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Friday Interview: Costs of Regulation

NC Homebuilders Association's Lisa Martin discusses regulation

Today Carolina Journal Radio’s Mitch Kokai talks with Lisa Martin, director of Regulatory Affairs for the North Carolina Homebuilders’ Association. Martin recently spoke to the John Locke Foundation’s Shaftsbury Society about the power of regulation over residential and economic development, specifically the role of the State Department of Environment and Natural Resources. (Go to http://www.carolinajournal.com/cjradio/ to find a station near you or to learn about the weekly CJ Radio podcast.)

Kokai: People out there who drive by and see a building project — maybe for housing or for an office complex or some type of other construction project — do you think that they would be surprised if they learned just how much the government is dictating how that project can go forward?

Martin: I think that they would be surprised to know how much regulation went into the project before they actually saw it. I think that it is an easy target. When you see the new growth out there, everybody thinks that you are making a lot of money, and let’s just go ahead and regulate them. As long as I do not have to pay it, let somebody else pay for it, so they should have to do more. I do not think they realize how much they are already doing and how much of the cost of development is simply getting the permits to begin the project.

Kokai: One of the main points of your discussion with the Shaftsbury Society was just the amount of growth of regulation. Give us a sense of how this has changed over the recent years.

Martin: Well, I think that it has been amazing. I am a former employee of the Department of Environment and Natural Resources, which I am not going to pinpoint any particular employees or anything, but I think that just the culture of that agency has changed since the 1980s or 1990s, or even in the last ten years since the late 1990s. It is a culture of just wanting to regulate everything and really reaching into the minute details of what people do on a daily basis.

I think previously the culture — the early culture of the agency — was to regulate “the polluters,” people that had big companies that did things. They manufactured things or they built things or they were distributing things, or municipalities that had wastewater treatment plants. They never viewed themselves as actually going out and regulating each individual citizen who lived in that municipality, or each of the individuals who benefited from the products that were made in North Carolina. That has changed now. The agency believes that it is their responsibility to get everyone and to regulate everybody.

Kokai: One of the examples that you gave probably would give people a little bit better sense of this. This was about a fellow who lived in a Wake County community and was trying to expand his home for his elderly parents. Tell us how that situation developed.

Martin: I think it is a particularly egregious example because all of us are facing that. If we are not now, then we are going to face it in the next 10 years. How do we deal with members of our family — how do we deal with having to expand our property to accommodate members of our family who cannot take care of themselves? In this case, this gentleman needed to move his parents. His parents were getting up in age and they were not well and they needed to move in with him. I can imagine — although I do not know the details — that most likely, the addition to his house involved something where they could maneuver easily. It was not going to be a second-story addition. It was probably going to be something where wheelchairs or accessibility things were brought in. Although I do not know for sure, I would just guess that. It was a half-acre lot. It is in a municipality in Wake County and he was required, in order to put a 1,700 square-foot addition on his house to accommodate his aging parents, to seek a permit from the state, which is already a process that is going to take a number of months.

Then he had to, as part of that permit, in order to get the permit, he had to plant a number of trees and shrubs on his site that would allegedly mitigate the amount of nitrogen that was coming off of this 1,700 square-foot addition and he was required to pay — I believe it was $2,200 or $2,300 — to the state under this ecosystem enhancement program to be used somewhere to allegedly mitigate the nitrogen that was going to be caused by this 1,700 square-foot addition to his property.

In the meantime, other costs that he incurred were that his mother passed away in the process of getting the permit, and he was required to put his father in a nursing home while the house was being constructed. So this particular gentleman was in a pickle because he had to get this permit, but he ended up paying costs that he had never imagined he would go through in order to simply accommodate his parents. That is one example. There are a number of examples, but that is one I think we can all relate to as far as the state reaching into things that we do on a daily basis and regulating us.

Kokai: That, of course, was an interesting example and one that shows some of the egregious nature of the regulation. Let’s just pick someone at random who we do not know — a typical homeowner who is in a subdivision or perhaps in a rural area — and wants to do something different with his property than what is taking place on the property now. What kinds of rules is he going to run into that he might not expect?

Martin: Well, I think that there are a number of things that he could possibly do. Let’s pretend that this is somewhere out in the middle of nowhere. Most likely he or she is going to have to get a septic tank. There are rules that regulate that. If they are anywhere close to a stream or have streams on the property, they will have to be avoided, or they will have to do as the earlier example did — pay into a mitigation fund for that. There is always running the risk of archeological artifacts being found. Those have to be examined. There is the possibility of endangered plants, endangered animals that can be on the site.

You also have to be cognizant of any right of way issues or roadways that are being planned, how the horizon for that is quite large. There are just a lot of things that you have to know. It is almost impossible to go out and really contract something on your own without getting some help. All of this adds to cost. People go in wanting to develop their property or to build a home for themselves and they cannot even imagine what it costs them to do this because there are all of these regulations, and those are just regulations that they may have to go to the state for a permit. Then you have the local governments, and depending on where you are located, there are various requirements with that — everything from architectural standards, things that we have seen that require you to have a porch on your property, require you to have a brick façade, prohibit you from using slab-on-grade construction, all of these sorts of things that local governments do. It is just a myriad. It is quite a maze to go through, and any individual taking this on themselves — I wish them luck.

Kokai: Now one of the things that some people might say to themselves is, you know, there is all of this growth. I do not necessarily like seeing all of this construction all of the time. Maybe this makes sense to have all of this regulation and all of this additional cost so we can keep a lid on the growth. Why is that a bad way to look at it?

Martin: Well, I think as an association, we are not opposed to managing the growth. Everybody couches every single argument that they have as — this is just management of growth. But we have a chance to interact quite a bit with people who do what I do in other areas of the country. My favorite calls usually come from Michigan, which is a place where there is no growth. It is not growing. I get everything from talking to the person who is their director of regulatory affairs for the state of Michigan, saying if you want to just send some of that growth that North Carolina has up here, we would just love it because they have people who are trying to figure out where their next meal is coming from. It is not funny. You have a bunch of workers who you have to accommodate. They have the same situation that North Carolina does — they have auto plants or manufacturing, not necessarily autos, but manufacturing that is going under. It is a ripple effect.

If you do not have growth, you cannot sustain a healthy economy whatsoever, so to hear people who move here from those places and want to shut the door on everybody else, it is a challenge. We have to make sure that they understand that some level of growth is good. We have had a high level in Wake County, which has done nothing but actually improve Wake County. I know that there are a lot of people who may not agree with that, but if you look at the high standards of the schools and everything else that we have here, it is because of growth. Growth runs and fuels the economy. It does not make things worse for people.

Kokai: The last thing I wanted to touch on was something that you mentioned near the very beginning of your remarks, and that was that all of this regulation of growth has a negative impact on affordable housing. How? How is that true?

Martin: Well, if people cannot afford to get into a home — let’s look at state government wages in terms of teachers and people who work for state government — their wages do not go up every year. But the cost, because of regulation, which is one of the major costs that go into establishing a first home, if that goes up, people who qualify for that first home goes down. So what you have is, you have wages that are in one place.

You have the costs of things going up. There are things as builders we cannot control. We cannot control the cost of steel. We cannot control the cost of lumber. Those are things that are way out of our control. We would like to say that we can control what local governments do and the costs that they put on, or state government, but sometimes we do not succeed very well on that. But, the higher the costs go, if the wages do not keep up with that, you take a whole socioeconomic sector and you eliminate them from the market. If they are eliminated from the market, then who is going to be fueling the next level? As everybody moves up to their next house, who is going to move into those entry-level houses? The answer is no one.