Planning Economic Development

There is a lot of work available and more being done to identify ways to reduce housing development barriers. You can find that pretty easily. But most of it tends to ignore housing development business issues and local governance issues.

The business issues can be over-simplified as decision issues, and production issues.

A builder creates a pro forma to see if their project will pencil and be able to attract financing. Anything that adds to uncertainty, risk, delay, and upfront costs impedes a yes. The converse is true, too.

Production issues vary but barriers are often labor, compliance, and inspection. Inspection delays stretch out timelines without increasing revenues. Compliance issues often involve the risk and uncertainty created by poorly written rules and less-than-helpful bureaucrats. Shortages for skilled trade and general labor are widely known; less talked about are the overhead labor costs of finding, managing, reporting, and resolving disputes.

I know a lot of that seems like it would be impossible to do anything to improve the situation, but even cities with tiny budgets can do a lot if they play well with others, nurture partnerships, and build a local political culture that can get to yes. For everything I’ve mentioned above, something can be done locally, even if we also want big pots of money and new legislation.

A local listserve had an inquiry from a perplexed planner who was supposed to build some incentives into the zoning. That inquiry got a lot of responses, including mine below (which has now been better edited for my blog).

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Reduce cost (time and money) and risk.

Planners have lots of possibilities for improving both the zoning and the process.

It’s not the application fee. It’s the unknown and unpredictable compliance costs and standards that have to be met for the application. Ironically, planners make planning and development more difficult.

Try this exercise. Do it on paper the first time through. Find out what an apartment, a retail space, and a small industrial building rent for in your community. Design a construction project for each. Work up a pro forma for each project using standardized construction costs at first. See if you can build it profitably. Set yourself a deadline – maybe one year to get it all done. If you don’t already know all this – that’s the first red flag.

Then go to a cooperating city in your region. Look at their website and talk to their staff: try to predict every cost that will come up from the information they provide. Pick a model site. Then start working the development process. What site environmental reports will you need? What will that cost to apply for a zone change, a conditional use permit, a design review, whatever you discover you need to get a building permit. Try to figure out precisely what needs to be done, what is good enough, when it is too much like a fetch-another-rock exercise, what it all costs.

Get a couple of bids on the construction. Let them know its an exercise to improve the developer and builder readiness in your community. Talk to lenders the same way.

Keep notes along the way. Check and update your pro forma – does the project still pencil?

What did you discover? What surprises and costs were not included in your original pro forma? Did you meet your deadline? Test your processes with the sample projects. Ask yourself how you could improve your process, regulations, and available upfront information, to reduce the risk of surprise.

I’ve always thought cities should inquire and track the various delays and costs that developers pay – it may be sobering.

Sometimes it is the SDCs. Think about which uses are net consumers of and net benefactors to your community, and think about ways of adjusting the SDC scheme. Are you in effect closed for business? Or are you relieving some of the costs and risks for beneficial projects?

Generally. front-loaded costs are bad. Waived and deferred charges are good. If you delay a fee for five years, or until the development re-finances or sells, that will help. Even if it goes broke in the meantime, are you better off or worse off in the long run big picture? A little risk is a good thing if you want to encourage some development.

A lot of time can be lost working with outside agencies like the DOT and environmental permitting,  etc. Make sure you know them, and they know your sites and your issues. When strategic, do some of that regulatory work upfront on spec. Work with legislators to improve the regulatory agencies’ processes, too.

If you have design review issues, produce a visual guidance document, and include some cost data to keep yourselves real. Small landowners, developers, and builders are not planners. Show what you want (and don’t want) and allow them to work within those flexible themes (and clear minimum standards), not coded requirements that can’t meet the reality test on every site, every time.

The significant risk is the risk that some review panel or compliance report goes sideways, especially when the NIMBYs show up. Don’t say oh, it is easy to fix; come back next month.

Sometimes their financing or a property option expires. Reduce risk.

Keep your base zoning clear and straightforward, and in line with the actual market. Loading up on “quality development requirements” and should-do’s in a market that can’t support the cost and risk in achievable rents is just going leave things sitting idle. There needs to be a predictable clear build-by-right path, and a creative, problem-solving, get-to-yes negotiated path reliably available in your city.

Lastly, my favorite TRAIN, the PC, and CC. Keep at it.