works to strike a balance, but localities should examine their process to ensure it is not one-sided and does not create 

uncertainty. 

Increase Public-Private Partnerships: 

o Leverage Underutilized Land-Federal, state and local governments should 

prioritize affordable housing when disposing of public land. Land accounts for 

approximately 10 to 25 percent of an apartment project's cost, and even more in 

high-cost areas.'s Developers also often struggle to find developable land in urban 

areas. Yet many localities own underused or abandoned land that could be used 

for affordable housing. Underutilized buildings, which can be renovated, are another resource. Making good use of these lands and buildings requires strong 

public-private partnerships. 

o Use Property Tax Abatements-Tax incentives and abatements are another 

way to spur development. While they do reduce public revenues, they are often 

more politically palatable than direct subsidies. 

o Waive Fees for Properties that Include Affordable Units-Housing developers often pay significant fees to expand public infrastructure or to support the 

creation of city amenities such as schools and parks. Because fees add to the cost 

of housing, jurisdictions should waive impact fees for properties that include affordable units. 

Leverage State-Level Authority to Overcome Obstacles to Apartment Construction: 

ts Based on evidence provided by NMHC members. 

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o States should enact laws that override local zoning restrictions that inhibit apartment construction, whether intentionally or not. States can also make 

some state financing contingent on a locality meeting a minimum affordable housing threshold or adopting policies that support housing production. 

Key Federal Solutions to the Nation's Housing Challenges 

The nation's challenge is to reduce the barriers and obstacles that inhibit the expansion of the 

housing stock and the federal government has a key role to play. While it is clear that new construction is often impeded at the local level, there are federal solutions that may be beneficial as 

well. Overhauling antiquated, overly-complex and costly regulations coupled with incentivizing 

new development, preservation and rehabilitation of existing apartments would go a long way to 

addressing our nation's housing affordability challenges. NMHC/NAA encourage Congress to 

take the following steps: 

Retain and Expand Pro-Development Tax Policies that incentivizc investment in 

rental housing at all price-points: 

o Expand the Low-Income Housing Tax Credit. The Low-Income Housing 

Tax Credit (LIHTC) is a public/private partnership that leverages federal dollars 

with private investment to produce affordable rental housing and stimulate new 

economic development in many communities. Since its inception in 1986, the 

LIHTC program has financed over 3 million apartments and served 7 million 

households. The LIHTC program provides critical support to the nation's affordable housing production. Given that there arc currently just 45 affordable units for 

every 100 very low-income apartment households, lawmakers should strengthen 

the program by: (1) making permanent the increased credit authority enacted in 

March 2018 to enable the production of new units; and ( 2) establishing a minimum 

4 percent credit rate. 

o Create a Middle-Income Housing Tax Credit. Build on the success of LIHTC 

and complement its work by establishing a Middle-Income Housing Tax Credit 

(MIHTC), which would spur the production of multifamily rental homes for America's working families. This type of production would address housing shortages 

for populations who do not qualify for any type ofhousing subsidy but who struggle 

to afford their living expenses. 

Support Housing Finance Reform that Preserves the Multifamily Mortgage 

Liquidity Provided by the Government-Sponsored Enterprises (GSEs): 

One of the foremost priorities of federal policy makers should be getting multifamily right 

in any housing finance reform effort by recognizing its unique characteristics; it is the single most important factor to ensuring that the apartment industry can meet the nation's 

growing rental housing demand. 

The bursting of the housing bubble exposed serious flaws in our nation's housing finance 

system. The very successful multifamily programs of the GSEs, Fannie Mae and Freddie 

Mac, were not part of the meltdown and have actually generated over $34 billion in net 

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profits since the two firms were placed into conservatorship. Preservation of the mortgage 

liquidity currently provided by the GSEs in all markets during all economic cycles is critical. NMHC/NAA urge lawmakers to recognize the unique needs of the multifamily industry. We believe the goals of a reformed housing finance system should be to: 

o Maintain an explicit federal guarantee for multifamily-backed mortgage securities available in all markets at all times; 

o Ensure that the multifamily sector is treated in a way that recognizes the inherent differences of the multifamily business; and 

o Retain the successful components of the existing multifamily programs in 

whatever succeeds them. 

These principles ean be achieved through a reformed structure that preserves the high 

quality and value of the current multifamily secondary mortgage market's activities. 

Increase Funding and Support for Subsidy Programs that address housing affordability such as the Section 8 Housing Choice Voucher Programs, Project-Based 

Rental Assistance, Rental Assistance Demonstration, HOME and Community Development Block Grants. 

o Housing costs continue to grow and demand for rental housing continues to escalate, but incomes for many low-income families remain stagnant. Given these realities, demand for subsidized affordable housing has increased dramatically 

through the economic crisis and into the recovery years since. However, federal 

funding for the primary programs serving low-income households has been virtually flat or declining. 

o Programs like Tenant Based Section 8 and Project Based Rental Assistance allow 

low-income families to rent market rate housing, taking advantage of the broad 

offering of privately owned and operated properties in a given market. Programs 

like HOME and CDBG allow developers to address financing shortfalls often associated with affordable housing properties and stimulate meaningful development 

and preservation activity as a result. 

o In order to address housing affordability challenges for all Americans across the 

income spectrum, increased funding for these programs is essential. 

Support Funding for the FilA Multifamily Programs, which are an important 

source of capital supporting apartment construction and redevelopment. 

FHA Multifamily is best known for offering an alternative source of construction debt to 

developers that supplements bank and other private construction capital sources. It also 

serves borrowers with long-term investment goals as the only capital provider to offer 35-

40-year loan terms. FHA lending is essential to borrowers in secondary markets, borrowers with smaller balance sheets, new development entities, affordable housing developers 

and non-profit firms, all of which are often overlooked or underserved by private capital 

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providers. 

It is important to the apartment industry that FHA continues to be a credible and reliable 

source of construction and mortgage debt. FHA not only insures mortgages, but it also 

builds capacity in the market, providing developers with an effective source of construction and long-term mortgage capital. The FHA Multifamily Programs provide a material 

and important source of capital for underserved segments of the rental market and do so 

while maintaining consistently high loan performance standards. NMHC/NAA encourage 

Congress to continue funding FHA's Multifamily Programs, including: 

o HUD 221 (d)(4) Multifamily Loans- New Construction and Substantial Rehabilitation of Multifamily Properties 

o HUD FHA 223 (f) Multifamily Loans for the Refinance or Acquisition of Multifamily Properties 

o HUD FHA 241(a) Supplemental Loans 

o HUD FHA 223(a)(7) Refinance of an Existing FHA Insured Multifamily Mortgages 

and Healthcare Mortgages 

Reform Overly Burdensome Regulations and Programs. The following federal 

programs and regulations could benefit from improved efficiencies and review by Congress and the Administration: 

o Section 8 Housing Choice Voucher Program 

This public-private partnership has the potential to be one of the most effective 

means of addressing our nation's affordable housing needs and supporting 

mixed-income communities. However, the program's potential success is limited 

by too many inefficient and duplicative requirements, which discourage private 

providers from accepting vouchers. The program has also been plagued with a 

flawed and volatile funding system that has undermined private-sector confidence in the program. Research by Johns Hopkins University found that bureaucratic factors were one of the three major reasons for landlords having a preference for or against residents with Housing Choice Vouchers. 16 With Congress focused on austerity measures, insufficient funding is expected to be worse in the 

near-term budget cycles. 

Common- sense reforms that could help control costs, improve the program for 

both renters and property owners, and increase private housing participation include: 

~ Establishing a reliable funding formula; 

~ Streamlining the property inspection process; and 

? Simplifying rent and income calculations. 

16 Garboden, et. Al. "Urban Landlords and the Housing Choice Voucher Program: A Re....:;earch Report" 

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It is also imperative for lawmakers to reinforce the voluntary nature of the program. Congress specifically made participation voluntary because of the regulatory 

burdens inherent in the program. However, state and local governments are enacting laws that make it illegal for a private owner to refuse to rent to a Section 8 

voucher holder. Recent examples include "source of income discrimination" provisions passed by a number of cities. While often well intentioned, such mandates 

are self-defeating because they greatly diminish private-market investment andreduce the supply of affordable housing. 

o Rental Assistance Demonstration (RAD) Program 

NMHC/NAA support RAD, which was established in 2011 as an affordable housing 

preservation strategy for public housing authorities (PHAs). The program allows 

PHAs to convert public housing properties at risk of obsolescence or underfunding 

into project -based vouchers or rental assistance contracts under the Section 8 program. Once the units are re-designated from public housing (Section 9 of the 1937 

Housing Act) to Section 8 housing, housing authorities are able to leverage private 

capital to address capital needs. This allows housing authorities to work with private sector developers and managers to preserve their affordable housing stock. 

RAD is designed to reverse the trend of lost affordable units by accessing private 

capital to make up for related funding shortfalls. Congress should increase funding 

for this innovative program to prevent further public housing units from falling 

into obsolescence. 

o Modifying the Community Reinvestment Act (CRA) 

The three main banking regulators - Office of the Comptroller of the Currency, 

Federal Deposit Insurance Corporation, and Federal Reserve - who control the 

regulations around CRA have begun the process to modernize the existing rules. 

The CRA could be modified to include greater incentives for banks to provide loans 

for multifamily apartments that include workforce and affordable housing development. CRA guidelines currently allow banks to obtain Community Development 

(CD) credit for multifamily units serving occupants with incomes of up to 8o percent of area median income. While this level captures a significant portion of workforce households, the rules themselves make it difficult to obtain the CD credit due 

to a requirement to report incomes, information that is not captured. 

We urge this Committee to work with the multifamily industry to encourage these 

regulators to make common- sense, modest changes that would remove impediments to obtaining CRA credit for workforce and affordable multifamily housing. 

o Fair Housing Rules 

Including: Disparate Impact Rule, Quid Pro Quo Rule, Resident Criminal History 

Screening Guidance, Limited English Proficiency Guidance, Local Nuisance Ordinance Guidance and Occupancy Memoranda 

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The apartment industry is committed to equal housing opportunity for all without 

regard to race, religion, color, sex, national origin, handicap or familial status. However, more guidance and clarity are needed from HUD on specific fair 

housing program areas. During the Obama Administration, HUD actively expanded fair housing compliance and enforcement efforts. Their regulations and 

guidance documents reinforce an interpretation of disparate impact that conflicts 

with recent Supreme Court precedent and creates uncertainty for housing providers. HUD has also asserted new criteria for familial status and occupancy compliance that is contrary to long-held practices. 

o Davis-Bacon Wage Determination 

Under current law, developers must adhere to Davis-Bacon wage rates for construction financed by federal dollars. Unfortunately, DOL's methodology and 

HUD's application of the wages are causing serious issues. The following DavisBacon issues arc having a negative impact on the ability of the apartment industry 

to efficiently add new, or preserve existing, multifamily rental units: unwarranted 

split-wage decisions, disruptive updates to wages, applicability to the preservation 

of existing federally assisted housing stock and the determination of so-called prevailing wages suffers from structural defects related to the availability of data. DOL 

and HUD should look to reexamine and modifY its methodology and process. 

o Affirmatively Furthering Fair Housing 

While the Trump Administration has announced a review of this rule, as it is currently written, the Affirmatively Furthering Fair Housing rule's broad mission to 

desegregate communities by combating exclusionary zoning and other practices 

deemed discriminatory could indirectly affect the multifamily industry. Specifically, the proposal could lead to delays in construction and permitting decisions. 

These types of disruptions may aggravate the housing market's already short supply of apartments. 

o American's With Disabilities Act (ADA) Enforcement 

The apartment industry supports the goals of ADA and is committed to creating 

communities that are accessible to people with disabilities. The responsibilities of 

the apartment industry under the Act sometimes require the inclusion of specific 

building design features. However, the complex and sometimes conflicting nature 

of guidance, building codes and statutory language have led to varying interpretations of design and construction compliance. Apartment owners and operators, 

along with many others in the broader real estate industry, have recently been targeted by a substantial increase in ADA compliance complaints dubbed "drive-by" 

lawsuits. Congressional action is needed to address what should be the primary 

concern in ADA compliance -- fixing design issues and increasing access for people with disabilities. Specifically, business owners should be provided an opportunity to cure an alleged ADA deficiency prior to the initiation of a lawsuit. This 

would eliminate the incentive for complaints motivated purely by financial gain 

and reduce unnecessary operational expense on the housing provider. 

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Conclusion 

We applaud the Committee for engaging stakeholders to look for innovative ways to reduce regulatory barriers that inhibit multifamily housing development and exacerbate our nation's affordable housing shortage. Policymakers at all levels of government must recognize that addressing 

housing needs-at all price points-- requires a partnership between government and the private 

sector. Officials must utilize a variety of tools to drive investment and support affordable and 

market rate housing production. They can do this by incentivizing for-profit entities to produce 

the necessary multifamily units at a range of price points that households can afford. Federal, 

state and local governments all have a role to play in encouraging public-private partnerships and 

incentivizing private developers to implement proven solutions to deliver housing that acknowledges our nation's changing housing demographics and its accompanying demand. On behalf of 

the apartment industry and our 39 million residents, we stand ready to work with Congress to 

ensure that every American has a safe and decent place to call home at a price that enables individuals to afford life's necessities. 

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National Association 

of Home B\lilders 

BACKGROUNDER I June 2018 

Regulation: Over 30 Percent of 

the Cost of a Multifamily Development 

Paul Emrath, National Association of Home Builders 

Caitlin Walter, National Multifamily Housing Council 

Regulation imposed by all levels of government accounts for an average of 32.1 percent of multifamily 

development costs, according to new research released today by the National Association of Home 

Builders (NAHB) and the National Multifamily Housing Council (NMHC). In fact, in a quarter of cases, 

that number can reach as high as 42.6 percent. 

Apartment and condo development can be subject to a significant array of regulatory costs, including 

a broad range of fees, standards and other requirements imposed at different stages of the development and construction process. However, until now there had been no previous research done to analyze the extent of this regulation. This joint research effort surveyed NAHB and NMHC members to 

quantify how much regulation exists and how much it is adding to the cost of developing new multifamily properties. 
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NAHB Multifamily represents the interests of builders, developers, owners managers of 

all sizes and types of multifamily housing, including affordable and tax-credit housing, market-rate rental apartments, condominium housing, student housing and mixed-used multifamily communities. NAHB Multifamily strives to ensure that multifamily housing functions 

as a strong sector within a thriving housing and real estate industry, and effectively serves 

housing needs of a broad range of American families and households. For more information, please visit NAHB Multifamily at 

councils/councils/multifamily-council.aspx. 

Based in Washington, DC, the National Multifamily Housing Council CNMHC) is a national 

association representing the interests of the larger and most prominent apartment firms in 

the U.S. NMHC's members are the principal officers of firms in all aspects of the 

apartment industry, ownership, development, management and NMHC 

advocates on behalf of rental housing. conducts apartment related research, encourages the 

exchange of strategic business information and promotes the desirability of apartment living. Nearly one-third of Americans rent their housing, almost 15 percent live in an apartment (buildings with five or more units). For more information, N~1HC at 202/974-

2300. e-mail the Council at info@nmhc.org. or visit NMHC's Web site at www.nmhc.org. 

Cost of Regulation to Apartment Development 
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I 

Many Industry experts have become concerned about affordability of rental housing in America, and 

how difficult it has become to address the problem through new construction. According to the report 

on Ain~rica's Rental Housing 2017 published by the Joint Center for Housing Studies at Harvard Uni· 

versity, "The lack of new, more affordable rentals is in part a consequence of sharply rising construction 

costs, including labor and materials." The Harvard report goes on to say, "Tight land use regulations 

also add to costs by limiting the land zoned for higher-density housing and entailing lengthy approval 

processes." 

Recently, the Hatl9mLAs~ciatiQ!l..Qf.J:iQ!Jl~uilders (NAHB) and the !'@1ignal MultiiillllibL..f-i<Lll1iiDJJ 

CounciLCNMHC) undertook a joint research effort to find out how much government regulation adds to 

the cost of building new multifamily housing. Results show that well over 90 percent of multifamily 

developers typically incur hard costs of paying fees to local jurisdictions, both when applying for zoning 

approval, and again when local jurisdictions authorize the construction of buildings. 

However, government regulation can impose costs in other ways as well. Over 90 percent of multifamily 

developers also incur costs of delays caused by sometimes lengthy approval processes, development 

standards that go beyond what would ordinarily be done, changes to building codes over the past 

decade, and OSHA requirements. Other regulations, such as requiring developers to dedicate land to 

the government, are somewhat less common, but can be quite costly when they are encountered. The 

bottom line is that regulation imposed by all levels of government (whether local, state or federal) ac· 

counts for 32.1 percent of the cost of an average multifamily development. 

A substantial amount of regulation is well intentioned and some of it undoubtedly serves a worthwhile 

purpose. Few would argue, for example, that basic safety standards for structures and workers are 

unnecessary. But regulation that exceeds 30 percent of a project's development costs raises questions 

about how thoroughly governments are considering the consequences of their actions. Are they aware 

of how much regulation currently exists? Do they realize how multiple regulations with conflicting 

standards can cause delays and increase costs? And do they understand the extent to which these 

increased costs translate into higher rents and make it difficult to build new housing that families with 

modest incomes can afford? 

Survey Design 

While the assertion that regulations increase the cost of multifamily development is commonly heard, 

the extent to which this happens is not easy to measure, and currently does not exist on a national 

scale. The only way to gather data that is at all comprehensive is from multifamily developers, as they 

are the only ones who experience a wide range of the various forms regulation can take. NAHB and 

NMHC set out to accomplish this through a survey of both memberships. The purpose of the survey 

was to quantify how much regulation exists and how much it is adding to the cost of developing new 

multifamily properties. 

Cost of Regulation lo AparTment Development 3 
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Multifamily developers do not, in general, have accounting systems designed to tease out these regulatory costs, so NAHB and NMHC crafted questions that most developers would be able to answer. The 

questions asked developers about the typical projects they build. The questions covered various delays 

and costs incurred at different stages of the development process. Developers were asked to provide 

all hard costs as a percent of total development cost for their typical projects (see Appendix 2). 

The survey was conducted in the fourth quarter of 2017. A total of 40 usable responses were received 

from multifamily developers, evenly split between NAHB and NMHC members (with no duplication). 

The developers who responded reported building multifamily projects in all regions of the country, and 

the typical projects they build vary widely: from fewer than 5 apartments to more than 400, and from 

under $2 million in total development costs to more than $100 million. 

NMHC and NAHB combined the results with information from other survey collections and public data 

sources, such as typical terms on construction loans and the average time it takes to complete different 

phases of a project, to estimate the final costs (see Appendix 1). 

Regulatory costs fall into several categories-fees, development standards, building codes, land dedicated to public purposes, etc. The range of these regulations can be broad, and the cost of complying 

with them substantial. Figure 1 shows the incidence of different types of regulations imposed on multifamily developers, as well as the average cost of complying with those regulations when they do exist. 

Interest costs on refundable fees charu:edwhensite work begins 

Other { non-~efundable) .fees charged .when site work l:ie:glns 

o~veloprnent requirethentsthat go b~y;,n~ Hw ordinary 

Land dedicated to the government or otherwise left unbuilt 

Fees charged when building construction is authorized 

Cost ofc(lrn!llving with affordabHity mandate~ (e~g., 1rklusiomiry zoncost increases frorr! changes to build in~ c~d~s o\/e; the pa~t 10 yearS 

Cost of complying with OSHA requirements 

Pure cost of delay (i.e., even if regulation imposed no other type of 

$hare of bevel· \Ave;au:~ I=O~t When 

O,f)l!rs' ProjectS Pie~ent (~s a Share of 

Subject, to the Total n,evefOptnent 

Cost ' Costs! 

50% 

93% 

95% 

SO% 

93% 

30% 

.98% 

90% 

98% 

0.5% 

4.5% 

6.3% 

4.3% 

4.2% 

5,7% 

7.2% 

2.6% 

0.7% 
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The first significant interaction between a multifamily developer and the government usually occurs 

when the developer applies for zoning approval to allow multifamily housing to be built on a particular 

parcel of land. The U.S. Constitution gives states the authority to regulate land use; and, although states 

sometimes try to influence land use patterns in various ways, they most often leave this up to local 

governments. Local governments, in turn, pass zoning ordinances that divide their territories into districts and specify how land in each district can be used (single-family versus commercial versus multifamily, for example). It's not impossible for a developer to acquire land that allows multifamily structures 

to be built on it without going through a rezoning process or obtaining some type of exemption to an 

existing ordinance, but this is the exception rather than the rule. 

The typical projects of almost all the respondents (98 percent) were subject to costs at the zoning approval stage. When they exist, these costs average 4.1 percent of the total development costs. Regulatory costs incurred at this stage can include fees paid directly to a government but may also include 

other types of costs. For example, the developers may have to pay for environmental impact, archeological or other types of studies. 

Although local governments have the authority to approve development, existing environmental laws 

also give a role to the federal government. A developer may need to obtain a wetlands, stormwater 

and/or endangered species-critical habitat permit, each of which is overseen by a different federal government agency. Many states manage the wetlands permits under federal guidance, and states and 

local jurisdictions may have their own sets of requirements. Indeed, it can be difficult to identify which 

level of government is ultimately responsible for some regulation and trying to reconcile conflicting 

requirements is one factor that can drive up the cost of compliance. 

It is also common for governments to impose fees on a multifamily development when site work begins. 

Many communities charge impact, utility hook-up and other fees at this point. Impact fees are fees that 

are charged only on a new development and are supposed to be used only for capital improvements. 

State legislation establishes the types of impact fees local governments can charge. Examples are impact fees for the construction of new schools, roads, water facilities, sewer facilities, stormwater management, parks, fire, police, libraries, solid waste management, and general government. Some states 

allow all of these, while a select few of states do not allow them, such as Virginia. There are consultants 

who travel the country and specialize in calculating the maximum impact fees local governments can 

legally charge. Moreover, as a recently published !lDiJLer~t\!_llLC:<Jlifllmi;:U;ierkgley P<lQJ':Ldocumented, 

cities often charge additional fees, negotiated on a case-by-case basis at different points in the development process, to allow a project to be built. 

According to the 2012 CensJ.!~LQLG_o_vs;mments, there are roughly 90,000 local governments in the U.S., 

and a particular development may be subject to fees from more than one of them-for example, from a 

municipality, a water district, and a school district with overlapping jurisdictions. The overwhelming 

majority (93 percent) of the typical projects of multifamily developers in the NAHB-NMHC survey pay 

fees at this stage of the process. When they exist, these fees average 4.5 percent of total development 

costs. 

Some local governments charge developers guarantee or other fees that are refundable when the project 

is completed. Although these fees are also usually imposed when site work begins, the survey treats 

them separately, due to the different cost implications. If the fee is eventually refunded, the developer 

Cost of Regulation to Apartment Development 
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ultimately pays only the interest that accrues on the development and construction loans until that 

happens. Half of respondents' typical projects were subject to these fees; which, when present, averaged 

half a percent of the total development cost. 

Many local governments require new development to conform to community design standards. This may 

include standards for streets and sidewalks, parking, height of buildings, landscaping and the architectural design of individual buildings. These standards impose little extra cost if they don't significantly 

exceed the developer's ordinary practices. In the absence of regulation, for example, developers will still 

ordinarily provide spaces for walking and parking, landscaping, and employ architects who attempt to 

design buildings that are attractive to potential tenants. The NAHB- NMHC survey asked multifamily 

developers specifically about the cost of standards that go beyond what they would otherwise do. 

Almost all (95 percent) of the typical projects of the developers surveyed were subject to design standards that that go beyond what the developer would otherwise do. When these beyond-ordinary requirements were present, they accounted for an average of 6.3 percent of the overall development cost. 

Energy efficiency is a worthwhile objective, but NMHC and NAHB have argued that the up-front cost 

needs to be kept within reasonable bounds. NMHC and NMHC have supported some recent changes to 

the IECC but opposed others as not cost-effective. Not surprisingly, manufacturers of building products 

advocate for code changes that mandate more use of their products and tend to be less concerned than 

NMHC and NAHB about costs. Past analy~['IM_I:iC.on previous code cycles (which remain in effect 

in many states) has shown that changes to the IECC have the potential to drive up construction costs 

by over $3,000 per apartment (depending on type of building and climate zone) and argued that subsequent savings on utility bills come nowhere near justifying the cost. 

Half of the typical projects required developers to dedicate land to the government or otherwise leave 

it unbuilt. This requirement can take many forms, such as creating a park on the property or reserving 

part of the property for the government to use in some way. In these cases, the developer must pay for 

the land but is not allowed to derive revenue from it, driving up the cost per unit for the housing that 

can be built. For those projects subject to this regulation, it represented an average of 4.3 percent of 

total development cost. 

Almost all of respondents (93 percent) paid some sort of fee when construction in their typical project 

was authorized. This could be limited to a building permit fee, but additional impact, hook-up or other 

fees may also be charged at this point. When they exist, the fees charged at this point average 4.2 

percent of development costs, large enough to suggest that they often encompass more than the building permit fees. 

Local jurisdictions are increasingly beginning to consider imposing affordability mandates to attempt to 

create new affordable housing. These mandates without any offsetting incentive like a tax exception 

typically create few units and effectively tax some housing units (and their occupants) to subsidize 

others. The easiest way to see this is in cases where developers pay a fee to avoid the requirementthat amount gets added to the overall amount the developer must pay, thus raising the rents required. 

But even if they don't pay a fee, the regulation may require them to lose money on some of the housing 

they build, which is effectively a tax, resulting in higher rents on non-subsidized apartments. Almost oneThe Cost of to Apartment Development 6 
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third (30 percent) of developers who responded indicated that their typical projects incurred costs related to complying with such mandates. These costs, when they exist, averaged 5.7 percent of total 

development costs, enough to result in substantially higher rents. 

The NAHB-NMHC survey also asked developers about the cost implications of changes to building 

codes over the past ten years. Most jurisdictions have been enforcing building codes for decades, and 

the codes have been updated and refined many times over that span. Most have adopted a version of 

national model codes, which have been in widespread use since the 1950s. These are updated every 

three years, and the number of refinements considered and voted upon during each three-year cycle 

runs into the thousands. 

Virtually no one would argue against public standards for basic soundness and safety of residential 

structures, but over the decades codes have expanded well beyond this and are increasingly being used 

as a vehicle to advance various policy objectives. A leading example is energy efficiency. There is now 

a modellnternsrriQnaiJ;:J1,;rgy_(om;"rvatiQ!lJ:Q.Qr CIECC). 

Energy efficiency is a worthwhile objective, but NMHC and NAHB have argued that the up-front cost 

needs to be kept within reasonable bounds. NMHC and NMHC have supported some recent changes to 

the IECC but opposed others as not cost-effective. Not surprisingly, manufacturers of building products 

advocate for code changes that mandate more use of their products and tend to be less concerned than 

NMHC and NAHB about costs. 

This is another area where the federal government has become increasingly involved. The Environmental Protection Agency, the Federal Emergency Management Agency, and the Department of Energy 

(DOE), all actively participate in the development of national model codes, proposing changes to national model codes and testifying in favor of them during code hearings. DOE also has a share of its 

budget set aside for persuading state and local jurisdictions to adopt more stringent codes. Representatives from NAHB who witnessed all of the recent code hearings hilVe_giticized federal agencies for 

supporting certain code changes that removed flexibility and limited builders' options, driving up costs 

without improving energy efficiency, to the benefit of specific product manufacturers. 

Nearly all (98 percent) of developers said changes in building codes over the past 10 years increased 

development costs in their typical projects, and these costs, when they exist, average 7.2 percent of 

total development costs. 

Nine out of ten developers said complying with requirements of the Occupational Safety and Health 

Administration (OSHA) increased costs in their typical projects, and these costs, when present, average 

2.3 percent of total development costs. Again, few would argue that safety standards for construction 

workers are unnecessary. In recent years, however, OSHA has issued a substantial number of regulations imposing costly compliance requirements all without providing any evidence that they would actually improve safety in the residential construction industry. In the Beryllium.rJJJe, for example, the evidence of a health risk came from workers in manufacturing industries or performing abrasive blasting 

activities. In the Volks rule, OSHA was criticized as doing little beyond driving up record keeping costs 

for businesses (and possibly violating the statute of limitations in the process). 

The Cost of Regulation to Apartment Development 7 
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Even when regulation imposes no direct costs, it can have a financial impact if it delays the development 

and construction process. If it takes longer to begin leasing and earning income on a property, it will 

take longer to pay off any development and construction loans and more interest will accrue. 

Some regulatory delay is inevitable, as it will naturally take some time for local building departments to 

review and approve plans and respond to requests for inspections. Precisely how long it is reasonable 

for a developer to wait for approvals and inspections is open to debate, but there are examples that 

clearly seem excessive. One ~WJJl;-'ii!Ld\1. for example, found that it took an average of 788 days to 

prepare a submission and receive approval for an individual federal wetlands permit. 

Virtually all the developers (98 percent) said complying with regulations caused some sort of delay for 

their typical projects. For these projects, NMHC and NAHB estimated that average additional interest 

was 0.7 percent of total development costs. This is a "pure" cost of delay that regulation would cause 

even if it imposed no other type of cost. It is calculated by subtracting every other type of regulatory 

cost, then estimating the additional interest accruing on the share of the remaining development cost 

that is typically financed. 

l t f 

To estimate how much in total the government regulations described above add to multifamily development costs, it is necessary to take both the incidence and magnitude of the various types of regulation 

into account-in other words, to average in the "zeroes" when a particular regulation does not apply. 

Figure 2 shows that, when this is done, the listed categories taken together on average account for 32.1 

percent of development costs for a multifamily project. 

Among the listed categories, average cost is highest for changes to building codes over the past 10 years 

(7.0 percent of total development costs), followed by development standards imposed by government 

that go beyond what the developer would ordinarily do. It is interesting that government control over 

how a project is built can be more costly than actual fees charged, but unsurprising given that they can 

be time consuming and thus cost more. 

Cost of applying for zoning approval 1.1% 4.0% 5.3% 

Interest costs on refundable fees charged when site work begins 0.0% 0.2% 0.2% 

.Other {non-refundable} fees charged 1,Vhim site work begins 1.9% 4.2%. 

Development requirements that go beyond the ()rdinary 1:1% 5.9% 

land dedicated to the government or otherwise left unbuilt 0.0% 2.1% 3.3% 

Fees charged when building construction is authorized 1.1% 3.9% 5.4% 

Cost of complying withaffordabiUty mandates (e.g., inclusi()oriary.zon~ 0.0% 1.7% 

to 8 
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Cost increases from changes to building codes ewer the p;;>st 10 years 5.2% 7.0% 7.1% 

Cost of complying with OSHA requirements 1.3% 2.3% 2.3% 

Pure cost of delay (i.e., even if regulation imposed no other type of 0.1% 0.7% 1.2% 

tOTAL ESTIMATED REGULATION AS A-SHARE OF DEVELOPMENT 21.7% 32.1% 42.6% 

Affordability mandates, when they exist, are nearly as costly as relatively recent changes to building 

codes and beyond- ordinary development starts, but overall have a smaller average impact on costs 

because they are encountered less frequently. In contrast, regulatory delays are encountered very frequently, but have a comparatively small average impact on costs because they are limited to the extra 

interest that accrues on development and construction loans. 

Refundable fees have the smallest impact of any of the types of regulatory costs listed, both because 

they apply only half of the time and because they are limited to the interest that accrues until they are 

refunded. 

To illustrate the variability in regulatory costs, in addition to averages, Figure 2 shows the upper and 

lower quartiles (costs are below the lower quartile for 25 percent of respondents, and above the upper 

quartile for 25 percent). While on average regulation accounts for 32.1 percent of total multifamily development costs, the quartiles give a range of 

21.7 to 42.6 percent. 

Although the cost components sum to the bottom line total for the averages in Figure 2, the components 

of the upper and lower quartiles do not. The ten components in the "lower quartile" column in particular 

sum to considerably less than 21.7 percent. The implication is that multifamily developers can minimize 

some types of regulatory costs depending on where they operate-but not all of them proportionately 

at the same time. 

ts t 

Although the NAHB-NMHC survey sought to be as comprehensive as possible, the above results do not 

capture everything. Some government actions impact development costs in a way a multifamily developer can't reasonably be expected to quantify. For example, federal immigration policy may affect the 

supply of construction labor, and tariffs can affect prices of building materials like lumber1 and steel. 

Developers do not in general have a way of evaluating how much the prices they pay for labor and 

materials are influenced by these federal policies. 

The survey asked developers about delays due to government regulation, but there can be multiple 

reasons for those delays not all unambiguously tied to a government action. One is neighborhood opposition to the development. At the local level, governments may encourage or facilitate local groups 

who oppose multifamily development. An obvious way to do this is by allowing local groups to sue any 

developer who proposes to build multifamily housing, but there are many more subtle ways to encourage opposition. 

A developer may have to devote time and financial resources to deal with this opposition, by meeting 

with local groups before seeking zoning approval, for instance. To quiet the opposition, developers may 

The Cost of Regulation to Apartment Development 
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find it necessary to make concessions to local groups, such as reducing size of the buildings so that land 

costs are allocated to fewer apartments and cost per apartment is increased. In an extreme case, local 

opposition may be able to cause a local government to reverse its decision to approve a project after 

the developer has already invested heavily in it. In many of these cases, there is an obvious cost to 

neighborhood opposition, but how much responsibility the local government bears for it may not always 

be clear. It is not uncommon for developers to hire consultants to debunk claims made by opposition to 

a project. 

Figure 3 below shows that the overwhelming majority (85 percent) of the developers responding to the 

NAHB-NMHC survey have experienced added costs or delays due to such opposition. 

Figure 3: Have you experienced added costs or delays due to neighborhood opposition 

to multifamily construction? 

Th 

e of Re po d 

Typic l Proj 

nts an 

ts 

The range of costs highlights that not all development projects are the same. Costs can vary by jurisdiction, as well as by geographic location and type of project-garden apartments on undeveloped land 

can be much less complicated to build than a high-rise in an urban area, for example. Respondents were 

able to choose more than one option as to their typical project type. 
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Respondents built a variety of product types that also varied by location (see Figure 4). The most common type of project was a garden development in the suburbs (12 percent). Mid-rise projects were the 

next common, with 35 percent building mid-rise developments in urban areas, and 37 percent building 

similar projects in inner-ring suburbs. About one-quarter (26 percent) of developers reported that they 

typically build high-rise apartments in urban settings. 

Figure 4: Type and Location of Multifamily Projects 

80% 

70% 

60% 

50% 

40% 

30% 

II I ... I I I I I I 

All regions of the United States were represented in the survey sample as well. The largest percentage 

of developers operated in the West South Central (33 percent) and Mountain (30 percent) regions 

(see Figure 5). The South Atlantic and Pacific regions featured the highest distribution of multifamily 

permits in the U.S. in 2017 and had the third and fifth largest distribution of respondents, respectively. 

Figure 5: Regions Where Respondents Build 

" 

'10 

?'i 

?0 

I 1'i 

10 

n New Mid (\oJJth F;J<;t 

I North I 

WP<:.t Nnrth 

I 

F;)<>t <:>OJJth WP<;.t ';o11th Mn1mI Atl;m~ fPn- IPn- lPn- f'PnThe Cost of Regulation to Apartment Development 11 
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A fairly wide range of typical development size was represented by respondents as well (Figure 6). A 

small portion of respondents (4 percent) typically built projects fewer than 50 units or greater than 

499 units (3 percent), while the remaining respondents were relatively evenly split between 50 to 149 

units (32 percent), 150 to 349 units (33 percent) and 350 to 499 units (28 percent). 

Figure 6: Typical Project Size (No. of Units) 

In terms of financial costs, the cost was even more widely distributed (see Figure 7). The average cost 

of a typical development project for these developers was $42 million. Over one-third (37 percent) of 

respondents had a typical project size of $10-$50 million. 

The Regulation to Development 12 
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Figure 7: Typical Project Size (Development Costs) 

Average = $42 Million 

Median = $35 Million 

As the above discussion has demonstrated, multifamily development can be subject to a bewildering 

array of regulatory costs, including a broad range of fees, standards, and other requirements imposed 

at different stages of the development and construction process. In view of this, it may not be surprising 

that regulation imposed by all levels of government accounts for 32.1 percent of multifamily development costs on average, and one-fourth of the time reaches as high as 42.6 percent. 

Although local governments generally have authority for approving development and adopting building 

codes, state and federal governments are becoming increasingly involved in the process. Sometimes 

the federal involvement is readily apparent, as when issuing stormwater permits or enforcing OSHA 

requirements. At other times, the federal involvement is less obvious. Examples include federal participation in model building codes and attempts to influence local development through conditions for 

obtaining grants or other sources of funding. Indirect influences like these sometimes make it impossible 

to untangle which level of government is ultimately responsible for a given dollar of regulatory cost. 

The current estimate that government regulation accounts for 32.1 percent of total development costs 

is almost certainly understated to some extent, as it was not possible to account for items like the effects 

of tariffs on building materials or the extent to which local jurisdictions may empower their citizens to 

oppose multifamily housing in their communities. Average costs could be evef) higher now or in the 

near future due to regulations taking effect since the multifamily projects in the survey were completed. 

For example, OSHA's Si!iJ;i;J_R~Il'_went into effect in late 2017, a regulation that industry groups have 

The Cost 13 
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criticized as 1![)reasonaQ.ly.QQs;LQ_\J.O_and unnes_<;_g;arily coill¥· Similarly,local jurisdictions are just beginning to adopt the 2018 veL~QDs_of the model international building codes. Home Innovation Research 

Labs has re~ently estimated that the difference between the 2018 and 2015 versions of the codes can 

add thousands of dollars onto the cost of a multifamily building. As is typically the case, federal agencies 

supported several of the cost-increasing changes to the codes. 

When the cost of multifamily development rises, it unavoidably translates to higher rents and reduced 

affordability of rental housing. Multifamily developers can not secure financing to build their projects 

unless they can demonstrate to lenders that the rents will be sufficient to cover costs and pay off the 

loans. 

The purpose of this report is not to argue that all regulation is bad and should be eliminated, but to raise 

awareness of how much regulation currently exists, how much it costs, and to encourage governments 

to do a thorough job of considering the implications for housing affordability when proposing and implementing new directives. 

The Cost of Regulation to Apmtment Development 
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l 

In order to calculate a final effect on development costs, many of the NAHB-NMHC survey responses 

need to be combined with additional information. Primarily these are assumptions about the terms of 

development and construction loans, and how long construction typically takes, and how to allocate 

costs to different stages of the development and construction process. This appendix lists all the assumptions used in the calculations and gives the sources for each. 

Loan Terms 

1. 1 point charged for all land acquisition, development, and construction (AD&C) loans, based on results 

from a Quarterly Finance Survey (QFS) that NAHB was conducting in the early to mid-2000s. 

A 7.65 percent interest rate on all AD&C loans. The QFS indicates that rates are typically set one point 

above prime, and 6.65 percent is NAHB's estimate of the prime rate that would prevail in the long run 

under neutral Federal Reserve policy. 

The estimates also assume that three-fourths of any category of costs are financed, based on typical 

AD&C loan-to-value ratios in the QFS. 

Construction Lags 

The source for information lags not directly collected in the NAHB-NMHC questionnaire is the SJ.JI'l!<'i 

of ConstructtQD, conducted by the Census Bureau and partially funded by the Department of Housing 

and Urban Development. 

Preliminary estimates are taken from the published annual tables, averaged over the 2001-2016 period: 

If project is 2-4 units 

• Authorization to start = 1.71 months 

Start to completion = 10.87 months 

If project is 5-9 units 

• Authorization to start = 1.95 months 

• Start to completion = 11.64 months 

If project is 10+ units 

• Authorization to start = 1.94 months 

• Start to completion = 13.21 months 

of Regulation to Apartment Development '5 
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The NAHB-NMHC survey collected data on how much time regulation adds to the development process. 

To assign this to a particular phase of the development the following assumptions are used. 

The regulatory delay is split and attributed half to the lag between applying for zoning approval and 

the beginning of site work, and half to the period after site work begins. If half of the regulatory delay 

exceeds the lag between applying for approval and beginning of site work, the excess is also attributed 

to the period after site work begins. It is first assumed that the resulting regulatory delay is attributable 

to the period between the start of site work and the start of building construction, minus 3 months (the 

assumed minimum time it would take to do site work in the absence of regulation, based on conversations with developers). If any regulatory delay remains after being allocated to the zoning approval and 

site work periods, it is then attributed to the building construction period, and the start-to- completion 

lag is adjusted upward beyond the SOC-based average, accordingly. 

The analysis assumes all loans are paid off when the buildings are completed. 

Cost Breakdown 

To implement the process described in the paragraph above and calculate a "pure" cost of delay (i.e., 

the effect regulatory delay would have even if the regulation imposed no other cost), estimates of 

costs incurred during different phases of the development process are needed. 

The breakdown is based on the split between lot and construction costs in NAHB's Construction Cost 

Surveys (averaged over surveys conducted since 2000) and the Census Bureau's "noncostruction cost 

factor" for raw land. The calculations also assume three-fourths of these costs are financed, based on 

typical AD&C loan-to- value rations in the QFS. 

Resulting assumptions: 

Only the cost of applying for zoning occurs at the very start of the development process. Financing 

costs associated with this are charged are to the regulatory cost of the application and not counted 

in the pure cost of delay. 

10.2 percent of total development represent costs financed by a land acquisition loan at the start of 

the site work phase. 

10.8 percent of total development costs represent costs financed by a development loan during the 

site work phase, assuming draws on the loan occur on average halfway through this phase. 

54.0 percent of total development costs represent costs incurred after building construction has 

started and financed with a construction loan, again assuming draws on the loan occur on average 

halfway through the site work phase. 

The Cost of Regulation to Apartment Development 
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s1. What type of multifamily projects do you typically build in what areas? Select all that apply 

Urban 

Core 

Inner-Ring 

Suburban 

Suburban Exurban Rural 

High-Rise 

Mid-Rise 

Garden/Low-Rise 

2. What regions do you build in? Please select all that apply. 

New England CCT, ME, MA, NH, Rl, VT) 

Mid Atlantic CNJ, NY, PA) 

East South Central (AL, KY. MS, TN) 

West South Central CAR, LA, OK, TX) 

South Atlantic (DE, DC, FL, GA, MD, Mountain (AZ, CO, ID, NM, MT, UT, NV, WY) 

NC, SC, VA, WV) 

East North Central (IN, IL, Ml, OH, WI) 

West North Central CIA, KS, MN, 

MO, NE, ND, SD) 

Pacific (AK, CA, HI, OR, WA) 

3. Including units you may start before the end of the year, how many multifamily units will your 

company start in 2017? 

When answering this survey, please refer all your answers 

to the typical (most common) multifamily project yonr company builds. 

Respond only for your local office/division, if you are part of a larger company. 

4. How many units does your typical project have? 

2-4 units 

5-9 

10-49 

50-149 

150-349 

350-499 

500 units or more 

5. What is the total dollar amount spent on development costs in your typical project? 

$. _____ _ 
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Land Use & Planning Regulations 

6. For a typical piece of land, how much does it cost to apply for zoning approval as a % 

of total development cost? (Include costs of fiscal or traffic impact or other studies, and any review 

or other fees that must be paid by time of application. Please enter "0" if application costs are Zero 

percent). 

___ % 

7. For a typical project, how many months does it take between the time you apply for zoning 

approval and the time you begin site work? 

_________ months 

Sa. When you begin site work, do you pay any guarantee or other fees that are refundable when the project is completed? 

0 Yes No 

Sb. If "yes" in question SA, how much are those refundable fees, as a % of total development 

costs? 

_________% 

9. Other than the refundable fees mentioned in question Sa, how much does it cost to 

comply with regulations when site work begins, as a % of total development costs? (Include 

costs of complying with environmental or other regulation as well as the cost of hook-up or impact 

or other fees.) Please enter "0" if cost of complying with these regulations is Zero percent). 

____ % 

10. How much do development requirements that go beyond what you would otherwise do 

(in terms of property layout, landscaping, materials used on building facades, etc.) add to 

your cost, as a % of total development costs? (Please enter "0" if the jurisdiction's requirements 

don't go beyond what you would normally do). 

____ % 

11. In the typical case, what is the value of any land that must be dedicated to the local 

government or otherwise left unbuilt (for parks, open green space, etc.), as a % of total development cost? (Please enter "0" if dedicating land is required infrequently). 

____ % 

12. How many months does it take between the time you begin site work and the time 

you obtain authorization to begin construction of the apartment building(s)? 

_________ months 

13. How much extra time (in months) overall does complying with regulations add to the 

development process? (Please enter "0" if regulations typically cause no delay). 

_________ ;months 

Regulation: Over 30 Percent of the Cost of a Multifamily Development 
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14. When you obtain authorization to begin construction, how much do you pay in additional 

fees, as a % of total development costs? In many cases, this will be only a permit fee, but 

include any additional impact or hook-up or inspection fees if they kick in at this time. (Please 

enter "0" if fees paid during or after construction are Zero percent). 

___ % 

15a. In the typical case, does a jurisdiction have inclusionary zoning/affordable housing requirements that apply to your project? 

Yes No 

15b. In the typical case, how much do these requirements (or a fee in lieu of affordable housing) 

cost as a percent of total development costs? (Please enter "0" if inclusionary zoning/affordable housing mandates/fees in lieu of affordable housing are encountered infrequently). 

___ % 

Construction/Building Regulations 

16. Over the past 10 years, how much have changes in construction codes and standards 

added to the cost of building a typical multifamily project, as a % of total development 

costs? (Please enter "0" if code changes have had minimal impact on costs). 

___ % 

17. How much does complying with OSHA or other labor regulations cost, as a% of total development cost? (Please enter "0" if labor regulations have no impact on development costs). 

___ % 

Don't know/use of subs makes it impossible to estimate 

18. Have you experienced added costs or delays due to neighborhood opposition to multifamily construction? 

Yes No 

Regulation: Over 30 Percent of the Cost of a Multifamily Develcpment 
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~ NA 

Testimony of Steven E. Lawson 

On Behalf of the 

National Association of Home Builders 

Before the 

House Financial Services Committee 

Subcommittee on Housing and 

Insurance 

Hearing on 

"The Cost of Regulation on Affordable Multifamily Development" 

September 5, 2018 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 1 

Introduction 

Chairman Duffy, Ranking Member Cleaver and members of the subcommittee, I am pleased to 

appear before you today on behalf of the National Association of Home Builders (NAHB) to 

discuss the impact of regulatory burdens on multifamily housing developments. 

My name is Steve Lawson. I am a third-generation home builder from Virginia. As president of 

The Lawson Companies, I oversee a portfolio of more than 5,000 apartments and $15 million in 

annual construction and development. I also serve as chairman of NAHB's Multifamily Council, 

which represents NAHB members who build market-rate and affordable rental apartment 

buildings, condominiums for sale, student rental housing and mixed-use development projects. 

NAHB represents more than 140,000 members who are involved in building single-family and 

multifamily housing, remodeling and other aspects of residential and light commercial 

construction. NAHB's members construct approximately 80 percent of all new housing in the 

United States each year. Many of our builders, including myself, rely on federal programs to 

help provide decent, safe and affordable multifamily housing to millions of our fellow Americans. 

I would like to thank the subcommittee for holding this important hearing. Reasonable people 

would agree that there is a role for sensible regulations to protect health, safety and fair housing 

rights. Today we have the opportunity to examine the impact on affordable housing when 

regulations at all levels of government exceed these traditional parameters and the regulatory 

process becomes a vehicle to advance other public policy goals. At a time when affordable 

housing is out of reach for so many Americans, and new estimates from NAHB and the National 

Multifamily Housing Council (NMHC) indicate regulatory costs account for nearly one-third of the 

cost of multifamily development, it is not hard to conclude that overregulation is stifling new 

production of rental housing. 

My testimony will emphasize the following themes: 

• NAHB's economic forecast for multifamily production indicates demand remains strong, 

but production is constrained by regulatory burdens, high cost of building materials and 

labor shortages; 

A new joint study by NAHB and NMHC, estimates that regulations account for 32 

percent of the cost of multifamily development. Therefore, NAHB recommends that 

policy makers: 

o Consider the cumulative effects of regulatory requirements to determine whether 

a new mandate is necessary to protect the health and safety of the public, or if it 

is simply a means to achieve a policy goal; 

o Remove barriers to production of multifamily housing; 

o Ensure that energy codes and standards are cost-effective, affordable and have 

a reasonable payback period of 10 years; and 

o Common sense updates to Davis-Bacon wage determination policies would help 

builders construct more affordable housing; 

• Fair housing laws are important, and NAHB sees an opportunity to make constructive 

improvements to the Affirmatively Furthering Fair Housing (AFFH) Rule; 

The Trump Administration must resolve issues related to lumber and steel tariffs, which 

have needlessly raised the price of building materials; 

• Multifamily builders and developers need reliable access to credit; and 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page2 

It is essential to maintain and properly fund federal rental assistance and multifamily 

production programs to serve very-low-income and extremely low-income Americans 

Economic Data on Multifamily Housing 

The demand for multifamily housing is still strong, but builders· confidence in the market has 

taken a slight hit recently. 

Multifamily Production 

From 1997 to 2006, a period seen as normal, multifamily housing starts averaged 340,000 units 

annually. Production fell to a low of fewer than 120,000 units per year in 2009 and 2010. 

Though annual production levels have recovered, they still have not been able to compensate 

for the severe lows in 2009 and 2010. 

NAHB's most recent housing forecast calls for 376,000 multifamily housing starts in 2018 and 

an average of 355,000 starts from 2018 through 2020. These projections equate to multifamily 

housing starts of about 11 percent above the normal rate of 340,000 in 2018 and an average of 

about 4.5 percent above the normal rate from 2018 through 2020. Considering there are more 

than 135 million housing units in the U.S., multifamily housing units are contributing less than 

three-tenths of one percent to the housing stock per year. 

In 2006, prior to the downturn, the homeownership rate was nearly 69 percent. Today, the 

homeownership rate is slightly over 64 percent. In the decade from the first quarter of 2007 

through the first quarter of 2017, year-over-year growth in renter households averaged roughly 

860,000 households. Although the number of renter households has declined slightly since the 

start of 2018, as the homeownership rate has recovered somewhat, it is still clear that the 

growth in the number of renter households has far exceeded the number of multifamily housing 

units being built. Additionally, the new construction of multifamily housing units that has taken 

place has served the upper end of the market. 

Moreover, renters typically have more modest incomes. The latest available data from the 

American Community Survey show that median income of renter households in 2016 was 

$37,264. To be considered affordable, according to the conventional criterion, housing costs for 

a household at this income level should be no more than about $930 per month, or 30 percent 

of income. However, in the same year, the median asking rent for apartment units completed (in 

buildings with at least 5 apartments) was almost $2,200. This amount did not include any utility 

costs in cases where they are paid directly by the tenant. Only 11 percent of the apartments 

completed in 2016 had asking rents under $1 ,050-which is still above the level that would 

make them affordable to the median renter. 

The reason such a large segment of the rental market is not being served by new multifamily 

construction is not because developers are unwilling to build for this market segment. Most 

often it is because those developers' costs of acquiring the land and building on it are too high 

to allow them to do so unless they receive a substantial government subsidy. 

A significant category of these costs is the cost of local, state and federal regulation that a 

developer faces. 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page3 

Multifamily Production Index and Multifamily Vacancy Index' 

NAHB monitors multifamily builder and developer confidence in the market through its 

Multifamily Production Index (MPI). The MPI measures builder and developer sentiment about 

current conditions in the apartment and condo market on a scale of 0 to 100. The index and all 

of its components are scaled so that a number above 50 indicates that more respondents report 

conditions are improving than report conditions are getting worse. In the second quarter of 

2018, the MPI showed that confidence slipped two points to 51, compared to the previous 

quarter. Although the MPI dropped slightly compared to the first quarter of 2018, an MPI above 

50 still reflects a solid number of multifamily starts this year. 

The MPI is a weighted average of three key elements of the multifamily housing market: 

Construction of low-rent units-apartments that are supported by low-income tax credits 

or other government subsidy programs; 

Construction of market-rate rental units-apartments that are built to be rented at the 

price the market will hold; and 

Construction of for-sale units-condominiums. 

The component measuring low-rent units rose three points to 57, while the component 

measuring market rate rental units fell six points to 50 and the component measuring for-sale 

units dropped three points to 46. 

NAHB's Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's 

perception of vacancies, rose three points to 45 in the second quarter of 2018. The MVI is a 

weighted average of current occupancy indexes for class A, B, and C multifamily units, and can 

vary from 0 to 100, where any number over 50 indicates more property managers report more 

vacant apartments. Although the MVI increased in the second quarter, a reading of 45 is still 

seen as a healthy number for the multifamily market. 

Multifamily builders and developers are seeing strong demand, but there are headwinds that 

have impacted further development. Some developers have had difficulty getting projects off the 

ground due to regulatory burdens and neighborhood opposition in certain parts of the country. In 

addition to regulatory costs, developers still need to monitor the impact of tariffs and the threat 

of further trade restrictions on building materials prices, especially lumber. 

Regulations Account for Nearly One-Third of the Cost to Develop Multifamily Housing 

Home builders and their subcontractors are among the small businesses that are 

disproportionately burdened by complicated regulations and expensive compliance costs. The 

multifamily sector is particularly subjected to these obligations. Overregulation of the housing 

industry is felt at every phase of the building process. It results from local, state and federal 

mandates. It includes the costs of applying for zoning and subdivision approval, environmental 

mitigation, and permit, hook-up, impact and other government fees paid by the builder. 

These added costs result in higher rents and reduced affordability. In many cases, these 

projects become financially infeasible and, therefore, not built. Multifamily developers cannot 

1 Please see "Multifamily Market Survey Second Quarter 2018" National Association of Home Builders 

Economics and Policy Group, August 23, 2018. 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page4 

secure financing unless they can demonstrate to lenders that the rents will be sufficient to cover 

costs and pay off the loans. 

As a small business owner operating in a heavily regulated industry, I understand how difficult 

(and often costly) it can be to comply with the myriad of government regulations that apply to my 

day-to-day work. This is particularly noteworthy in an industry where margins are so thin and 

consumers' sensitivity to price fluctuation is so acute. 

According to Multifamily Cost of Regulation, a study conducted jointly by NAHB and NMHC, 

regulation imposed by all levels of government (whether local, state or federal) accounts for 

32.1 percent of the cost of an average multifamily development. This study is based primarily on 

a survey of multifamily developers from both organizations. 

Before I discuss the results of this analysis, I would emphasize that NAHB does not believe all 

regulation is bad. However, mandates at all levels of government have expanded beyond basic 

safety and soundness considerations and morphed into complicated compliance regimes, 

expensive code changes, energy efficiency mandates and/or restrictive land use policies. The 

compliance costs and fees associated with such policies are exacerbating the difficulty of 

providing safe, decent, and affordable rental housing. 

When regulatory and compliance costs account for nearly one-third of the project cost, or 

exceed 42 percent in some cases, it is time to take a hard look at the cumulative effect of 

regulatory requirements. It has become relatively common for proposed federal legislation or 

regulations to encourage local jurisdictions to adopt particular types of building codes or land 

development patterns. An informed discussion of these proposals should recognize that, on 

average, regulation already accounts for almost one-third of a new multifamily project's 

development and building costs. 

Multifamily Cost of Regulation Joint Study 

The purpose of the joint analysis is to raise awareness of how much regulation currently exists, 

how much it costs and to encourage governments to do a thorough job of considering the 

implications for housing affordability when proposing and implementing new directives. 

The only way to gather comprehensive data is by questioning multifamily developers, as they 

are the only ones who experience the wide range of forms regulation can take. NAHB and 

NMHC set out to accomplish this through a survey of both memberships. The purpose of the 

survey was to quantify how much regulation exists and how much it is adding to the cost of 

developing new multifamily properties. 

Since multifamily developers do not, in general, have accounting systems designed to tease out 

these regulatory costs, NAHB and NMHC crafted questions for developers about the typical 

projects they build, including delays and costs incurred at different stages of the development 

process. Developers were asked to provide all hard costs as a percent of total development 

costs for their typical projects. 

Housing affordability is a serious issue throughout the country, and this new research only 

further illustrates how the layers of excessive regulation translate into higher rents and reduced 

affordability for consumers. The results show that well over 90 percent of multifamily developers 

typically incur hard costs of fees paid to local governments, both when applying for zoning 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 5 

approval, and again when local jurisdictions authorize the construction of buildings. The study 

also shows that government regulations often imposes costs in other ways. Although local 

governments generally have authority for approving development and adopting building codes, 

state and federal governments are increasingly becoming involved in the process and layering 

on additional levels of fees and regulations. 

The components that have the biggest cost impact are changes to building codes and costs 

attributable to development requirements {such as streets, sidewalks, parking, landscaping and 

architectural design) that go beyond what the developer would ordinarily provide. 

Changes to building codes over the past 10 years have accounted, on average, for 7.0 percent 

of the cost of developing the property. No one would argue against standards for basic 

soundness and safety of structures, but building codes have expanded well beyond this. 

The requirements by many local governments for new development to conform to community 

design standards {for example, streets, sidewalks, parking, height of buildings, landscaping, and 

architectural design) impose added costs if these standards go beyond what a multifamily 

developer would normally provide. These beyond-ordinary development requirements were the 

second most costly type of regulation, accounting for 5.9 percent of development costs, on 

average. 

The chart below shows the average costs for the various types of regulation covered in the 

NAHB-NMHC study. 

Government Regulation as a Share of Multifamily Development Costs 

42.6%* II Cost 

Lower Quartile Average Upper Quartile 

Note: "' r or quartiler., .lit types of to~h do not 'Hml to the total. 

t.OOes over the pa~t 10 ye-ars 

Y Oev-elopment requiH'fl1'C't1ts beyond 

the det,~ioper wtiuld t)tdinarily do 

ta Fees (harged when buflding 

II Cost ot applying for 

w Non·tehmdable fet'S charged site 

work begins 

Ill Cost of complying with 0':-HA 

requirements, 

WOthE-r 

In the chart, the "other" category includes interest on refundable fees charged when site work 

begins, the value of land that the developer must dedicate to the government or otherwise 

leave unbuilt, the cost of so-called affordability mandates imposed without any incentives to 

offset the cost, and a "pure" cost of delay (i.e., how much the delay would cost even if 

regulation imposed no other type of cost). 
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National Association of Home Builders 

September 5, 2018 

Page6 

As mentioned above, on average these costs add up to 32.1 percent of the cost of 

developing a new multifamily property. One-fourth of the time they reach as high as 42.6 

percent. Oftentimes, these regulations end up pushing the prices of housing beyond the 

means of many middle-class working American families. The extent of the impact varies 

widely across states and metro areas, depending on population, income distributions and 

new home prices. This highlights the real effect that building regulations have on housing 

affordability. 

Although local governments generally have authority for approving development and 

adopting building codes, state and federal governments are becoming increasingly involved 

in the process. Sometimes the federal government involvement is readily apparent, as when 

issuing storm water permits or enforcing OSHA requirements. Other times, the federal 

government involvement is less obvious. Examples include federal participation in the 

development of model building codes, and attempts to influence local development through 

conditions for obtaining grants or other sources of funding. Sometimes, indirect influences 

like these make it impossible to untangle which level of government is ultimately responsible 

for a given dollar of regulatory cost. 

The current estimate that government regulation accounts for 32.1 percent of total 

development costs is almost certainly understated. It was not possible to account for items 

like the effects of tariffs on building materials or the extent to which local jurisdictions may 

empower their citizens to oppose multifamily housing in their communities. Average costs 

could be even higher now or in the near future due to regulations taking effect since the 

multifamily projects in the survey were completed. For example, OSHA's Silica Rule went 

into effect in late 2017, a regulation that industry groups have criticized as unreasonably 

onerous and unnecessarily costly. Similarly, local jurisdictions are just beginning to adopt the 

2018 versions of the model international building codes which are estimated2 to add 

thousands of dollars to the cost of a multifamily building. Several of these cost-increasing 

changes were supported by federal agencies. 

Specific Burdensome Regulations 

Building Codes 

Virtually no one would argue against public standards for basic soundness and safety 

building codes for residential structures. Over the decades, however, building codes have 

expanded well beyond the basics. They are increasingly used as a vehicle to advance 

various policy objectives. In particular, federal agencies, such as the Environmental 

Protection Agency (EPA), the Federal Emergency Management Agency (FEMA) and the 

Department of Energy (DOE) actively participate in the development of national model 

codes, proposing changes to national model codes and testifying in favor of them during 

code hearings 

As previously noted, the highest regulatory costs identified in the NAHB-NMHC study were 

changes to building codes over the past 10 years. These code changes accounted for an 

average of 7.0 percent of property development costs. 

2 Home Innovation Research Labs. "Estimated Costs of the 20181CC Code Changes for Multifamily Buildings," April 

2018. 
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National Association of Home Builders 

September 5, 2018 

Page7 

Moreover, the costs associated with building codes are still on the rise. A report by the Home 

Innovation Research Labs3, Estimated Costs of the 2018 ICC Code Changes for Multifamilv 

Buildings, shows minimum cost impacts for typical multifamily buildings ranging from $2,500 

for a small 2-story multifamily project to $25,000 for a larger 5-story project. 

The higher costs are primarily due to significant changes involving elevators and wind load 

design. 

Home Innovation looked at four multifamily buildings ranging from a 2-story, 24-unit building 

to a 5-story, 167-unit building. Two of the four buildings included public spaces such as 

community or fitness rooms, leasing offices or retail spaces. The study also looked at a 

typical 4-story townhouse. All the buildings were selected from actual completed projects 

certified by Home Innovation under the ICC-700 National Green Building Standard. 

The 20181nternational Building Code (IBC) requires all elevators, including service elevators 

and elevators not accessible to the public, to have a two-way text-and video-based 

communication system for the hearing- and speech-impaired. It was difficult to quantify the 

cost, as no consensus standard for such a system exists, but an estimated cost per elevator 

is between $2,500 and $5,000. While proposed by a private individual, inclusion of this 

system was supported by the Department of Housing and Urban Development (HUD) and 

the US Access Board, despite it not being a requirement of the Fair Housing Act or the ADA, 

or otherwise included in nationally-recognized, consensus-based accessibility standards. 

Revisions to design methods for wind resistance in the 2016 edition of the ASCE 7 Minimum 

Design Loads for Buildings and Other Structures standard, incorporated by reference in the 

2018 IBC, significantly increased costs for roof construction .. 

Cost increases of $2,400 to $4,300 per building were estimated for buildings with steepsloped hip- or gable-roofs, commonly seen in suburban condominium or apartment 

complexes. Buildings with low-slope roofs, more commonly seen in dense, urban 

environments, could see cost increases of $8,400 to $16,700 per building. 

Fire code officials' ability to require a fire watch during construction was strengthened and 

expanded in response to a perceived increase in such fires. For larger projects, the cost to 

provide a 24/7 fire watch can exceed $233,000. Industry coalitions are working to address 

this issue by educating contractors regarding fire-safe work practices and do not believe 

increased and burdensome regulations are necessary. 

Energy Efficiency 

A leading example of how codes are used to advance policy objectives is energy efficiency. 

For instance, DOE has a share of its budget set aside for persuading state and local 

jurisdictions to adopt more stringent codes to promote energy efficiency objectives. 

Representatives from NAHB who witnessed all of the recent code hearings have criticized 

federal agencies for supporting certain code changes that removed flexibility and limited 

builders' options, driving up costs without improving energy efficiency, and to the benefit of 

specific product manufacturers. 

3 Home Innovation Research Labs is an independent subsidiary of NAHB. 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 8 

NAHB agrees that energy efficiency is a worthwhile objective, and we support a number of 

voluntary initiatives and research to promote this goal. Nevertheless, up-front costs of these 

initiatives must be kept within reasonable bounds. NAHB strongly urges that energy codes or 

standards must be cost-effective, affordable, and supported by a reasonable payback period 

of 10 years. 

Implementation of Davis-Bacon and Related Acts 

Davis-Bacon prevailing wage requirements apply to a number of HUD's programs, including 

Federal Housing Administration (FHA) multifamily mortgage insurance programs for new 

construction and substantial rehabilitation. These critical mortgage insurance programs, 

especially HUD's Section 221(d)(4) program•, enable NAHB's members to develop 

apartment communities affordable to low-and-moderate-income families. For multifamily 

builders, the requirement to use Davis-Bacon wage rates artificially drives up the cost of 

constructing affordable housing. NAHB is concerned that these policies will dissuade 

builders and lenders from using FHA multifamily mortgage insurance programs, resulting in 

fewer affordable units for hard working Americans during an affordable housing crisis. 

Further, the compliance burdens are creating barriers to entry for small mom-and-pop 

subcontractors to work on these projects. 

Several key steps in the wage determination process can be improved, but achieving such 

results will require an ongoing commitment from the senior leadership of both HUD and the 

U.S. Department of Labor (DOL). Two of the most important Davis-Bacon policy issues that 

require inter-agency cooperation are resolution of split wage determinations on residential 

buildings and improving the timing for assignment of wage rate determinations. 

Davis-Bacon Split Wage Determinations 

Under Davis-Bacon, there are four basic categories of wage determinations based on the 

type of construction: residential (projects with no more than four stories), building, heavy and 

highway. DOL and HUD guidance set a threshold for determining substantial construction 

which requires a separate wage determination, and incidental construction which does not. 

Using its 1996 Labor Relations Letter No. LR-96-035, HUD would issue one Davis-Bacon 

wage determination for multifamily properties if construction items (such as parking, club 

houses, streets etc.) are incidental in function to the overall character of the project, and if 

there is not a substantial amount of construction in the other categories. Except in the most 

extraordinary circumstances, the residential classification would not be altered by the cost of 

incidental items, even if their costs reached the "substantial" thresholds. "Substantial" 

construction is defined under various handbooks and guidance documents as greater than 

20 percent of total project cost and/or $1 million or more in terms of absolute cost. Multiple 

wage determinations could be required when a project included separate and distinguishable 

4 HUD's Section 221(d)(4) program insures mortgage loans to facilitate the new construction or substantial 

rehabilitation of multifamily rental or cooperative housing for moderate-income families, elderly, and the 

handicapped. It is the largest of the FHA multifamily mortgage insurance programs for new construction and 

substantial rehabilitation. 

5 HUD (OLSE) Labor Relations Letter No. LR-96-03 "Application of Department of Labor guidance concerning 

'projects of a similar character"' to Guide Davis-Bacon Wage Determination Policies (12/02/1996) 
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National Association of Home Builders 

September 5, 2018 

Page 9 

components that fall into different construction categories and the components are not 

incidental to each other, but multiple wage determinations on HUD multifamily jobs were 

extremely rare. 

In 2013, DOL directed HUD to revise its Davis-Bacon guidance documents and handbooks. 

DOL objected to FHA's broad interpretation of incidental construction, and directed HUD to 

scrutinize the cost of construction items that exceed 20 percent of the total project cost or 

cost more than $1 million. 

Unfortunately, the policies DOL directed HUD to use for assigning split Davis-Bacon wage 

determinations to "substantial construction"6 items on residential apartment projects are 

jeopardizing FHA-insured multifamily deals. Since 2016, it has become common for 

multifamily lenders and borrowers seeking FHA mortgage insurance to be assigned split 

wage decisions for residential properties when construction items exceed $1 million in costs, 

even though the items historically have been treated as incidental construction. 

The $1 million threshold is especially problematic for multifamily properties. On larger 

projects, it is not difficult for the cost of garages, club houses, landscaping, roads and other 

common apartment components to exceed this threshold. As the cost of construction 

continues to climb, this figure will be even more easily surpassed. DOL's insistence that HUD 

use the $1 million cost threshold as a basis for assigning separate wage determinations 

results in confusing, costly and administratively burdensome split wage decisions on 

residential projects. In many cases, borrowers and lenders receive this information very 

close to the closing date on their loans, and must substantially re-work the deals at the last 

minute to make them feasible. 

For these reasons, NAHB requested DOL and HUD to enact policies that account for the 

current realities of residential construction. NAHB continues to strongly encourage DOL to 

draft a wage determination policy with HUD that: 

Classifies any housing development project that is 4 stories or less as "residential;" 

and 

Does not alter the residential classification by assigning a split wage determination 

based on the cost of construction for items, unless those costs exceed 20 percent of 

total project costs. 

Alternatively, DOL and HUD could simply reaffirm Labor Relations Letter No. LR-96-03 as the 

appropriate guidance for FHA insured residential projects. 

Timing of Davis-Bacon Wage Rate Determinations 

When borrowers use FHA multifamily mortgage insurance for new construction or substantial 

rehabilitation, unexpected changes in Davis-Bacon wage rates that occur late in the 

application process may result in higher rents to tenants or even totally derail a project. 

6

DOL is relying on these documents: U.S. Department of Labor Employment Standards Administration Wage and 

Hour Division All Agency Memorandum No. 130 "Application of the Standard of Comparison 'Projects of a 

Character Similar' Under The Davis-Bacon And Related Acts" (3/17/1978) and U.S. Department of Labor 

Employment Standards Administration Wage and Hour Division All Agency Memorandum No. 131 "Clarification of 

All Agency Memorandum No. 130" (7/14/1978). 
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National Association of Home Builders 

September 5, 2018 

Page 10 

There is no predictability to the timing or variation in dollar amounts of Davis-Bacon wage 

rate modifications. Surveys may be done frequently or not for many years. Some wage rates 

are changed in response to union collective bargaining agreements, but timing is also 

unpredictable. For example, there were 18 modifications to the "building" category wage 

rates in Montgomery County, Maryland, during 2014. Sometimes the modifications are so 

extreme, it renders a feasible development impossible. A September 2012 wage rate 

determination for a number of counties in Ohio increased a variety of trades' wage rates by 

100 to 400 percent from the previous determination issued in 2010. 

For these reasons, we urge interagency cooperation between HUD and DOL to permit 

borrowers on FHA-insured multifamily developments to lock in the wage rate determination 

for individual projects as early in the application process as possible. Developers and 

builders risk considerable sums up-front just in preparing an FHA application; once they have 

received a firm commitment, the mortgage amount is set. and it becomes time-consuming 

and costly to make changes. 

An appropriate time for locking in Davis-Bacon prevailing wages for a new construction or 

substantial rehabilitation multifamily project is when HUD accepts a lender's application for a 

Firm Commitment. At the time HUD accepts a lender's application, it deposits the application 

fee and issues a receipt. The date on the receipt HUD issues to the lender should be 

accepted as a government source for a date-certain to lock in the current prevailing wage 

rates. NAHB continues urging DOL to change its policies, so HUD may lock in the DavisBacon prevailing wage rates at the time it accepts an application for a firm commitment of 

multifamily mortgage insurance for new construction or substantial rehabilitation. 

lnclusionary Zoning 

lnclusionary Zoning (IZ) requires a portion of new construction be designated as affordable 

housing for those with low-to-moderate income. Specifically, IZ policies typically require 

developers to subsidize a specified percentage of total units within market-rate developments 

and to set income-based price controls for the subsidized units. NAHB is concerned that there is 

too much focus on IZ as the single preferred method of achieving fair housing goals. 

In the typical case where there are no or insufficient offsetting subsidies, IZ requires developers 

to lose money on some of the housing they build. This is effectively a tax, resulting in higher 

rents on non-subsidized apartments. In the NAHB-NMHC study, 30 percent of the multifamily 

projects were subject to IZ or similar "affordability" mandates. In these cases, IZ accounted for 

5.7 percent of development costs on average, enough to cause a substantial increase in rents. 

The reality is that different market segments may require different tools for improving 

affordability, from direct or indirect subsidies at the low end of the income bracket to better 

planning for housing and regulatory barrier removal strategies at the upper end of the income 

range. An economic study conducted for NAHB that focused on price and production effects 

concluded that in places like California, there was not an overall increase of housing production 

from IZ, and that IZ acts like a tax on housing. 

The middle class gets squeezed out under IZ. Due to an increase in the cost to cover 

subsidized IZ units, the middle class is no longer able to afford the market-priced units 

and they are ineligible for the subsidized rates. IZ simply shifts the burden without solving 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 11 

the long-term affordability issues. 

IZ may be feasible if the right incentives are available. There are other approaches such as 

planning and zoning changes to assess development capacity and encourage affordable 

housing. Expedited permitting processes and advocacy efforts to reduce NIMBYism can also 

have broad effects on housing affordability. 

NAHB urges government to encourage and coordinate with, and not prescribe to, local 

communities to adopt long-term comprehensive plans that will meet the demand for new 

housing and economic development. Eliminating exclusionary planning and zoning practices will 

encourage the production of the full range of housing options for all members of the community. 

Fair Housing 

NAHB supports the goals of the Fair Housing Act, as amended, to protect individuals' ability to 

own or rent property free from discrimination and ensure that those individuals have equal 

access to housing, regardless of race, color, national origin, religion, sex, disability, and familial 

status. NAHB supports policies that allow all individuals the opportunity to pursue their American 

Dream and seek the housing of their choice while allowing its members to develop and build 

safe and affordable housing in all areas where it is needed. 

Furthermore, NAHB urges Congress to pass legislation that reduces barriers to, and supports 

the development of, much needed affordable housing and to provide clear exemptions from 

liability under the Fair Housing Act, where such liability may arise from good faith unintentional 

acts in pursuit of compliance with the requirements of local, state and federal housing programs. 

NAHB resolves to work with HUD staff to help the Agency clarify rules for preventing 

discrimination in accordance with the Fair Housing Act. 

Affirmatively Furthering Fair Housing 

I would also like to take a moment to discuss NAHB's position on HUD's Affirmatively Furthering 

Fair Housing (AFFH) Rule, which became effective Aug. 17, 2015. It requires states, local 

governments and public housing agencies to conduct a formal fair housing planning process as 

a condition of receiving certain HUD funds, such as the HOME Investment Partnership Program 

(HOME) and Community Development Block Grant (CDBG) Programs. 

Many of NAHB's multifamily builders often encounter fierce opposition to their projects, 

especially when they attempt to build in more affluent areas. In fact, the NAHB-NMHC study 

found that 85 percent of the developers surveyed experienced added costs or delays due to 

neighborhood opposition to multifamily construction. 

NAHB supports the rule's goals of reducing concentrations of poverty and housing segregation 

as well as providing greater economic opportunity to all residents in a community. The rule may 

help remove some barriers to affordable housing, but in its current form, the AFFH regulation 

could pose further challenges to producing and preserving affordable housing. NAHB is 

concerned that this initiative could have the unintended consequences of the federal 

government dictating prescriptions for land use and program design. Because HUD has 

authority to withhold housing funds from areas whose fair housing plans were not accepted, the 

AFFH rule may also pressure local jurisdictions to undertake misguided and shortsighted quick 

fixes, such as inclusionary zoning, in order to ensure that federal grants and subsidies are not 
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National Association of Home Builders 

September 5, 2018 

Page 12 

disrupted, rather than pursuing solutions that are sustainable over the longer run. As one NAHB 

member noted, "Sometimes even the suggestion [of inclusionary zoning] is all the local 

government staff needs to run with a program, and to 'get the housing done.' They don't realize 

how expensive, and hard it is to implement [inclusionary zoning] within a development." NAHB 

also expressed concerns about the rule's potential for inappropriate federal encroachment on 

legitimate business practices, such as a landlord's refusal to accept rental subsidies. 

Under the rule, local governments, states and public housing agencies must submit an 

Assessment of Fair Housing (AFH) analysis which: 

Examines fair housing data to identify patterns of racially concentrated areas of poverty 

and disproportionate housing needs; 

Prioritizes fair housing goals; 

Determines what actions are necessary to achieve those goals; and 

Sets a timetable for reaching them. 

In May, HUD withdrew the Local Government Assessment Tool. HUD explained that it initially 

rejected about 35 percent of AFH plans submitted by local governments in 2017, and called the 

tool "inadequate to accomplish its purpose of guiding program participants to produce 

meaningful AFHs." The Department committed to make it less burdensome and more helpful in 

creating impactful fair housing goals. In the absence of a working information collection device, 

program participants were directed to use the previous analysis of impediments to fair housing 

choice (AI). 

On August 13, HUD published an Advanced Notice of Proposed Rulemaking inviting public 

comment on amendments to its AFFH regulation. The Agency requested comments on changes 

that minimize regulatory burdens, focus on positive results rather than analysis, provide greater 

local control and innovation, increase housing choice and supply, and more efficiently use HUD 

resources. NAHB will work with HUD in hopes of making constructive improvements to this 

regulation. 

Other Factors That Inhibit New Multifamily Production 

Unfortunately, burdensome regulations are not the only policies pushing construction costs 

higher and housing affordability lower. Multifamily builders are also struggling with the effects 

of tariffs placed on goods that are integral to construction. Shortages of skilled labor also 

cause delays and drive up costs. 

Tariffs 

In early 2017, the Trump Administration levied combined tariffs as high as 27 percent on 

softwood lumber imported from Canada. As a result, the cost of framing lumber spiked and 

has been as volatile as we've ever seen. These price increases have caused the market 

value of every newly built multifamily unit to rise $1 ,500. 

But lumber isn't the whole story, particularly for multifamily developers. Tariffs on steel have 

also had adverse effects on the industry. Earlier this year, tariffs and quotas on steel and 

aluminum were put in place in the name of national security. As a result of this policy, the 

price of structural steel, including beams used to frame taller multifamily projects, has 

increased 20 percent in 2018. 
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National Association of Home Builders 

September 5, 2018 

Page 13 

If President Trump decides to move forward with tariffs on $200 billion of Chinese imports, 

the effects would be dire. The list of goods that would see a sudden 25 percent tax increase 

includes countertops, nails, saws, light fixtures, wire, kitchen cabinets and almost everything 

else we use to build homes. 

Taken together, the price of building materials has been rising two to three times faster than 

the rate of inflation over the last six months. 

Labor Shortages 

The NAHB/Wells Fargo Housing Market lndex7 from December 2017 indicated that the cost 

and availability of labor was the top problem for builders in 2017. Eighty-two percent of 

builders reported problems with the cost and availability of labor in 2017. Eighty four percent 

of builders cited labor shortages as the top problem they expected to face in 2018, placing 

this issue in a tie for first place with building material prices. 

Simply put, the skilled labor workforce is aging, and not enough new workers are entering 

the trades. The result of this dynamic is a chronic labor shortage in the home building 

industry. 

In response to President Trump's plan to expand workforce development, NAHB pledged to 

educate and train 50,000 new workers over the next five years for careers in the construction 

trades. NAHB's Home Builders Institute (HBI), our workforce development arm, offers youth 

and adult training programs across the country to provide students with the hands-on 

experience necessary to build careers in construction and related fields. HBI will expand 

training, certification and job placement programs for underserved and at-risk youth, 

transitioning military, veterans, ex-offenders and displaced workers. 

Section 3 Program 

HUD's Section 3 Program is a little-known program that has been on the books for well over 20 

years but has been administered under an interim regulation since 1994. 

"Section 3" refers to Section 3 of the Housing and Urban Development Act of 1968, as 

amended by the Housing and Community Development Act of 1992. An obscure HUD 

program usually associated with public housing, Section 3 requires recipients of certain HUD 

financial assistance (including HOME and CDBG), to the greatest extent possible, to provide 

job training, employment, and contract opportunities for low- or very-low income residents in 

connection with projects and activities in their neighborhoods. 

Reports from NAHB members indicate that Section 3 requirements are not uniformly enforced 

across the country. Where it is enforced, some builders attribute increased costs, 

administrative burdens and project delays to the program's requirements. Although wellintended, HUD's plans for Section 3 could present serious unintended consequences, such 

as additional costs and project delays, for multifamily builders. 

7 The NAHB/Wells Fargo Housing Market Index is a monthly survey of NAHB members designed to take the pulse of 

the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes 

at the present time and in the next six months as well as the traffic of prospective buyers of new homes. 
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National Association of Home Builders 

September 5, 2018 

Page 14 

NAHB has offered solution-oriented ideas that address the construction labor shortage and 

promote job opportunities for low-income men and women. NAHB urged HUD to develop 

strategic partnerships with job training and social skill-building specialists who will deliver 

employees from the local community trained in the skill appropriate for the job site. For 

instance, HUD could work in partnership with NAHB's HBI to offer youth and adult training 

programs across the country that provide students with the hands-on experience necessary 

to build careers in construction and related fields. NAHB also asserted that HUD should 

either require the local government to maintain and/or certify a list of Section 3 firms, or HUD 

should take on that responsibility. The onus should also be on HUD or the local government 

to verify the eligibility of a Section 3 business, rather than shunting that responsibility to the 

builder, general contractor or subcontractors. HUD's online Section 3 Business Registry is a 

positive first step. Unfortunately, HUD does not verify the self-certifications submitted by the 

businesses, and it cautions database users to perform due diligence before awarding 

contracts. 

Although the status of Section 3 regulations have not changed at this time, NAHB continues 

to monitor this issue and remains engaged with the appropriate HUD staff. 

Access to Credit 

Affordable multifamily development is dependent on accessible financing options. Fannie Mae 

and Freddie Mac (the Enterprises), HUD, FHA, the Rural Housing Service (RHS) in the 

Department of Agriculture (USDA) and Ginnie Mae all play a significant role in providing various 

credit options to support affordable multifamily development. State and local housing finance 

agencies (HFAs) also are a source of affordable multifamily financing programs. These 

agencies have proven to be dependable sources of financing even when private market sources 

of multifamily financing have withdrawn from the market in adverse economic conditions. 

The Enterprises' multifamily programs form the core of multifamily debt financing provided by 

major financial institutions. The range of products and business lines employed by the 

Enterprises allow a wide range of multifamily rental properties that provide housing for very-low 

to middle income households to be financed in the conventional market. In fact, the Federal 

Housing Finance Agency (FHFA) announced in November 2017 that Fannie Mae and Freddie 

Mac will be allowed limited re-entry into the LIHTC market as equity investors. Allowing Fannie 

and Freddie to compete with private investment capital is expected to increase competition for 

the credits and thereby increase the value of the credits, resulting in more capital and greater 

affordability for LIHTC projects in rural areas. 

Ginnie Mae's guarantee of securities of eligible multifamily FHA insured loans and multifamily 

Rural Development (RD) loans guaranteed by the RHS is essential to affordable multifamily 

development. Together, these agencies provide crucial counter-cyclical support to the housing 

market, expanding in downturns and contracting when the market improves. 

HFAs generally have a mission to provide funding to increase and sustain affordable rental 

options and homeownership. These agencies support low- and moderate-income renters and 

homebuyers, and/ or special populations such as first-time homebuyers, active military and 

veterans, police and teachers, individuals with disabilities, and homeless individuals. Their 

programs are funded primarily through tax exempt bonds, HUD's HOME, and LIHTCs. 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 15 

Preserving all these financing options is critical to ensuring that developers of affordable 

multifamily housing units have steady and reliable access to affordable credit. NAHB urges 

lawmakers and regulators to consider the critical role these agencies and their programs play in 

the housing finance system as housing finance reform legislation and policies are considered 

going forward._Additionally, federal banking regulations, such as the High Volatility Commercial 

Real Estate rules, should be examined to ensure these regulations are not impeding the 

availability and affordability of credit for acquisition, development and construction financing for 

multifamily development projects. 

Regulatory Reform Will Complement, but Not Replace Federal Multifamily Programs 

Regulatory reform will help improve affordability, but it is not a substitute for a direct subsidy. 

While regulatory reform will help us lower development costs, to reach lower-income 

households, it is financially infeasible to construct new, unsubsidized affordable rental units 

without federal assistance. 

NAHB's members utilize a number of single family and multifamily housing programs 

administered by federal agencies. While this list is not all-inclusive, it does represent the 

most important programs for our members and the modest income Americans they serve. 

The major federal programs most important to NAHB members include: 

• Tax programs: Mortgage Interest Deduction, LIHTC, Mortgage Revenue Bonds, and 

Mortgage Credit Certificates; 

FHA Mortgage Loan insurance: Single family homeownership, Multifamily new 

construction and preservation (most notably Section 221(d)(4) for multifamily new 

construction and substantial rehabilitation and Section 223(f) for multifamily 

refinancing); 

• HUD Block Grant Programs: HOME and CDBG; 

• HUD Rental Assistance: Primarily Section 8 Project Based Rental Assistance (PBRA) 

and the Housing Choice Voucher (HCV) Programs; and 

RHS single family, multifamily (Section 515 direct loan and Multifamily Preservation 

and Revitalization Demonstration Programs), and Section 521 Rural Rental 

Assistance programs. 

Each of these programs serves an important purpose. They are not interchangeable, but are 

complementary. Different strategies are necessary to meet the housing needs of households 

with different income levels and in different parts of America. The array of federal 

government programs that have been developed over the years in response to identified 

needs are essential elements in ensuring that there are affordable options for providing 

housing. Steps should be taken to make the operations of these agencies more efficient and 

effective. 

As the subcommittee examines the cost of regulations in multifamily development, we also 

request your continued support for successful housing programs such as the Low Income 

Housing Tax Credit {LIHTC), and full funding for vital rental housing programs such as the 

Housing Choice Voucher Program, Project-Based Section 8 Rental Assistance, the HOME 
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Testimony of Steven E. Lawson 

National Association of Home Builders 

September 5, 2018 

Page 16 

Program, and the Rural Development Multifamily Programs. 

Conclusion 

NAHB thanks the subcommittee for the opportunity to testify. Whether they rent or own, 

Americans want to choose where they live and the type of home that best meets their needs. 

NAHB thanks the chairman and this subcommittee for their leadership on this important 

issue, and stands ready to work with you to achieve necessary reforms and expand the 

availability of affordable housing. 

In closing, NAHB would also like to applaud the New Democrat Coalition for releasing a 

white paper which seeks solutions to chronic problems facing the housing industry. 

In crafting the document, the New Dems worked closely with NAHB and highlighted leading 

factors hindering new construction. This paper is an important step towards ensuring housing 

issues are kept a priority in Congress, and NAHB looks forward to continuing to work with 

them. 

Thank you again, Mr. Chairman for the time and effort you devoted to the important issue. 
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_.,.........._, 

NAHB. 

National Association of Home Builders 

2018 Special Study 

Paul Emrath, National Association of Home Builders 

Caitlin Walter, National Multifamily Housing Council 
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Regulation: Over 30 Percent of the Cost of a Multifamily Development 

June 12, 2018 

Paul Emrath, National Association of Home Builders 

Caitlin Walter, National Multifamily Housing Council 

Many Industry experts have become concerned about affordability of rental housing in America, and how difficult it has 

become to address the problem through new construction. According to the report on America's Rental Housing 2017 

published by the Joint Center for Housing Studies at Harvard University, "The lack of new, more affordable rentals is in 

part a consequence of sharply rising construction costs, including labor and materials." The Harvard report goes on to 

say, "Tight land use regulations also add to costs by limiting the land zoned for higher-density housing and entailing 

lengthy approval processes./( 

Recently, the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC) 

undertook a joint research effort to find out how much government regulation adds to the cost of building new 

multifamily housing. Results show that well over 90 percent of multifamily developers typically incur hard costs of 

paying fees to local jurisdictions, both when applying for zoning approval, and again when local jurisdictions authorize 

the construction of buildings. 

However, government regulation can impose costs in other ways as well. Over 90 percent of multifamily developers also 

incur costs of delays caused by sometimes lengthy approval processes, development standards that go beyond what 

would ordinarily be done, changes to building codes over the past decade, and OSHA requirements. Other regulations, 

such as requiring developers to dedicate land to the government, are somewhat less common, but can be quite costly 

when they are encountered. The bottom line is that regulation imposed by all levels of government (whether local, state 

or federal) accounts for 32.1 percent of the cost of an average multifamily development. 

A substantial amount of regulation is well intentioned and some of it undoubtedly serves a worthwhile purpose. Few 

would argue, for example, that basic safety standards for structures and workers are unnecessary. But regulation that 

exceeds 30 percent of a project's development costs raises questions about how thoroughly governments are 

considering the consequences of their actions. Are they aware of how much regulation currently exists? Do they realize 

how multiple regulations with conflicting standards can cause delays and increase costs? And do they understand the 

extent to which these increased costs translate into higher rents and make it difficult to build new housing that families 

with modest incomes can afford? 

Survey Design 

While the assertion that regulations increase the cost of multifamily development is commonly heard, the extent to 

which this happens is not easy to measure, and currently does not exist on a national scale. The only way to gather data 

that is at all comprehensive is from multifamily developers, as they are the only ones who experience a wide range of 

the various forms regulation can take. NAHB and NMHC set out to accomplish this through a survey of both 

memberships. The purpose of the survey was to quantify how much regulation exists and how much it is adding to the 

cost of developing new multifamily properties. 

Multifamily developers do not, in general, have accounting systems designed to tease out these regulatory costs. So 

NAHB and NMHC crafted questions that most developers would be able to answer. The questions asked developers 

about the typical projects they build. The questions covered various delays and costs incurred at different stages of the 

development process. Developers were asked to provide all hard costs as a percent of total development cost for their 

typical projects (see Appendix 2). 
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The survey was conducted in the fourth quarter of 2017. A total of 40 usable responses were received from multifamily 

developers, evenly split between NAHB and NMHC members (with no duplication). The developers who responded 

reported building multifamily projects in all regions of the country, and the typical projects they build vary widely: from 

fewer than 5 apartments to more than 400, and from under $2 million in total development costs to more than $100 

million. 

NMHC and NAHB combined the results with information from other survey collections and public data sources, such as 

typical terms on construction loans and the average time it takes to complete different phases of a project, to estimate 

the final costs (see Appendix 1). 

Types of Regulation 

Regulatory costs fall into several categories-fees, development standards, building codes, land dedicated to public 

purposes, etc. The range of these regulations can be broad, and the cost of complying with them substantial. Figure 1 

shows the incidence of different types of regulations imposed on multifamily developers, as well as the average cost of 

complying with those regulations when they do exist. 

Cost of applying for zoning approval 

Interest costs on refundable fees charged when site work begins 

Other (non·refurydabiel fees charged when site \'JOtk begins 

Developll'lentrequire'ments th~t go beyond the ordinary 

land dedicated to the government or otherwise left unbuilt 

Fees charged when building construction is authorized 

co:stof;coinpl\dng ~il;h a'ffordability mandates{e.g:; induslonary <oning) 

Cost iricreas~s !rom changes to bUilding code~ ov\\r the past 10 years 

Cost of complying with OSHA requirements 

Pure cost of delay (i.e., even if regulation imposed no other type of cost) 

.Share of 

?~~e-lo,~fs~ Projects .Subject 

to the Cost 

98% 

50% 

93% 

95% 

50% 

93% 

30% 

98% 

90% 

98% 

Average Cdst.Wtieq 

· PresEint {as a Sham of 

Total [Jevelopment costs) 

4.1% 

0.5% 

4.3% 

4.2% 

7.2% 

2.6% 

0.7% 

The first significant interaction between a multifamily developer and the government usually occurs when the developer 

applies for zoning approval to allow multifamily housing to be built on a particular parcel of land. The U.S. Constitution 

gives states the authority to regulate land use; and, although states sometimes try to influence land use patterns in 

various ways, they most often leave this up to local governments. local governments, in turn, pass zoning ordinances 

that divide their territories into districts and specify how land in each district can be used {single-family versus 

commercial versus multifamily, for example}. It's not impossible for a developer to acquire land that allows multifamily 

structures to be built on it without going through a rezoning process or obtaining some type of exemption to an existing 

ordinance, but this is the exception rather than the rule. 

The typical projects of almost all the respondents (98 percent) were subject to costs at the zoning approval stage. When 

they exist, these costs average 4.1 percent of the total development costs. Regulatory costs incurred at this stage can 

include fees paid directly to a government, but may also include other types of costs. For example, the developers may 

have to pay for environmental impact, archeological or other types of studies. 
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Although local governments have the authority to approve development, existing environmental laws also give a role to 

the federal government. A developer may need to obtain a wetlands, stormwater and/or endangered species-critical 

habitat permit, each of which is overseen by a different federal government agency. Many states manage the wetlands 

permits under federal guidance, and states and local jurisdictions may have their own sets of requirements. Indeed, it 

can be difficult to identify which level of government is ultimately responsible for some regulation, and trying to 

reconcile conflicting requirements is one factor that can drive up the cost of compliance. 

It is also common for governments to impose fees on a multifamlly development when site work begins. Many 

communities charge impact, utility hook-up and other fees at this point. Impact fees are fees that are charged only on a 

new development and are supposed to be used only for capital improvements. State legislation establishes the types of 

impact fees local governments can charge. Examples are impact fees for the construction of new schools, roads, water 

facilities, sewer facilities, stormwater management, parks, fire, police, libraries, solid waste management, and general 

government. Some states allow all of these, while a select few of states do not allow them, such as Virginia. There are 

consultants who travel the country and specialize in calculating the maximum impact fees local governments can legally 

charge. Moreover, as a recently published University of California, Berkeley paper documented, cities often charge 

additional fees, negotiated on a case~by-case basis at different points in the development process, to allow a project to 

be built. 

According to the 2012 Census of Governments, there are roughly 90,000 local governments in the U.S., and a particular 

development may be subject to fees from more than one of them-for example, from a municipality, a water district, 

and a school district with overlapping jurisdictions. The overwhelming majority (93 percent) of the typical projects of 

multifamily developers in the NAHB-NMHC survey pay fees at this stage of the process. When they exist, these fees 

average 4.5 percent of total development costs. 

Some local governments charge developers guarantee or other fees that are refundable when the project is completed. 

Although these fees are also usually imposed when site work begins, the survey treats them separately, due to the 

different cost implications. If the fee is eventually refunded, the developer ultimately pays only the interest that accrues 

on the development and construction loans until that happens. Half of respondents' typical projects were subject to 

these fees; which, when present, averaged half a percent of the total development cost. 

Many local governments require new development to conform to community design standards. This may include 

standards for streets and sidewalks, parking, height of buildings, landscaping and the architectural design of individual 

buildings. These standards impose little extra cost if they don't significantly exceed the developer's ordinary practices. In 

the absence of regulation, for example, developers will stll! ordinarily provide spaces for walking and parking, 

landscaping, and employ architects who attempt to design buildings that are attractive to potential tenants. The NAHBNMHC survey asked multifamily developers specifically about the cost of standards that go beyond what they would 

otherwise do. 

Almost all(95 percent) of the typical projects of the developers surveyed were subject to design standards that that go 

beyond what the developer would otherwise do. When these beyond-ordinary requirements were present, they 

accounted for an average of 6.3 percent of the overall development cost. Energy efficiency is a worthwhile objective, but 

NMHC and NAHB have argued that the up-front cost needs to be kept within reasonable bounds. NMHC and NMHC have 

supported some recent changes to the !ECC but opposed others as not cost-effective. Not surprisingly, manufacturers of 

building products advocate for code changes that mandate more use of their products, and tend to be less concerned 

than NMHC and NAHB about costs. Past analysis by NMHC on previous code cycles (which remain in effect in many 

states) has shown that changes to the IECC have the potential to drive up construction costs by over $3,000 per 

apartment (depending on type of building and climate zone) and argued that subsequent savings on utility bills come 

nowhere near justifying the cost. 

Half of the typical projects required developers to dedicate land to the government or otherwise leave it unbuilt. This 

requirement can take many forms1 such as creating a park on the property or reserving part of the property for the 

government to use in some way. In these cases the developer must pay for the land but is not allowed to derive revenue 
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from it, driving up the cost per unit for the housing that can be built. For those projects subject to this regulation, it 

represented an average of 4.3 percent of total development cost. 

Almost all of respondents (93 percent) paid some sort of fee when construction in their typical project was authorized. 

This could be limited to a building permit fee, but additional impact, hook-up or other fees may also be charged at this 

point. When they exist, the fees charged at this point average 4.2 percent of development costs, large enough to suggest 

that they often encompass more than the building permit fees. 

Local jurisdictions are increasingly beginning to consider imposing affordability mandates to attempt to create new 

affordable housing. These mandates without any offsetting incentive like a tax exception typically create few units and 

effectively tax some housing units (and their occupants) to subsidize others. The easiest way to see this is in cases where 

developers pay a fee to avoid the requirement-that amount gets added to the overall amount the developer must pay, 

thus raising the rents required. But even if they don't pay a fee, the regulation may require them to lose money on some 

of the housing they build, which is effectively a tax, resulting in higher rents on non-subsidized apartments. Almost onethird (30 percent) of developers who responded indicated that their typical projects incurred costs related to complying 

with such mandates. These costs, when they exist, averaged 5. 7 percent of total development costs, enough to result in 

substantially higher rents. 

The NAHB-NMHC survey also asked developers about the cost implications of changes to building codes over the past 

ten years. Most jurisdictions have been enforcing building codes for decades, and the codes have been updated and 

refined many times over that span. Most have adopted a version of national model codes, which have been in 

widespread use since the 1950s. These are updated every three years, and the number of refinements considered and 

voted upon during each three year cycle runs into the thousands. 

Virtually no one would argue against public standards for basic soundness and safety of residential structures, but over 

the decades codes have expanded well beyond this and are increasingly being used as a vehicle to advance various 

policy objectives. A leading example is energy efficiency. There is now a model International Energy Conservation Code'~ 

(IECC). 

Energy efficiency is a worthwhile objective, but NMHC and NAHB have argued that the up-front cost needs to be kept 

within reasonable bounds. NMHC and NMHC have supported some recent changes to the IECC but opposed others as 

not cost-effective. Not surprisingly, manufacturers of building products advocate for code changes that mandate more 

use of their products, and tend to be less concerned than NMHC and NAHB about costs. 

This is another area where the federal government has become increasingly involved. The Environmental Protection 

Agency, the Federal Emergency Management Agency, and the Department of Energy (DOE), all actively participate in the 

development of national mode! codes, proposing changes to national model codes and testifying in favor of them during 

code hearings. DOE also has a share of its budget set aside for persuading state and local jurisdictions to adopt more 

stringent codes. Representatives from NAHB who witnessed all of the recent code hearings have criticized federal 

agencies for supporting certain code changes that removed flexibility and limited builders' options, driving up costs 

without improving energy efficiency, to the benefit of specific product manufacturers. 

Nearly all (98 percent) of developers said changes in building codes over the past 10 years increased development costs 

in their typical projects, and these costs, when they exist, average 7.2 percent of total development costs. 

Nine out of ten developers said complying with requirements of the Occupational Safety and Health Administration 

(OSHA) increased costs in their typical projects, and these costs, when present, average 2.3 percent of total 

development costs. Again, few would argue that safety standards for construction workers are unnecessary. In recent 

years, however, OSHA has issued a substantial number of regulations imposing costly compliance requirements all 

without providing any evidence that they would actually improve safety in the residential construction industry. In the 

Beryllium rule, for example, the evidence of a health risk came from workers in manufacturing industries or performing 

abrasive blasting activities. In the Volks rule OSHA was criticized as doing little beyond driving up record keeping costs 

for businesses (and possibly violating the statute of limitations in the process). 
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Even when regulation imposes no direct costs, it can have a financial impact if it delays the development and 

construction process. If it takes longer to begin leasing and earning income on a property, it will take longer to pay off 

any development and construction loans and more interest will accrue. 

Some regulatory delay is inevitable, as it will naturally take some time for local building departments to review and 

approve plans and respond to requests for inspections. Precisely how long it is reasonable for a developer to wait for 

approvals and inspections is open to debate, but there are examples that clearly seem excessive. One academic study, 

for example, found that it took an average of 788 days to prepare a submission and receive approval for an individual 

federal wetlands permit. 

Virtually all the developers (98 percent) said complying with regulations caused some sort of delay for their typical 

projects. For these projects, NMHC and NAHB estimated that average additional interest was 0.7 percent of total 

development costs. This is a "pure" cost of delay that regulation would cause even if it imposed no other type of cost. It 

is calculated by subtracting every other type of regulatory cost, then estimating the additional interest accruing on the 

share of the remaining development cost that is typically financed. 

Total Cost of Regulation 

To estimate how much in total the government regulations described above add to multifamily development costs, it is 

necessary to take both the incidence and magnitude of the various types of regulation into account-in other words, to 

average in the "zeroes" when a particular regulation does not apply. Figure 2 shows that, when this is done, the listed 

categories taken together on average account for 32.1 percent of development costs for a multifamily project. 

Among the listed categories, average cost is highest for changes to building codes over the past 10 years (7.0 percent of 

total development costs), followed by development standards imposed by government that go beyond what the 

developer would ordinarily do. It is interesting that government control over how a project is built can be more costly 

than actual fees charged, but unsurprising given that they can be time consuming and thus cost more. 

Figure 2: 

Cost of applying for zoning approval 

Interest costs on refundable fees charged when site work begins 

other (non~refundable) fees charged whef1 stte work begins 

Development requirements thatgo beyond the ordinary 

Land dedicated to the government or otherwise left unbuilt 

Fees charged when building construction is authorized 

Cost of complyipg with.affordabilitY ma.t\dates (e.g, incl!)siohary zoning) 

Cost increases from changes to building codes over the past 10 years 

Cost of complying with OSHA requirements 

Pure cost of delay (i.e., even if regulation imposed no other type of cost) 

TOTAL ESTIMATED REGUtATt0111 AS ASHAR£ Ol' DEVELOPMENT COSTS 

1.1% 

0.0% 

1.9% 

1.1% 

0.0% 

1.1% 

0.0% 

5.2% 

1.3% 

0.1% 

21.7% 

Upp~r 

Quartile 

4.0% 5.3% 

0.2% 0.2% 

4.2% 5.5% 

5.9% 8.4% 

2.1% 3.3% 

3.9% 5.4% 

1.7% 2.6% 

7.0% 7.1% 

2.3% 2.3% 

0.7% 1.2% 

32.1% 42.6% 

Afford ability mandates, when they exist, are nearly as costly as relatively recent changes to building codes and beyondordinary development starts, but overall have a smaller average impact on costs because they are encountered less 

frequently. In contrast, regulatory delays are encountered very frequently, but have a comparatively small average 

impact on costs because they are limited to the extra interest that accrues on development and construction loans. 
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Refundable fees have the smallest impact of any of the types of regulatory costs listed, both because they apply only 

half of the time and because they are limited to the interest that accrues until they are refunded. 

To illustrate the variability in regulatory costs, in addition to averages, Figure 2 shows the upper and lower quartiles 

(costs are below the lower quartile for 25 percent of respondents, and above the upper quartile for 25 percent). While 

on average regulation accounts for 32.1 percent of total multifamily development costs, the quartiles give a range of 

21.7 to 42.6 percent. 

Although the cost components sum to the bottom line total for the averages in Figure 2, the components of the upper 

and lower quartiles do not. The ten components in the "lower quartile" column in particular sum to considerably less 

than 21.7 percent. The implication is that multifamily developers can minimize some types of regulatory costs depending 

on where they operate-but not all of them proportionately at the same time. 

Costs Not Captured 

Although the NAHB-NMHC survey sought to be as comprehensive as possible, the above results do not capture 

everything. Some government actions impact development costs in a way a multifamity developer can't reasonably be 

expected to quantify. For example, federal immigration policy may affect the supply of construction labor, and tariffs 

can affect prices of building materials like lumber1 and steeL Developers do not in general have a way of evaluating how 

much the prices they pay for labor and materials are influenced by these federal policies. 

The survey asked developers about delays due to government regulation, but there can be multiple reasons for those 

delays not all unambiguously tied to a government action. One is neighborhood opposition to the development. At the 

local level, governments may encourage or facilitate local groups who oppose multifamily development. An obvious way 

to do this is by allowing local groups to sue any developer who proposes to build multifamily housing, but there are 

many more subtle ways to encourage opposition. 

A developer may have to devote time and financial resources to deal with this opposition, by meeting with local groups 

before seeking zoning approval, for instance. To quiet the opposition, developers may find it necessary to make 

concessions to local groups, such as reducing size of the buildings so that !and costs are allocated to fewer apartments 

and cost per apartment is increased. In an extreme case, local opposition may be able to cause a local government to 

reverse its decision to approve a project after the developer has already invested heavily in it. In many of these cases, 

there is an obvious cost to neighborhood opposition, but how much responsibility the local government bears for it may 

not always be clear. It is not uncommon for developers to hire consultants to debunk claims made by opposition to a 

project. 

Figure 3 below shows that the overwhelming majority (85 percent) of the developers responding to the NAHB-NMHC 

survey have experienced added costs or delays due to such opposition. 

1 The effects of the current lumber tariffs are estimated in Jmpact of the Canadian Lumber Duties on the U.S. Economy \n 201~. 
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Figure 3: Have you experienced added costs or delays due to neighborhood opposition to multifamily 

construction? 

Profile of Respondents and Their Typical Projects 

The range of costs highlights that not all development projects are the same. Costs can vary by jurisdiction, as well as by 

geographic location and type of project-garden apartments on undeveloped land can be much less complicated to 

build than a high-rise in an urban area, for example. Respondents were able to choose more than one option as to their 

typical project type. 

Respondents built a variety of product types that also varied by location (see Figure 4). The most common type of 

project was a garden development in the suburbs (72 percent). Mid-rise projects were the next common, with 35 

percent building mid-rise developments in urban areas, and 37 percent building similar projects in inner-ring suburbs. 

About one-quarter (26 percent) of developers reported that they typically build high-rise apartments in urban settings. 
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Figure 4: Type and Location of Multifamily Projects 

80% 

70% 

60% 

50% 

40% 

30% 

20% I 10% 

0% I I I I 

All regions of the United States were represented in the survey sample as well. The largest percentage of developers 

operated in the West South Central (33 percent) and Mountain (30 percent) regions (see Figure 5). The South Atlantic 

and Pacific regions featured the highest distribution of multifamily permits in the U.S. in 2017 and had the third and fifth 

largest distribution of respondents, respectively. 

Figure 5: Regions Where Respondents Build 

35% 

30% 

25% 

20% 

15% 

I I I 10% 

5% 

0% 

New Mid South East North West North East South West South Mountain Pacific 

England Atlantic Atlantic Central Central Central Central 
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A fairly wide range of typical development size was represented by respondents as well (Figure 6). A small portion of 

respondents (4 percent) typically built projects fewer than SO units or greater than 499 units (3 percent), while the 

remaining respondents were relatively evenly split between SO to 149 units (32 percent), 1SO to 349 units (33 percent). 

and 350 to 499 units (28 percent). 

Figure 6: Typical Project Size (No. of Units) 

500 2to4Sto9, 

In terms of financial costs, the cost was even more widely distributed (see Figure 7). The average cost of a typical 

development project for these developers was $42 million. Over one-third (37 percent) of respondents had a typical 

project size of $10-$SO million. 
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Figure 7: Typical Project Size ($Development Costs) 

Summary and Conclusion 

Average= $42 Mi!fion 

Median= $35 Million 

As the above discussion has demonstrated, multifamily development can be subject to a bewildering array of regulatory 

costs, including a broad range of fees, standards, and other requirements imposed at different stages of the 

development and construction process. In view of this, it may not be surprising that regulation imposed by all levels of 

government accounts for 32.1 percent of multifamily development costs on average, and one-fourth of the time reaches 

as high as 42.6 percent. 

Although local governments generally have authority for approving development and adopting building codes, state and 

federal governments are becoming increasingly involved in the process. Sometimes the federal involvement is readily 

apparent, as when issuing stormwater permits or enforcing OSHA requirements. At other times, the federal involvement 

is less obvious, Examples include federal participation in model building codes, and attempts to influence local 

development through conditions for obtaining grants or other sources of funding. Indirect influences like these 

sometimes make it impossible to untangle which level of government is ultimately responsible for a given dollar of 

regulatory cost. 

The current estimate that government regulation accounts for 32.1 percent of total development costs is almost 

certainly understated to some extent, as it was not possible to account for items like the effects of tariffs on building 

materials or the extent to which local jurisdictions may empower their citizens to oppose multifamily housing in their 

communities. Average costs could be even higher now or in the near future due to regulations taking effect since the 

multifamily projects in the survey were completed. For example, OSHA's Silica Rule went into effect in late 2017, a 

regulation that industry groups have criticized as unreasonably onerous and unnecessarily costfy. Similarly, local 

jurisdictions are just beginning to adopt the 2018 versions of the model international building codes. Home Innovation 

Research Labs has recently estimated that the difference between the 2018 and 2015 versions of the codes can add 

thousands of dollars onto the cost of a multifamily building. As is typically the case, federal agencies supported several 

of the cost-increasing changes to the codes. 

When the cost of multifamily development rises, it unavoidably translates to higher rents and reduced affordability of 

rental housing. Multifamily developers can not secure financing to build their projects unless they can demonstrate to 

lenders that the rents will be sufficient to cover costs and pay off the loans. 
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The purpose of this article is notto argue that all regulation is bad and should be eliminated, but to raise awareness of 

how much regulation currently exists, how much it costs, and to encourage governments to do a thorough job of 

considering the implications for housing affordability when proposing and implementing new directives. 
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Appendix 1: 

Assumptions Used in the Calculations 

In order to calculate a final effect on development costs, many of the NAHB-NMHC 

survey responses need to be combined with additional information. Primarily these 

are assumptions about the terms of development and construction loans, and how 

long construction typically takes, and how to allocate costs to different stages of the 

development and construction process. This appendix lists all the assumptions 

used in the calculations and gives the sources for each. 

Loan terms 

1.0 point charged for all land acquisition, development, and construction (AD&C) 

loans, based on results from a Quarterly Finance Survey (QFS) that NAHB was 

conducting in the early to mid-2000s. 

A 7.65 percent interest rate on all AD&C loans. The QFS indicates that rates are 

typically set one point above prime, and 6.65 percent is NAHB's estimate of the 

prime rate that would prevail in the long run under neutral Federal Reserve policy. 

The estimates also assume that three-fourths of any category of costs are financed, 

based on typical AD&C loan-to-value ratios in the QFS. 

Construction Lags 

The source for information lags not directly collected in the NAHB-NMHC 

questionnaire is the Survey of Construction, conducted by the Census Bureau and 

partially funded by the Department of Housing and Urban Development. 

Preliminary estimates are taken from the published annual tables, averaged over 

the 2001-2016 period: 

If project is 2-4 units 

• Authorization to start= 1.71 months 

Start to completion = 10.87 months 

If project is 5-9 units 

• Authorization to start 1.95 months 

• Start to completion = 11.64 months 

If project is 10+ units 

• Authorization to start = 1.94 months 

• Start to completion = 13.21 months 

The NAHB-NMHC survey collected data on how much time regulation adds to the 

development process. To assign this to a particular phase of the development the 

following assumptions are used. 

The regulatory delay is split and attributed half to the lag between applying for 

zoning approval and the beginning of site work, and half to the period after site 

work begins. If half of the regulatory delay exceeds the lag between applying for 

approval and beginning of site work, the excess is also attributed to the period after 

site work begins. It is first assumed that the resulting regulatory delay is 
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attributable to the period between the start of site work and the start of building 

construction, minus 3 months (the assumed minimum time it would take to do site 

work in the absence of regulation, based on conversations with developers). If any 

regulatory delay remains after being allocated to the zoning approval and site work 

periods, it is then attributed to the building construction period, and the start-tocompletion lag is adjusted upward beyond the SOC-based average, accordingly. 

The analysis assumes all loans are paid off when the buildings are completed. 

Cost Breakdown 

To implement the process described in the paragraph above and calculate a "pure" 

cost of delay (i.e., the effect regulatory delay would have even if the regulation 

imposed no other cost), estimates of costs incurred during different phases of the 

development process are needed. 

The breakdown is based on the split between lot and construction costs in NAHB's 

Construction Cost Surveys (averaged over surveys conducted since 2000) and the 

Census Bureau's "noncostruction cost factor" for raw land. The calculations also 

assume three-fourths of these costs are financed, based on typical AD&C loan-tovalue ra.tions in the QFS. 

Resulting assumptions: 

• Only the cost of applying for zoning occurs at the very start of the 

development process. Financing costs associated with this are charged are to 

the regulatory cost of the application and not counted in the pure cost of 

delay. 

10.2 percent of total development represent costs financed by a land 

acquisition loan at the start of the site work phase. 

10.8 percent of total development costs represent costs financed by a 

development loan during the site work phase, assuming draws on the loan 

occur on average halfway through this phase. 

54.0 percent of total development costs represent costs incurred after 

building construction has started and financed with a construction loan, again 

assuming draws on the loan occur on average halfway through the site work 

phase. 
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Appendix II. 

NAHB-NMHC Multifamily Regulations Cost Survey Questionnaire 

1. What type of multifamily projects do you typically build in what areas? Select all that apply 

Urban Inner-Ring Suburban Exurban Rural Core Suburban 

High-Rise 0 0 0 0 0 

Mid-Rise 0 0 0 0 0 

Garden/Low-Rise 0 0 0 0 0 

2. What regions do you build in? Please select all that apply. 

0 New England (CT, ME, MA, NH, Rl, VT) 

0 Mid Atlantic (NJ, NY, PA) 

0 South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, 

WV) 

0 East South Central (AL, KY, MS, TN) 

0 West South Central (AR, LA, OK, TX) 

0 Mountain (AZ, CO, ID, NM, MT, UT, 

0 East North Central (IN, IL, MI, OH, WI) 

0 West North Central (IA, KS, MN, MO, NE, ND, 

SD) 

NV,WY) 

0 Pacific (AK, CA, HI, OR, W A) 

3. Including units you may start before the end of the year, bow many multifamily units will your 

company start in 2017? 

When answering this survey, please refer all your answers 

to the typical (most common) multifamily project your company builds. 

Respond only for your local office/division, if you are part of a larger company. 

4. How many units does your typical project have? 

0 2-4units 

0 5-9 

0 I0-49 

0 50-!49 

0 150-349 

0 350-499 

0 500 units or more 

5. What is the total dollar amount spent on development costs in your typical project? 

$ ______ _ 

Land Uve & Planning Regulations 

6. For a typical piece of land, how much does it cost to apply for zoning approval as a % of total 

development cost? (Include costs offisca/ or traffic impact or other studies, and any review or other fees that 

must be paid by time olapplication. Please enter "(}" ifapplication costs are Zero percent). 

__________________ •;. 
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7. For a typical project, how many months does it take between the time you apply for zoning approval 

and the time you begin site work? 

_________ ,months 

Sa. When you begin site work, do you pay any guarantee or other fees that are refundable when the 

project is completed"? 

DYes DNo 

8b. If "yes" in question SA, how much are those refundable fees, as a '% of total development costs? 

__________ o/o 

9. Other than the refundable fees mentioned in question Sa, how much does it cost to comply with 

regulations when site work begins, as a % of total development costs? (Include costs of complying with 

environmental or other regulation as well as the cost of hook-up or impact or other fees.) Please enter "0" if cost of comp(ving with these regulations is Zero percent). 

10. How much do development requirements that go beyond what you would otherwise do (in terms of 

property layout, landscaping, materials used on building facades, etc.) add to your cost, as a % of total 

development costs? (Please enter "()" if the jurisdiction's requirements don't go beyond what you would 

normally do), 

___________ o/o 

11. In the typical case, what is the value of any land that must be dedicated to the local government or 

otherwise left unbuilt (for parks, open green space, etc.), as a %of total development cost? (Please enter 

"0" if dedicating land is required infi·equently). ___________ o/o 

12. How many months does it take between the time you begin site work and the time you obtain 

authorization to begin construction of the apartment building(s)? 

_________ months 

13. How much extra time (in months) overall does complying with regulations add to the development 

process? (Please enter "0" if regulations typical(v cause no delay), 

_________ m,onths 

14. When you obtain authorization to begin construction, how much do you pay in additional fees, as a 

% of total development costs? In many cases, this will be on!y a permit fee, but include any additional 

impact or hook-up or inspection fees if they kick in at this time. (Please enter "()" iffees paid during or after 

construction are Zero percent), 

________________ o/o 

15a. In the typical case, does a jurisdiction have inclusionary zoning/affordable housing requirements 

that apply to your project? 

DYes DNa 

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15b. In the typical case, how mucb do these requirements (or a fee in lieu of affordable housing) cost as 

a percent of total development costs? (Please enter "0" if inc/usionary zoning/affordable housing 

mandates/fees in lieu of affordable housing are encountered infrequently). 

________________ o/o 

Omstruction/Building Regulation,· 

16. Over the past 10 years, how much have changes in construction codes and standards added to the 

cost of building a typical multifamily project, as a % of total development costs? (Please enter "0" if 

code changes have had minimal impact on costs). 

________________ o/o 

17. How much does complying with OSHA or other labor regulations cost, as a % of total development 

cost'! (Please enter "0" if labor regulations have no impact on development costs). 

__________________ % D Don't know/use of subs makes it impossible to estimate 

18. Have you experienced added costs or delays due to neighborhood opposition to multifamily 

construction? 

DYes DNo 

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INSTITUTE· 

A WINNING COMBINATION TO INCREASE MULTIFAMILY HOUSING 

SUPPLY: LOCAL REGULATORY REFORMS, FEDERAL RENTAL 

SUBSIDY, AND AFFH 

Statement of 

Erika C. Poethig • 

Vice President and Chief Innovation Officer, Urban Institute 

before the 

Subcommittee on Housing and Insurance, 

Committee on Financial Services, 

United States House of Representatives 

THE COST OF GOVERNMENT REGULATIONS ON AFFORDABLE 

MULTIFAMILY DEVELOPMENT 

Wednesday, September 5, 2018 

'The views expressed are my own and should not be attributed to the Urban Institute, its trustees, or its 

funders. 

I thank Maya Brennan, Oriya Cohen, and Courtney Jones for help in preparing this testimony. 

2100 M Street NW 

Washington DC 20037 
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Thank you for asking me to testify at this hearing. My name is Erika C. Poethig, and I am a vice president and 

chief innovation officer at the Urban Institute in Washington, DC. I am honored to share evidence on the 

impact of policies on the development of affordable multifamily rental housing and recommend reforms to 

meet the current and future demand for affordable multifamily housing. The views expressed here are my 

own, and should not be attributed to any organization I am affiliated with, their trustees, or theirfunders. 

The US multifamily housing market faces systemic market failures that result in unaffordable housing 

costs for the lowest-income households in every county across the nation. Reducing regulatory barriers that 

exclude or limit multifamily housing development can bring costs down and add supply, but our analysis 

shows that no amount of tinkering with regulations will replace the need for rental subsidies that close the 

gap for extremely low-income households. In 2013, the Bipartisan Policy Center's Housing Commission 

recommended making rental assistance an entitlement for extremely low-income (Ell) households to help 

close this gap and stabilize housing conditions. The racist roots of housing and land-use regulations impedes 

progress on increasing the supply of rental housing to meet demand, and exclusionary zoning continues to 

segregate communities by race and income. Policymakers should act to prevent and reverse the longstanding practice of exclusionary zoning in communities across the US. Other housing regulations, such as 

housing-quality standards first instituted in the late 1800s and early 1900s, have greatly improved health 

and well-being by reducing the spread of infectious disease in tenement housing and later reducing 

preventable illness and injury. Policymakers should be mindful of the full picture on housing regulations, the 

market failures that call for rental subsidies, the need for action to prevent and reverse exclusionary zoning, 

and the increasing role of rental regulations in protecting the health and well-being of children, older adults, 

and historically marginalized neighborhoods and people. 

Summary 

The demand on the American rental market has only increased since the great recession and mortgage 

crisis. Higher-income families are part of an expanded rental demand, and projections suggest the 

homeownership rate will continue to decline. But the supply of rental housing is not keeping up. While rents 

skyrocket in some markets, this is not simply a hot-market problem. No county in the US has enough housing 

that its lowest-income renters can afford. These trends only look to continue, with demographic research 

projecting a significant expansion of renters, including seniors and families, over the coming decades. 

As more and more Americans come to rely on multifamily rental housing, the rental supply needs to 

grow and become available in more types of communities. My testimony makes three points that research 

shows will be critical in creating an equitable and effective regulatory framework for the rental housing 

market to meet this growing demand. 

1. Easing regulatory barriers that limit or exclude multifamily development is essential to fixing the 

supply problem, but they will not be enough. This is a market failure and public investment and 

subsidies are necessary to bridge the cost gap and meet the needs of extremely low-income 

renters. 

2. Exclusionary zoning and practices increase the cost of development, drive economic and racial 

segregation, and are grounded in a legacy of racial discrimination. Promoting inclusive housing 

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development will help lower development costs, integrate neighborhoods, and begin to repair a 

long history of racially discriminatory practices that still play out today. 

3. Not all regulations are the same. Many housing regulations are grounded in efforts to protect public 

health and well-being. A growing body of research links housing to health outcomes, with ample 

evidence that healthy housing regulations protect children and older adults and can prevent 

exposure to pollutants that disproportionately affect historically black and brown neighborhoods. 

Policy changes to reform regulations should retain and expand measures that protect health and 

well-being. 

Changing rental demand has heightened and expanded the long-standing low-income 

housing crisis. 

According to recent analysis by my colleagues Rolf Pend all and laurie Goodman, the United States added 

more than one million new households in 2015, but only 620,000 net new units of housing were added to 

the stock, creating a shortage of just over 430,000 units. This gap has contributed to rising home prices and 

rents, a trend that is likely to continue (Pendall and Goodman 2016). 

looking at the rental side, demand surged and changed after the recession and mortgage crisis. 

Displaced homeowners and delayed home buyers added rental demand-and many of these new renters 

have higher incomes (JCHS 2018; Myers et al. 2016). Supply has not been keeping up, and much of the new 

rental stock is unlikely to filter down to lower· income households for some time. With this surge in rental 

demand, the long-standing rental affordability crisis for America's lowest-income households worsened and 

affordability problems climbed the income ladder. 

This dynamic makes finding affordable housing even tougher for individuals and families with low 

incomes. The number of households who are housing cost-burdened has ticked downward slightly after 

hitting a record high. In 2016, over one in four renters in the United States, or 11.0 million households, were 

facing severe rent burdens, meaning they spend more than half of their income on housing (JCHS 2018). 

Affordability challenges are especially pronounced at the lowest end of the income spectrum. Over 70 

percent of severely cost burdened renter households are Ell, meaning they make less than 30 percent of the 

area median income. 

High housing-cost burdens are unlikely to come down through market forces alone. Rental demand is 

expected to grow even more in the future. Between 2010 and 2030, the growth in rental households will 

exceed that of homeowners, five new rental households for every three homeowners (Goodman, Pend all, 

and Zhu 2015). As a result, experts predict that the national homeownership rate may drop below 60 

percent for the first time in more than 50 years (Becketti and Kiefer 2016). The US needs to preserve and 

expand its rental supply to keep pace with projected growth, and that calls for a set of policies that include 

reducing some regulations, maintaining and expanding other regulations, and filling long-standing 

affordability gaps with subsidy. 

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Even with regulatory reform, builders cannot deliver low enough rents without subsidy. 

Rental affordability problems are found in rural, suburban, and urban counties, in the heartland and on the 

coasts. Nearly every county in the United States lacks enough affordable housing to meet residents' needs, a 

crisis that is particularly urgent for Ell households. Nationally, only 46 adequate and affordable rentals are 

available for every 100 Ell renter households. Without federal support, this problem would be significantly 

worse. As my colleagues at the Urban Institute report, a lack of affordable options affects Ell households 

whether they live in Tampa, Florida, or Kansas City; Polk County, Wisconsin, or Columbus, Ohio. A shrinking 

number of existing affordable units and insufficient funding for rental assistance programs at the US 

Department of Housing and Urban Development and the US Department of Agriculture are only widening 

the affordability gap (Getsinger et al. 2017). Only about one in five renter households who are both eligible 

for and need federal rental assistance actually receives it (Kingsley 2017). 

Although regulations and zoning practices can impact the ability to build and preserve affordable 

housing, our research shows that changes to regulation will not be enough to address the affordability crisis. 

Based on development cost data from the Denver metro area, my colleagues at the Urban Institute found 

that: 

Most multifamily properties, even market-rate apartments, face a gap between how much 

it will cost to construct the project and the private, public, and other funds available to pay 

for the development Changes to land use, to regulations, or in what and how we build all 

will help close the gap, but we won't get where we need to be without subsidies. 

(Blumenthal and Handelman 2016) 

Data from every county nationwide show that this is not just true for Denver but for Albuquerque, St. Louis, 

Los Angeles, and beyond. This is a market failure. Our research team built an online tool that allows users to 

try and solve this market failure called Penciling Out I invite you to try it You can find it here: 

http://apps.urban.org/features/cost-of-affordable·housing/. 

The private market alone cannot supply housing at rents that America's lowest-income households can 

afford. Public subsidies are needed to close the gap between the costs of constructing and operating 

multifamily rental housing and the revenue that affordable rents can bring in. This is especially true for 

projects targeting low-income families. Yet, the need for rental assistance far exceeds the supply. Unlike 

other safety net programs-Social Security, food stamps, Medicaid, or Medicare-housing assistance is not 

treated as a universal benefit for eligible households. In 2015,22.3 million households had housing needs 

that could be addressed through federal rental assistance programs like vouchers and public housing, but 

only 21 percent of these needy and eligible households received such help (Kingsley 2017). As a result, 

millions of low-income individuals and families face serious challenges ranging from severe cost burdens to 

overcrowding to homeless ness. 

The Bipartisan Policy Center Housing Commission offered several federal policy recommendations to 

help address the affordable housing crisis facing our country. A cornerstone of their recommendation is the 

establishment of a universal housing voucher for Ell households. As they write in their report: 

The commission recommends that our nation transition to a system in which our most 

vulnerable households, those with extremely low incomes (at or below 30 percent of area 

median income) are assured access to housing assistance if they need it Assistance should 

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be delivered through a reformed Housing Choice Voucher program that, over time, limits 

eligibility to only the most vulnerable families. (BPC 2013) 

Exclusionary zoning regulations and practices increase costs and drive segregation. 

Exclusionary zoning, from lot-size restrictions and zoning approvals to growth boundaries and structure 

type, is known to increase the costs of housing development and drive both economic and racial 

segregation. These impacts are rooted in a racist regulatory legacy that is still playing out today. Decades 

after the Fair Housing Act passed, we still see persistent levels of racial segregation and increased levels of 

economic segregation (Pendall2017). Exclusionary zoning is driving these outcomes. As my colleague Rolf 

Pendall writes, 

From a land-use perspective, the separation of people by race and income begins with 

separation by structure type, with single-family homes, small multi-unit buildings, larger 

apartment structures, and mobile homes confined to different neighborhoods or entirely 

separate jurisdictions in most parts of the US (Pendall2000). Separation by structure type 

translates into separation of renters from owners, because most attached housing is rented 

and most single-family homes are owner occupied. (Pendall2017) 

Clear economic and racial lines persist between renters and homeowners, primarily because of a history of 

discriminatory housing practices. As Pendall describes, 

Though working-class whites were widely able to access homeownership in new suburbs 

after World War II, African Americans had much less access to homeownership because of 

explicitly and implicitly discriminatory policies and practices (Jackson 1985, Rothstein 

2017). Differences in homeownership rates across racial and ethnic lines persist today with 

the legacy of redlining, continued discrimination and disparate treatment in credit markets, 

and wealth and income gaps between white households and households of color (Rothstein 

2017). (Pendall2017) 

Research across metropolitan regions in the United States shows that the highest-income households 

tend to concentrate in a limited number of suburban locations with good access to jobs and open space, 

large new or renovated homes, spacious lots, and quality public schools. To protect high property values, 

residents of these neighborhoods support exclusionary zoning regulations that limit housing development, 

keep lot sizes large. restrict dense housing development. and add uncertainty in the development process 

(Pendall2017). Opposition to the already fragile development process causes increased costs, delays, and 

sometimes project cancellations or site relocations into poorer neighborhoods with less political efficacy to 

oppose the development (Scally and Tighe 2014). 

The impact of these disparities on segregation patterns is amplified today by the voting patterns and 

civic engagement of homeowners. As Emily Badger (2018) points out, 

... Homeowners of both parties support restricting development around them. And they do 

so in spite of their own ideologies- whether conservative voters might otherwise value 

free markets, or whether liberals value policies that aid the poor . 

... The crucial divide in the politics of housing development isn't between left and right, but 

between people who own homes and those who don't. 

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These exclusionary practices come at a real cost to people. Segregation results in an unequal distribution of 

access to opportunity and exposure to harm. As my colleagues found in studying 20 years of data on the city 

of Chicago, higher levels of economic segregation and black-white segregation were associated with lower 

black per capita income. Additionally, higher levels of black-white segregation were associated with lower 

levels of educational attainment for both blacks and whites as well as higher homicide rates (Acs et al. 2017). 

This is exactly why the requirement for communities to affirmatively further fair housing is so 

important. Without a requirement to facilitate inclusive communities and housing, homeowners of all 

political stripes oppose change at the expense of low-income renters and people of color. And research 

shows us that allowing and encouraging builders to create housing that expands choice for people of color, 

renters, and others with lower assets and incomes-as opposed to communities that perpetuate 

segregation-is a win-win scenario. 

When the township of Mount Laurel, New Jersey, finally added an affordable rental development as a 

result of a court ruling and despite strong community opposition, residents feared crime would increase, tax 

burdens would rise, and property values would decline. A decade after the opening of the Ethel Lawrence 

homes, researchers found no evidence that the development had any effects on crime, taxes, or property 

value. In fact, nearly one-third of residents were unaware of where the development had been built or if it 

was in their neighborhood (Massey 2013). Meanwhile, the people who moved in got access to not just 

affordable rents but also a safe community with strong schools. The new residents saw drastic reductions in 

exposure to violence, decreased stress, increased employment and earnings, and relied less on cash 

assistance programs. For children, the move resulted in increased school quality, reduced exposure to 

violence and disorder at school, and produced higher grades (Massey 2013). 

Not all regulations are the same. 

Though history of housing regulations includes racist acts of exclusion, it also includes regulations with 

dramatic benefits for public health. In the late 1800s and early 1900s, public health advocates succeeded in 

adding housing-quality standards to prevent the spread of disease in poorly regulated and maintained 

tenement housing. Today, many housing regulations are grounded in efforts to protect public health and 

well-being, and new regulations are added in response to emerging science. Policy changes to reform 

regulations should remain conscious of regulations' goals, costs, and benefits so that the essential 

foundation for protecting health and well-being for people and communities remains intact. 

A growing body of research links housing to health outcomes, with ample evidence that healthy housing 

regulations protect children and older adults and can reduce exposure to toxins that disproportionately 

affect historically black and brown neighborhoods. 

Children 

Healthy housing regulations matterfor children. Though lead paint remains a risk in many older homes, a 

1992 federal regulation on lead exposure in federally assisted housing resulted in lower blood lead levels 

among children in families with housing assistance than other children in low-income families (Ahrens et al. 

2016). Notwithstanding reductions in blood lead levels, when viewed in the aggregate. children growing up 

in federally assisted housing are not immune to residential lead exposure. The public housing capital needs 

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backlog, which in 2010 was $26 billion with projected growth of $3.4 billion each year, contributes to 

deferred maintenance and substandard conditions that impose real and lasting harm for children in public 

housing in New York, East Chicago, Baltimore, and elsewhere. 

For the overall housing stock, regulations can also reduce the spread of lead-contaminated dust and 

debris during repair and remodeling work. For example, the EPA's Renovation, Repair, and Painting rule 

(2010) increased the required safety precautions when any home repair could disturb lead paint, which will 

further decrease the risk of lead exposure (Korfmacher and Hanley 2013). 

Regulations also promote children's physical safety. Home injuries are the leading cause of death for 

young children, with window falls as the leading cause for severe injury and death. The cost for an effective 

window guard is around $20. After window guard requirements took effect in Boston and New York City, 

the incidence of falls by children from windows decreased 96 percent over 10 years (American Public 

Health Association and National Healthy Housing Standard 2014). 

For children, housing regulations matter for more than health. Research shows that living in 

substandard housing, which can be prevented by adequate housing quality regulations, code enforcement, 

and subsidy access, leads to lower literacy scores for children entering kindergarten (Coulton et al. 2016). 

Improved housing standards can be a smart investment in children's futures. However, the balance of 

regulations and subsidy is key. Just as children experience developmental harms from substandard housing, 

research has also shown harms-namely reduced spending on child enrichment materials, such as books in 

the home-when low-income parents spend too much of their income for rent (Newman and Holupka 2014). 

Older Adults 

According to a study by Laurie Goodman, Rolf Pend all, and Jun Zhu (2015), the number of households 

headed by someone 65 or older will expand by over 9 million households in this decade and another 10.5 

million in the 2020's. This dramatic expansion of senior households increases the urgency of developing 

housing policies and regulations that enable independence and dignity for seniors aging-in-place. That 

includes more (and more accessible) multifamily rental housing in communities where older owners 

currently live and have ties to family, friends, medical providers, faith communities, and more. 

Policies that improve housing accessibility will be critical to meeting the needs of our aging adults and 

others with mobility impairments. According to a report from the Research Institute for Housing America, 

"Fifty-four percent of individuals 65 and older in poor-quality housing had fallen in the last two years, 

compared to 34 percent for those in excellent quality housing" (Engelhardt, Eriksen, and GreenhalghStanley 2013). These falls have serious health care costs. In 2015, fatal and nonfatal falls among older adults 

added health care costs of almost $50 billion. Nonfatal falls cost Medicare around $28.9 billion and 

Medicaid $8.7 billion (Florence et al. 2018). These falls can be easily prevented with grab bars, curb-free 

showers, and other basic home accessibility features. When accessibility features are planned in the 

construction phase, they are relatively low-cost additions and can blend in with the home's design (Brennan 

2017 and Maisel, Smith, and Steinfeld 2008). Grab bars, for example, can masquerade as decorative 

molding. By emphasizing accessibility from the start, both rentals and owned homes will eventually need 

fewer and less costly modifications-meeting the needs of a growing population of older renters and 

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enabling people with mobility challenges to live independently and maintain social connections through 

visits to family and friends (Brennan 2017). 

Neighborhood Toxin Exposure 

Neighborhood-level health disparities that have arisen out of a long history of discrimination and 

disinvestment call for regulations to protect and enhance the health and well-being of people of color and 

traditionally black and brown neighborhoods. A recent national study in the American Journal of Public Health 

on exposure of different populations to sites that emit particulates (which are linked to respiratory and 

cardiovascular diseases) found that black populations had the highest proportional exposure at 1.54 times 

the overall population. Nonwhite populations (including blacks, Hispanics, and Asian/Pacific Islanders) had 

more proportional exposure than the white population at 1.28 times the overall population (Mikati et al. 

2018). Extensive previous research also documents the disproportionate effects of pollution on 

communities of color. A recent Urban Institute report, using data from the Department of Housing and 

Urban Development affirmatively furthering fair housing community assessment tool, found that black, 

Hispanic, and Asian/Pacific Islander communities had significantly lower opportunity index scores for 

environmental health in their neighborhoods compared with their white counterparts (Gourevitch, Greene, 

and Pendall2018). These outcomes have serious implications for racial and ethnic health disparities. 

Neighborhood exposure to air pollutants exacerbates child respiratory ailments, such as asthma, bronchitis, 

and pneumonia (Currie et al. 2014). Communities can reduce such exposure through housing codes that 

improve indoor air quality and through zoning that ensures a sufficient buffer around known pollution 

sources so that children and families are not put at risk. 

Natural experiments have also found that neighborhood air quality affects prenatal and neonatal 

outcomes-in particular low birth weights and preterm deliveries (Currie and Walker 2015). Land-use 

regulations and harm reduction measures can improve birth outcomes. Economists Janet Currie and Reed 

Walker found that, by reducing pollution related to traffic congestion, the creation of new EZ pass lanes in 

New Jersey and Pennsylvania resulted in improved infant health outcomes for expectant mothers within 2 

kilometers of the EZ pass lanes compared with mothers in unaffected areas. This emerging evidence 

underscores the importance of protecting residential communities from air pollution and ensuring that 

residents of both multifamily and single-family housing do not have to put infant health at risk just to get an 

affordable home. Disparities in black maternal and infant outcomes are in part about neighborhoods-and 

regulations determine where people can (or can afford to) live. 

Conclusion 

In conclusion, I want to reiterate three points research shows will create a winning combination to increase 

the affordable housing supply in our country: addressing exclusionary zoning practices, supporting public 

investment to support affordable housing, and continuing efforts to protect health and well-being of all 

communities. 

I hope this testimony shows that rationalizing local zoning and supporting the housing needs of our 

lowest-income neighbors will benefit every community across the nation. Thank you for the opportunity to 

testify before the committee and I am happy to answer any additional questions you may have. 

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Works Cited 

Acs, Gregory, Pendall, Rolf, Treskon, Mark, and Khare Amy. 2017. The Cost of Segregation: The Notional Trends and the 

Case of Chicago, 1990-2010." Washington, DC: Urban Institute. https:/ /www.urban.org/research/publication/cost· 

segregation. 

Ahrens, Katherine A., Barbara A. Haley, lauren M. Rossen, Patricia C. Lloyd, and Yutaka Aoki. 2016. "Housing Assistance 

and Blood lead levels: Children in the United States, 2005·2012." American Journal of Public Health 106 (11): 2049-

56. https:/ I aj ph.aphapublications.org/ doi/ abs/ 10.2105/ AJ PH.2016.303432 

American Public Health Association and National Center for Healthy Housing. 2014. National Healthy Housing Standard. 

Columbia, MD: National Center for Healthy Housing. http://nchh.org/resource·library/national·healthy·housing· 

standard.pdf. 

Badger, Emily. 2018. 'The Bipartisan Cry of 'Not in My Backyard'." The Upshot (blog). New York Times. August 21. 

https://www.nytimes.com/2018/08/21/upshotlhome·ownership·nimby-bipartisan.html. 

Becketti, Sean, and Kiefer, len. 2016. "Why are the experts pessimistic about the future of homeowners hip?" Economic 

and Housing Research. Freddie Mac. 

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Florence, CurtisS., Gwen Bergen, Adam Atherly, Elizabeth Burns, Judy Stevens, and Cynthia Drake. 2018. "Medical 

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Affordable Housing Siting." Journal of Housing Studies (September 2014). http://dx.doi.org/10.2139/ssrn.2580363. 

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for-inc!usion_1.pdf. 

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TESTIMONY BY 

JAMES SCHLOEMER 

CHIEF EXECUTIVE OFFICER, CONTINENTAL PROPERTIES COMPANY 

BEFORE THE 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON HOUSING AND INSURANCE 

FOR A HEARING ENTITLED 

"THE COST OF GOVERNMENT REGULATIONS ON AFFORDABLE 

MULTIFAMILY DEVELOPMENT" 

SEPTEMBER 5, 2018 
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Chairman Duffy, Ranking Member Cleaver and members of the Subcommittee, on behalf of 

myself and Continental Properties Company, thank you for this opportunity to testify on the 

regulatory barriers to affordable multifamily development. I appreciate your efforts to examine 

this multifaceted problem and your recognition of the challenges facing the developers of 

apartment housing today. 

I am James Schloemer, a founder of the company, and its Chairman and Chief Executive. 

Continental Properties Company, Inc. was founded in 1979 by three 20 year-old college students 

in a small Wisconsin community and originated as a residential and commercial real estate 

brokerage. Over time, the company began developing retail, hotel and apartment properties. 

Today, Continental Properties is the eighth largest apartment developer in the United States 

according to the National Multifamily Housing Council's annual list of largest developers. The 

company is headquartered in Menomonee Falls, Wisconsin, a short distance from downtown 

Milwaukee and employs over 120 professionals at its horne office and over 220 property 

management professionals at locations throughout 14 states. 

I received a B.S. in Accounting from Valparaiso University in Valparaiso, Indiana and an MBA 

with a concentration in Finance from the University of Chicago. I am an officer of the National 

Multifamily Housing Council and a member of the International Council of Shopping Centers. I 

also served on a developer advisory board for Starwood Hotel's launch of the aloft and Element 

hotel brands. 

In addition to my work in real estate development, I am a director of Park Bank in Milwaukee 

and West Bend Mutual Insurance Company, also headquartered in Wisconsin. I am also 

Chairman of the Board of Whole Child International, a Los Angeles based foundation serving 

the needs of institutionalized children in Central America and a past trustee of the Milwaukee 

Art Museum and the Milwaukee Repertory Theater. 

The Role of Apartment Development in Housing Affordability 

A healthy housing market includes a diversity of housing options both rental and for-sale, 

multifamily and single-family. More broadly, there is a well-established relationship between a 

community's well-being and economic strength and the availability of suitable and affordable 

housing. Apartments have an important role in meeting these housing needs nationwide and 

play a fundamental part in ensuring housing affordability. 

Continental Properties' business model is somewhat unique among national apartment 

development firms. Specifically, we view ourselves as a "production builder" of workforce 

attainable apartment homes, delivering over 3000 new apartments each year. Contrary to the 

recognized expansion of multifamily development in urban core markets, our branded "Springs 

Apartment Community" homes are located only in suburban and second tier markets 

(Attachment A). We believe that these markets are some of the most underserved in terms of 

affordable housing supply and are within reasonable distance of primary employment 

generators. For cost efficiency, we maintain our prototypical two- and three-story building 

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designs for all locations with variation in exterior finish materials to complement local building 

styles and tastes. 

By carefully following this production model to control costs, 51 percent of the apartments in 

our leased portfolio are offered at rents that are affordable to households earning just So 

percent of the Area Median Income (AMI) (per HUD affordability standards). This portfolio 

consists of nearly 12,000 apartment homes in 14 states. Our apartments are not subsidized by 

any federal, state or local programs. It is important to point out however, that nearly all of our 

completed apartment communities are financed with mortgages issued through a GovernmentSponsored Enterprise (GSE) -Fannie Mae and Freddie Mac (one property is financed with a 

HUD 221(d)4 mortgage). Our ability to deliver new, workforce attainable housing has been 

advanced by the availability of these GSE-sponsored mortgages and in our long history of 

securing GSE-sponsored debt, we have never missed a payment or been in default on mortgage 

terms. 

In our efforts to expand the number of apartments that can be offered at rents affordable to 

households earning So percent of AMI, we examined the rents necessary IF we could realize a 5 

percent reduction in our development costs -a conservative estimate of savings through modest 

reduction in regulatory burden. We believe that a 5 percent reduction in our 

development costs would allow us to offer 62 percent of our apartments at rents 

affordable to households at that So percent of AMI income level (Attachment B). 

The State of Wisconsin's Apartment Market 

The apartment industry including developers, owners, managers and our residents contribute 

over $10 billion to the Wisconsin economy annually. Building 100 new apartments in the state 

generates over $15 million to the Wisconsin economy and supports over 100 jobs. Our company 

has developed 500 new apartment homes in Wisconsin in the past two and a half years. 

Forty-five percent of occupied apartments in Wisconsin were built before 1980, making it likely 

that many will need renovation or replacement in the coming years. Overall, research shows 

that Wisconsin needs to add 49,000 apartments by 2030 at a variety of price points in order to 

meet housing demand. 

When we look at just the Milwaukee metro area, affordability is a critical need as approximately 

half of the renter households (51 percent) earned less than $35,000. 1 In addition, 38 percent of 

Milwaukee rental households already pay 35 percent or greater of their income towards rent. 2 

Overall, in addition to the demand for new apartment units, the demand for renovation of the 

existing apartment stock in Milwaukee is expected to be strong-6o percent of apartments in the 

Milwaukee metro area were built before 1980.3 

1 U.S. Census Bureau) 2016 American Community Sunrey. 2 Id. 

3 Hoyt Ad;;sory Services, NMHC/NAA 

3 
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Barriers to Multifamily Development 

The apartment industry can be a robust economic engine that provides high-quality, affordable 

housing and lasting job growth. However, the ability of our sector to deliver these benefits 

depends on collaboration and partnership at all levels of government. The cost to develop 

apartment homes has increased at a dramatically faster pace than rent rate increases in all 24 

states in which we do business. This is obviously a trend that cannot be sustained. As the 

affordability of housing is already strained, development costs must be controlled in order to 

create needed and affordable housing throughout the United States. 

A range of outdated, unnecessary and overly burdensome policies create significant barriers to 

the development of apartment properties. The resulting impacts increase the cost of apartment 

development and construction, exacerbate supply constraints and ultimately raise the necessary 

monthly rent of apartment homes. Easing regulatory and other policy obstacles in apartment 

production is a critical consideration as policymakers explore solutions to close the affordability 

gap in America's housing. 

Our company has experienced widespread and recurrent impediments to cost-conscious 

apartment development and we are all too familiar with the consequences of needless delay and 

regulation. Importantly, some commonplace hurdles are deliberately intended to deter 

multifamily development and further the ideas of NIMBYISM ("Not In My Back Yard"), which 

explicitly oppose new apartment development in many communities. Support from 

policymakers, along with educational and planning tools, can help promote the acceptance of 

apartments and demonstrate the benefits of multifamily development. 

However, even well-intentioned policies can inhibit apartment development and increase costs. 

We hope that in raising these issues, we can begin on a path of resolution and improve the state 

of apartment housing nationwide. 

Barriers in Wisconsin 

In Wisconsin alone, we faced a range of situations that interrupted the construction and 

development process and increased costs. For example: 

One city required the entire cost of a traffic signal to be paid by our project in lieu of a 

cost-sharing approach with adjacent property owners - adding $3oo,ooo to project 

costs; 

One city required the upsizing of a water main for an unknown future development 

unrelated to our project- adding $13o,ooo to project costs; 

A municipality delayed review of our project plans after their staff arbitrarily assigned a 

higher priority to other projects that they felt were more high profile; 

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We were required to construct a large amount of road and utility infrastructure based on 

an outdated comprehensive plan despite a lack of planned development; 

• Jurisdictions sometimes demand unexpected design and construction elements that can 

raise costs by tens of thousands of dollars like one city that required a project to add 

$30,000 in concrete pump pads for remote fire protection and alter hand rails -costing 

an additional $8ooo; 

Some municipalities in the State have very high service connection fees that undermine 

the financial feasibility of the project; and 

A municipality would not support re-zoning of a commercially zoned tract and required a 

market study to prove the need for housing, despite lack of commercial demand for the 

site. 

Prevalent Barriers to Multifamily Development 

The challenges we have encountered in Wisconsin are emblematic of the harsh and often 

counter-productive development conditions we face around the country. While there are a large 

variety of policies that can interfere with the development of apartment communities, several 

issues present on-going and recurring setbacks. 

::;.. Zoning, Project Approval and Permitting 

Apartment development is subject to an array of complex project approvals and permitting. 

While jurisdictional zoning laws often permit single-family development by-right, multifamily 

projects commonly require unique approvals and/or variances. Moreover, the local approval 

process is frequently structured to allow for arbitrary interpretation on the part of permitting 

officials and fairly open-ended community demands, which leads to inconsistent and uncertain 

results. In particular, the lack of uniform interpretations of jurisdictional requirements, coupled 

with individualized decision-making by code, planning and other jurisdictional staff, allows for 

potentially costly delays and unpredictable conclusions. 

In Colorado, a newly a~signed permitting official contradicted a previous official's 

approval of the allowable height of retaining walls. This reconsideration added one 

month to the project schedule and increased project costs by approximately $66o,ooo. 

In another Colorado project, understaffing and erratic decision-making added eight 

months to our approval process. Coupled with particularly onerous submittal 

requirements and delayed reviews, our total project costs increased by 3.5 percent due to 

an inflation of construction costs. 

Three weeks prior to closing, a Colorado city informed us that they "accidently" approved 

the incorrect street section as part of the City's Public Improvement Plan. We were 

required to expedite the re-engineering of our plans which had a cost of approximately 

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$5000 and the construction costs for the off-site work increased by approximately 

$5o,ooo. 

In Tennessee, we were subject to a decision by three municipal agencies who could not 

agree on the off-site improvements required for the project. This added eight months to 

the project schedule and cost $265,000. Due to the delay, the total project budget was 

increased 2.54 percent due to the inflation of construction costs. 

In Texas, one municipality revised three of its zoning districts to specifically exclude 

multifamily as a permitted use. 

In Minnesota, a municipality ·with no existing multifamily homes rejected a re-zoning of 

a commercial site. The municipality was not acting in compliance with the state's growth 

plans. 

In Georgia, one municipality would not support the re-zoning of a site due to a higher 

percentage of already existing multifamily housing. This jurisdiction had a "guideline" 

capping multifamily development at no more than 20 percent of their housing stock. 

>- Infrastructure 

Successful housing development requires suitable and reliable infrastructure. Yet, communities 

nationwide struggle with aging and inadequate transportation, water, sewage and other public 

systems. At the same time, jurisdictions facing serious deficits in infrastructure funding are 

increasingly looking to pass improvement costs along to developers. While some infrastructure 

enhancements on or around a development site may be mutually-beneficial, jurisdictions 

sometimes exploit developer resources, and by extension renter household expenditures, 

making project approvals contingent on ever-increasing infrastructure investments. 

In Illinois, one city required us to build a public street through our site increasing the 

total project costs by $1.2 million. Additional improvements required to an existing road 

beyond our site cost another $63,000. 

Another Illinois city required the re-painting of brand new fire hydrants adding $3500 to 

the project. 

>- Building Codes and Design Standards 

Apartment developers recognize the important role that building codes play in ensuring the 

construction and development of safe and structurally sound properties. However, onerous 

code requirements unnecessarily raise the cost of construction. Similarly, arbitrary restrictions 

or mandates on dwelling unit size, project density, building height or site features like parking 

minimums can stymie new multifamily development or significantly increase design and 

construction costs. 

• In Florida, we were required to add approximately 105 sq.ft. to our studio apartments, 

despite robust acceptance of the original unit size in other jurisdictions and demand for 

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the smaller studio in the marketplace, to meet a mm1mum unit square footage 

requirement of 700 sq.ft. -increasing project costs by approximately $410,000. 

Subsequent to plan approvals and permit issuance, a Florida city imposed additional 

sprinkler requirements v.~th an additional project cost of $no,ooo. 

');- Accessibility 

Apartment providers have responsibilities under both the Americans With Disabilities Act 

(ADA) and the Fair Housing Act (FHA) to ensure accessibility in apartment communities by 

including particular building and site design features in our properties. We strongly support the 

goals of the Acts, but have concerns about specific compliance and enforcement aspects that 

drive up the cost of construction. 

Compliance v.~th federal accessibility laws is so complex that apartment developers, including 

Continental, must employ expert consultants to guide our efforts. Even with this specialized 

support, we face numerous compliance challenges and legal risks. For example, the law fails to 

properly consider the challenges presented by sites with difficult topographical features. Under 

the FHA, a site must be graded to meet exacting slope requirements. While federal sources 

recognize that this may be impractical on certain sites, exemptions are rarely, if ever, granted. 

This leaves developers with the choice of ignoring otherwise desirable sites or devoting 

significant resources to modifY an entire site•s topography. Regardless of a site's natural 

topography, FHA requires an "accessible pathway," defined as a slope not exceeding 2 percent, 

to and from every ground floor apartment to all areas of the community. This contrasts with 

single-family subdivisions which have no such requirement for any of the homes. 

Additionally, developers are limited by the construction materials available, such as pavement 

that is subject to heaving, cracking and other changes that can complicate site conditions. 

Equipment calibration and deviations also create limitations on precise and consistent 

measurements, yet the necessary construction tolerances are not recognized nor is the age of 

improvements considered in accessibility enforcement actions. 

However, we think there are opportunities for meaningful change within the Acts that alleviate 

barriers for housing developers while continuing to ensure property accessibility. For example, 

policymakers could reduce the percentage of units required for compliance under the FHA. 

Today, developers face a heavy burden to construct all first-floor units in an accessible manner 

and on an accessible route. This alone can deter apartment firms from selecting certain sites. 

Consider this development illustration: 

In addition to FHA requirements, many local codes require at least two percent of first 

floor homes to be constructed with enhanced accessibility features "ADA homes." 

A typical Continental apartment community contains 300 units across twelve to 

fifteen buildings on an 18-acre site. It includes a clubhouse and pool. If the 

community is in a jurisdiction requiring two percent ADA homes, six of the 300 units 

are ADA homes and arc in four different buildings. 

Of the remaining 294 homes, 140 homes are first floor homes required to comply with 

the FHA (as currently drafted). Those 140 homes and the amenities are connected by 

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an interwoven network of sidewalks comprising the "accessible route" that can be over 

one mile in length. 

Under this fact pattern, the FHA would require our firm to eliminate grade and level changes 

throughout the site and eliminate stairs along the accessible routes. In Continental's 39-year 

history, we have found no market demand for such a high percentage of accessible homes. If 

FHA compliance could be reached by constructing a more practical percentage of accessible 

units - say 30 percent of ground floor homes project costs would be significantly reduced 

while still serving the needs of our disabled residents and guests. 

Conclusion 

Housing affordability is a critical need nationwide. I applaud the Subcommittee's efforts to 

address this problem and identify the regulatory barriers to new multifamily development. 

Policymakers at every level of government have a role to play in removing obstacles to housing 

production, easing costs and creating a supportive environment for the providers of apartment 

homes. The apartment industry is committed to providing high-quality and attainable housing 

for all Americans. Using a combination of incentive-based programs, streamlined regulatory 

burdens and innovative solutions, we stand ready to work with Congress to achieve these goals. 

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A1TACHMENT A 

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ATTACHMENT B 

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Springs Apartments That Qualify for HUD 80% AMI Income limits 

A!llil5,2018 

!lased on Ql '18 avemgerents 

Income Umitis /lased on 80% of AMI(HUD fY2D18) ondl'ilries by household size 

Minnesota 85% 93% ·8% 58 619 737 

Kentucky 81% 88% n 433 474 

Georgia 80% 89% ·5% ($61) 24 114 23& 

Iowa 77% 80% n ($101) 16 366 3&2 

Ohio 75% 80% ($69) 32 447 479 

Texas 63% 11% ·5% i$59) 190 l,51l5 1,695 

South Carolina 51% BO% {)% 1$0) 165 2&1 446 

Wisconsin 49% 72% 1% $11 144 302 446 

Louisiana 31% 54% 8% $86 l5l 346 599 

Colorado 30% 43% 6% $91 101 116 317 

Illinois 19% 35% 9% $127 191 215 406 

Florida 14% 20% $238 94 195 289 

12 

5% law Rent Analysis 

796 $1,401 

536 $1,095 $1,191 

158 $1,199 $1,161 

476 $1.159 $1,261 

596 $1,262 $1,331 

2,381 $1,17! $1,130 

556 $1,180 $1,180 

620 $1,369 $1.358 

1,116 $1,209 $!,123 

732 $1,506 $1,415 

1,152 $1,556 $1,429 

1,432 $1,368 $1,130 
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Springs Apartments That Qualify for HUO 80% AMI Income Limits 

AprilS, lOIS 

Based on Q1 '18 averll'gmnts 

Income Umff is based on 80% of M~ {IIUD F\7.018) and vories by household size 

liouseho/d size slioom is tile mort cammonl; ocruring home hold silt for the oomber of bedrill!m~ across the port/olin 

Florida 14% 20% 11% $238 94 195 2&9 1,432 

80% 89% ($62) 14 214 138 

Illinois 19% 35% 9% sm 191 115 406 1,152 

Iowa 77% 80% ,g% 1$101) 16 366 382 476 

Kentucky 81% 88% n i$96) 41 433 474 536 

Louisiana 31% 54% 3% SEfi 253 34£ 599 1,116 

Michigan 1!% 11% $300 28 28 148 

Minnesota 85% 93% ,g% ($127) 619 731 196 

Ohio 75% 80% ,5% 1$69) 31 447 479 596 

Oklahoma 94% 95% ,!1% 6 770 776 820 

South Carolina 51% 80% 165 281 446 556 

Texas 63% 71% 1,5(}5 1,381 

13 

$1,199 

$1,555 $1,419 

$1,159 $1,261 

$1,095 $1,191 

stm 

$1,479 $1,119 

$1,401 $1,528 

St162 $1331 

$954 $1,155 

$1,180 
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for HUD 80% AMI Income limits 

253 253 

14 

160 

532 $944 

218 

252 $!,037 

284 

272 $1,224 

288 $973 

$1,342 

$1,251 

$1,128 

$1,1?2 

$:1,127 

S:UD7 
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Springs Apartments That 

A?rii5,2D18 

Cdl~~ Station, TX 

Derw:er.CD 

HUD 80% AMI Income limits 

24 

Z!l 

B 33 

15 217 HZ 

26 

222 

1.12 11! 

ss 

517 523 

222 

15 

1A32 $1Sl1 suss SU6l $1331 

$1,162 $1,B4 

$1,311 

$1,517 

$1,344 

212 $1,436 

~91 $1.447 $1,076 

$1,179 

112 $1,122 

252 

252 

ZM $1,20'5 

228 $1,518 

HZ $1,288 

51,529 

59! $1,107 

532 $944 $1,169 

2B8 

316 $1,221 $1,220 

228 $1,253 $1,523 

$U04 sun 653 
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Qualifying Rents by Metro Area 

HUD 80% AMI Income limits {FY2018} 

Based on qualifying income of 3x rent 

!ncome limtt: Ba:sed on &0'7~ clAM~ :anti number of persons ln the untt 

HouseOOtd Sjz:e: Based upon the moost commonty occuring hous.eOOd size for the number of be-Urooms, 

across the po-rtfotio 

1 p-erson 

1 BR: 1 person 

2 BR: 2 persons 

BR: 3 persons 

Atl•nt•,GA 

Austin, TX 

Chk:ago, !l 

Cin:e:mnatt OH 

San Antonfo, 1X 

Sarasota,, ft 

Tulsu,OK 

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Qualifying Rents by Metro Area 

HUD 80% AMI Income limits (FY2018) 

Household Size Based !Jpo:o t!Je m<>ostcomrr:only O<<:u.-ing 'hcmseholdsJze for the ownbe:r ol' l>e1dr<X>ms, 

acros.s the p.o:rtfnlio 

Studio: 1 person 

2 Bft 2 persons 

fort Myers-liop!es, Fl. 

take Charles, !A 

Waco, TX 

&and :rut,.! 

17