California Development Regs Trade Off Affordability

California is well known to have some of the most stringent development regulations in the country. While some of those regulations are admirable and focused on community safety and health, they often trade off construction affordability.

“There has been a tradeoff in terms of growing regulations and affordability. California has CALGreen codes, the first-in-the-nation mandatory green building standard, to reduce greenhouse gases,” Sonnet Hui, general manager and VP of Project Management Advisors, tells GlobeSt.com. “The aim of that program is admirable, but it requires certain construction considerations at the infrastructure level—like the ability to add solar panels or electric charging stations—that make projects more expensive than they would be otherwise.”

But ambitions aren’t alone. Many of the regulations put pressure on development pricing. “There are also a number of ways municipal regulations contribute to rising costs, through requirements like parking minimums, which mandate additional space or structures for parking, and entitlement delays, which can cause a project to lose momentum,” says Hui.

While the regulatory environment puts pressure on pricing, there are many other factors contributing to the rising costs. “It’s too simplistic to say that regulations alone are driving cost. There are many factors contributing to the state’s growing construction costs and it’s not easy to unwind them,” says Hui. “Hard costs are the primary driver and continue to increase. Materials are expensive. Labor costs are going up and in the coastal areas, they’re even higher because of labor shortages and project demand.”

And, in fact, there has been some move from both local and state governments to ease regulations to conform to market needs and facilitate new supply. “We have seen an effort from some local governments and planning departments to ease the restrictions and regulations,” says Hui. “If the cost-to-benefit calculations don’t work out for the developer, they’re unlikely to pursue a project, and that ultimately hurts the local tax base. There may be more incentive now for cities and the state to work with developers to spur economic growth, but it has to be a collaborative effort among all parties.”

The regulatory environment in many ways is unique to California, but not surprising considering the state’s popularity. “There’s a long history of trying to protect the state’s unique natural beauty and resources and rightly so,” says Hui. “We have nearly every biome on the planet and the unique challenges that go along with them, from forest fires to coastal erosion and seismic activity. Perhaps more than other states, we feel the effects of climate change and enact rules to attempt to combat it. Ultimately, the regulations are in place to protect the state and the people who live and work here.”