Reforming Permitting Requirements to Lower the Cost of Building New Housing and Increase Housing Affordability

Today, the Biden-Harris Administration announced a suite of new actions to reduce barriers to housing construction.  One of these actions, HUD’s Pathways to Removing Obstacles to Housing (PRO Housing) grant program, supports state and local governments to remove barriers to affordable housing, including through reforming the housing permitting process.

State and local zoning laws dictate what type of housing can be built and where—but even where housing is allowed, local permitting requirements can drive up the cost of housing and contribute to the nation’s housing shortage. While permitting is primarily a state and local issue, the Biden-Harris Administration is encouraging these levels of government to reduce barriers and build more housing.  In June, PRO Housing awarded its first $85 million in grants to 21 communities across the country, including states, big cities, and smaller towns. Today, the Department of Housing and Urban Development (HUD) is announcing an additional $100 million in grants.

While some permitting requirements serve an important purpose, such as ensuring structural, electrical, plumbing, and mechanical safety and environmental protection, the rise of unnecessary and onerous permitting has contributed to housing shortages and housing unaffordability across the country. Permitting requirements directly increase the cost of building new housing by increasing soft costs, administrative burdens, uncertainty, and delays.

A key detail for permitting issuance is whether the development approval process requires “by-right” or “discretionary” permitting. With by-right permitting, a housing development proposal will be approved so long as it conforms to all zoning laws and building codes, which are known in advance. With discretionary permitting, the proposal  is subject to the approval of a public body, such as local planning authority, which may require several re-designs, city council hearings, public outreach meetings, environmental impact studies, impact fees, and other concessions.  Relative to by-right permitting, discretionary permitting increases costs, time to approval, and uncertainty. In some cities, discretionary permitting can also create opportunities for corruption and favoritism. Whether developments are subject to by-right or discretionary permitting varies by locality and the proposed type of housing.

Among large multi-family projects subject to discretionary permitting, the median time spent in the permitting process in recent years was 7.5 months in Boston, 8 months in Oakland, 13 months in Los Angeles, 16 months in Seattle, 30 months in New York City, and 33 months in San Francisco. These numbers may understate the burden since they exclude projects that never receive approval. In New York City pre-certification and environmental review alone often take nearly two years. In California, environmental review lawsuits sought to block the permitting of 48,000 proposed units — nearly half of all proposed units – in 2020 alone. Even for projects that are ultimately greenlit, construction cannot begin until litigation is completed, typically in four to five years.

Permitting delays contribute to the nationwide housing shortage by increasing the cost of new housing development, leading would-be deals to not pencil out. These costs include interest payments, property taxes, insurance, utilities, business operation overhead, and higher financing costs to compensate investors for delays and uncertainty. One study of Washington state estimated that each additional month spent in the permitting process increases the cost of building by about $4,400 (or about 1 percent). In New York City, a two-year delay for mid-rise development increases the per-unit cost by an estimated $50,000. Permitting requirements may also dissuade smaller projects and impose larger burdens on smaller builders who are less well capitalized.

In recent years, several cities and states have taken steps to address permitting challenges and enact permitting reforms. For example, Los Angeles now requires affordable housing developments to receive approval or rejection within 60 days—a significant improvement over the typical 6 to 9 month review time. The state of Maryland placed limits on the required number of public hearings for certain types of developments. New Jersey and Texas allow developers to use third-party reviewers to combat slow review times. A new California law requires cities to create an expedited permit approval process when they fail to meet state-mandated housing production goals. San Francisco recently fell short of its goal and now approves many new developments through by-right permitting, which will reduce approval times by 75 percent.

Federal funds from PRO Housing are accelerating locally led efforts to enact permitting reform and build more housing. The reform efforts include:

• Expedite permitting in Arcata (CA), Denver (CO) and Ketchum (ID)
• Reform discretionary design review and increase by-right permitting in Milwaukee (WI)
• Streamline environmental review in New York City and Arcata
• Create clear and objective permitting guidelines to minimize discretion and inconsistent application of the rules in Rhode Island
• Create pre-approved housing designs to reduce legal, architectural, and engineering costs in Fort Worth

Permitting reform is just one important step towards accelerating housing construction and eliminating the housing shortage.  The Biden-Harris Administration is committed to partnering with states and localities to address the many barriers to housing production and make housing affordable for families across the country.