Policymakers should remove regulatory barriers that increase the cost of building a home and drive up the cost of living in our state. In answer to a question about the high cost of living in Washington, Gov. Christine Gregoire told a TVW interviewer that “the cost of building a home is not determined by the state.” The governor was responding to an aerospace industry study that shows Washington is at a severe competitive disadvantage compared to other states because of our higher cost of living.
Recent research shows that state and local policymakers use a variety of tools to control growth and maximize revenues, such as building, utility and impact fees, land use regulations and business taxes.
For instance, local officials collect a wide variety of fees. These fees are charged by local building departments as part of the mandatory planning and permit fee process. In addition, local officials charge homebuilders for connections to existing municipal services like water, storm drainage and sewer services.
The fees collected by local governments vary from one jurisdiction to the next, as does the price for each fee. The costs of the fees reflect the level and diversity of regulations adopted by local officials.
Officials in the city of Olympia, for example, charge more than twice as much for the same permitting services as do officials in Spokane, yet the cost of issuing a building permit is not significantly greater in the Puget Sound region than it is in Eastern Washington. The higher building fee constitutes a significant revenue windfall for officials in Olympia, while builders and homebuyers receive no greater service or public benefit than if they were building the same house in Spokane.
Land use regulations imposed by state and local officials also contribute to the higher costs of construction. For example, the state’s growth management act (GMA) requires local officials to implement prescriptive regulations that limit the supply of land in the name of protecting the environment.
However, these policies are contradictory and add confusion and costs due to delays or challenges of individual policies. Such regulations include urban growth boundaries, critical area ordinances, density requirements, tree tract and open space requirements, and street standards.
An estimate by the Washington Chapter of the American Planning Association (APAWA) found that government officials add as much as 17 percent to the price of a typical home through land use regulations. The APAWA wrote, “To use Seattle as a point of comparison, 17 percent would represent about $68,000 (in current dollars) of a $400,000 home.” A different study by the University of Washington shows that since the adoption of the GMA, as much as 50 percent of the price of a home is attributable to land use regulations.
Even $68,000 imposed by government officials is enough to price many working class families out of the housing market.
A study prepared by the Department of Construction Management at the University of Washington in 2008 shows that policymakers collected more than $1.9 billion in state sales tax and an additional $337.5 million in Business and Occupation taxes from the construction industry. Additionally construction companies paid sales taxes to local governments of more than $440 million.
Many of the laws used to regulate the construction industry are needed to provide safety or serve the public interest. However, as the data shows, local officials often impose construction fees when they don’t need to, in an effort to collect more in taxes. These taxes and extra regulations have a strong effect of unnecessarily increasing the cost of construction in our state.
As state and local officials continue to ignore or downplay their role in adding to the cost of construction, they put Washington at a marked competitive disadvantage compared to the business climate in other states.
If policymakers are serious about helping economic recovery, they must examine unnecessary fees and remove the regulatory barriers that increase costs to taxpayers and drive up the cost of living for all of us.
Brandon Houskeeper is a policy analyst with Washington Policy Center, a non-partisan independent policy research organization in Washington state. For more information contact WPC at 206-937-9691 or washingtonpolicy.org.
