Amid skyrocketing prices for new house construction, builders say the cost of regulations can put affordable home out of reach

It is a long read (about 9 minutes) but i hi-lighted what I beleive to be important to me as a REALTOR.

HENRY J. CORDES
WorldHerald Staff Writer

An Omaha developer was putting up a complex of for-sale townhomes and already had the first rows of units up.

That's when he decided that for the next phase of the project, he wanted to put two rows of townhomes back-to-back. The homes' footprint and plans were otherwise the same.

But when the developer last fall sought to get approval from the city, he was told that under building codes, the back-to-back units no longer fit the definition of townhomes. They now constituted an apartment building. And to meet the city code for such a structure, it would have to have a storm shelter.

Why, the developer asked, would the city suddenly require a storm shelter for homes identical to what they'd already built — simply because they were back to-back?

But the city did not budge on the issue. Rather than bear the cost of removing garages from two of the units to make way for a communal storm shelter, the developer instead has put the project on hold.

Builders and developers say the townhouse project stands as an example of how building code requirements, their interpretation and enforcement can increase the cost of building new homes — sometimes, they say, unnecessarily so. And they say that's exacerbating the state's housing shortage, driving up home prices, and putting home ownership out of reach for some families.

"We don't want to become a community of renters," said Jason Thiellen, CEO of an Omaha engineering firm, E&A Consulting. "The ability to purchase and own your own home is every American's dream."

Thiellen now serves as president of Welcome Home, a coalition of builders, developers, lenders, real estate agents and other businesses involved in homebuilding. The group is exploring ways to bring down the cost of a starter home in the Omaha area.

Over the past year, the coalition has been meeting with public officials to discuss how building codes, zoning ordinances, infrastructure requirements and delays related to required approvals contribute to the cost of new homes.

A recent study commissioned by the group suggests nearly a fifth of the final selling price of a new home in the Omaha metro is tied to such government regulatory costs — a figure that's above the national average.

Omaha city officials note that many of their requirements are intended to increase safety, and that the regulations are also often local versions of federal or state requirements.

"There is a cost to regulation, of course," said Eric Englund, the city's assistant director for urban planning. "Some of that is the City of Omaha, and some of that is federally required."

But at the same time, city officials do share some of the same goals as Welcome Home, including addressing the metro area's critical shortage of affordable housing.

City Planning Director Dave Fanslau said in a recent letter to Welcome Home that it welcomed further discussions on how the city can partner with the building community "in order to provide much needed housing in Omaha." Builders, local officials and housing advocates agree that the Omaha metro area is struggling to hold on to the housing affordability it's long been known for.

Last year, the median sales price of a newly constructed home in the metro hit nearly $430,000, up a whopping 14% in just one year and up more than 50% in the past six years.

Builders say higher prices for lumber, land and labor and rising interest rates have made it almost impossible to build a single-family starter home selling for less than $300,000 — a price that's beyond the reach of many buyers.

The scarcity of new homes has also ratcheted up competition for existing homes, with rising home prices in the metro far outpacing increases in family income. As most area homeowners have noticed this spring, the housing trends are driving up property tax valuations, too.

Builders and developers say an often-overlooked factor driving up housing costs is ever-stricter standards in federal, state and local building codes.

Regulations deal with nearly all aspects of building a new home, from how storm water is drained from the site to how the structures are plumbed and wired.

"They keep making more and more regulations and more and more rules," said Omaha developer Ben Katt. "Every time you add something, it may be $50 or $100, but all those bills add up incrementally over time."

Builders and developers acknowledge the safety concerns behind many code requirements. But they also say cost-saving changes could be made in building codes without resulting in harm.

Sometimes, they say, the regulatory costs can be huge.

Thiellen worked on a townhouse development for Katt in southwest Omaha where they sought to bring water service to the row homes much like it's done for apartments, with service coming into a central meter location and then branching off to each unit. But that wasn't allowed by the plumbing code, which required each townhome to be connected individually to the main water line.

Bringing water to the 214 townhouses that way cost nearly $3 million more — adding nearly $14,000 to the cost of each townhome.

"That all goes to the homeowner," Thiellen said. For every $1,000 that's added to the cost of a home, he said, more and more potential buyers are priced out of the market.

Developer Katt was also behind the back-to-back townhouses planned last year on a strip of land near 168th and Fort Streets.

City officials said that under city code, the back-to-back units were considered apartments rather than townhomes because they weren't open on both the front and back. And as apartments, by code, they would need a storm shelter accessible to all residents.

In that case, the developer went before a city building review board to seek an exception.

Widman, who represented Katt, questioned why the back-to-back townhomes should be treated like apartments when they were each individually owned and had their own entrances. And the shelter seemed to make no sense, especially given the similar units already in the development that didn't face such a requirement.

"You'd have to have a weird common area as part of a single-family home," Widman said in an interview.

But a city planning official representing the city before the board did not support the storm shelter waiver. And the board voted it down 5-0.

In response to questions, city officials offered no rationale for requiring the storm shelter in that instance other than it's required by the city's apartment code.

"You get an infinite loop of, 'The code requires it,' " Widman said. "They just seem to drill deeper and deeper into the codes, and lack the ability to come back to the level of the rest of us and see the big picture."

Developers say local zoning ordinances can also increase the cost of new housing.

Zoning often sets minimum levels for the size of each lot. Allowing smaller lots would enable developers to fit more homes into a housing development, which could lower the cost of each home.

In addition, builders and developers say they can sometimes wait weeks for local planning departments to issue permits and for public utilities to hook new housing developments up to power and water. Such delays can be costly and add to the price of a new home.

To get an idea of how much regulation factors into new home prices, Welcome Home commissioned the University of Nebraska at Omaha to conduct a study. Based on a survey of local builders, it sought to replicate a similar study done by the National Association of Homebuilders.

The national study had found roughly 13% of the buyer's home price nationally could be attributed to regulations. The UNO study found costs in the metro area were even higher, averaging just over 20%.

"Regulations are not necessarily bad, and in some cases may be well worth the cost," the study said. "However, if costs can be reduced while still achieving regulatory goals, governments should consider reforms."

Omaha city officials say they find limitations to the study. Only five metro builders responded to the survey, and two of them only build homes in surrounding communities, not in Omaha.

Also, one of the biggest regulatory costs cited by builders was for meeting architectural design standards. But Omaha has no such standards, which instead tend to be set by developers and neighborhood covenants.

And while one of the best ways to cut costs cited by builders in the study would be to reduce required lot sizes, city planners noted they already work with developers to do just that. The Omaha City Council approved the zoning changes in 2020.

The national study had found roughly 13% of the buyer's home price nationally could be attributed to regulations. The UNO study found costs in the metro area were even higher, averaging just over 20%.

City planning officials also note that the council approved a new affordable action plan at the end of 2022 that includes numerous provisions aimed at improving housing affordability. The plan had noted that regulations and policies should be regularly reviewed — not only to reduce costs, but to improve safety and quality of life.

"We are always evaluating our codes and regulations and modifying where it is appropriate, and will continue to do so moving forward," Englund said.

Welcome Home is hoping its study will prod local officials to review codes, zoning, infrastructure requirements and time delays. And they hope as new regulations are proposed in the future, they're analyzed based on both costs and benefits.

Thiellen said talks to date have not produced any concrete changes. But he thinks local officials at least now have a firmer grasp of the regulatory issues and their impact.

"Everyone is starting to understand the need