Another Reason for Rising Housing Prices
C. Edward Boyle December 15th, 2008
Why House Prices Rise – another example:
Biological Opinion Under ESA May Spell End of Floodplain Development in Washington State
In response to a 2004 federal court order,[1] NOAA Fisheries (the “Service”) recently released a biological opinion (“BiOp”) addressing the effects of the Federal Emergency Management Agency’s (“FEMA”) continued administration of the National Flood Insurance Program (“NFIP”) throughout the Puget Sound region (the “FEMA BiOp”).[2] In the FEMA BiOp, the Service determined that the NFIP jeopardizes several marine species listed under the Endangered Species Act (the “ESA”) and adversely affects or destroys their critical habitat. As a result, over 270 Puget Sound communities will soon receive guidance from FEMA explaining what they must do to avoid violating the ESA when authorizing floodplain development.[3] One way for local governments to comply with forthcoming directives would be a blanket building moratorium across 100-year floodplains. Such a prohibition would fundamentally alter the manner in which Washington cities and counties have managed floodplain development for the past half century.[4]
- (Jessica Ferrell, Martin Law Group)
The above is a direct quote from Ms. Jessica Ferrell (of Martin Law Group) as the lead paragraph from an article she wrote. I understand that she specializes in environmental law.
Regardless of your opinion as to how severely the Endangered Species Act (ESA) should be administered and applied, it is clear that this ruling will once again provide impetus for higher lot prices for new homes. Higher lot prices results directly in higher new home prices. Without going into the detail and proof of why, economic forces dictate that any increase in lot prices will result in an increase in a finished new home prices of about 3 times the lot value increase.
Why will this increase lot prices? Lots of reasons!
- There is a substantial amount of land in the region that lies in 100-year flood plains, including much of the land that is currently undeveloped.
- It will require developers to do more pre-approval studies, increasing production costs.
- It will reduce the inventory of available development (or re-development) land, as some of what would have otherwise been usable will be excluded from being used. This will increase raw or vacant land prices. Remember that our cities, towns, and counties have already limited the amount of development land by the dictates of the Growth Management Act (GMA) which requires that development be constrained to be within the politically drawn lines of Urban Growth Boundaries (UGB) in what is then designated as Urban Growth Areas (UGA). While planners made conscientious efforts to identify usable land inventory when establishing their UGAs, removing some of this land will cause many of the comprehensive plans to need reworked earlier than expected.
- It will require increases in infrastructure costs, particularly in storm water management infrastructure. More of the developable land will be dedicated to non-development use to accommodate stormwater management. This will decrease yield on the usable land, further reducing potential lot inventory.
- No doubt “mitigation” requirements will increase beyond stormwater management – which often means the paying of fees to various governments so that they can “provide remedies”. Unfortunately, this remedy is really nothing more than a tax, in effect, as the money goes into general funds and gets otherwise expended.
- It will lengthen the already time-consuming and costly entitlement process, adding to holding costs, thereby adding to production costs.
This is not a complete list, and may be just the start. What is important to understand (regardless of how strongly you embrace such regulations) is that it will increase the cost of production of new housing for everyone. But it won’t make the houses bigger or better. It may not even provide much benefit to the species that are endangered. Governmental agencies (regardless of lip service on the topic of “affordable housing”) rarely contain any kind of cost/benefit analysis.
One of the problems with taking things to extremes is that costs go up dramatically while the increment of benefit gets smaller and smaller. Just like auto pollution – the first 80% of improvement cost automakers and the car-buying public less than raising the degree of improvement from 80% to 90%. And 100% can never be achieved, regardless of cost. Just how far should we go, and at what cost?