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High interest rates aren’t the only culprit for creating a drag on commercial real estate transactions.
Outdated and cumbersome permitting and zoning rules, at the local and federal levels, prove to be an ongoing frustration for developers, urban planners and professionals handling the sales and purchases of commercial properties. Without these pervasive roadblocks, many neighborhoods in need of economic revitalization could thrive and generate new business income.
The issue starts at the policymaking level. The U.S. Chamber of Commerce reports that for government buildings, it now takes an average of 4.5 years for a project to obtain a federal permit. Roads or bridges take an average of 7.4 years to move forward, public transit projects average 5.3 years, and renewable energy projects can take up to a decade or more.
An arcane environmental review process is partly to blame. The National Environmental Policy Act, which governs environmental review, was signed into law more than 50 years ago, on Jan. 1, 1970, and it has seen only minor updates since.
The problem spills into the private sector. The Chamber’s surveys find that almost 46% of commercial real estate professionals indicate zoning or permitting is impacting their ability to convert office space into other types of real estate, with 23% saying it is the most important factor. Some 44% indicate environmental regulations are a big factor preventing the conversion of office space.
“We can and must conduct environmental reviews and provide for meaningful community input, but it shouldn’t take longer to get a decision about a permit than it does to actually construct a project,” says Martin Durbin, senior vice president of policy for the Chamber. “To meet our growing challenges—like updating crumbling roads and bridges, addressing water quality, expanding broadband access, combating climate change, and strengthening our energy security—the permitting process must be improved,” he adds.
Congress has yet to take significant action on reform. Meanwhile, the National Association of REALTORS® continues to monitor and support local level zoning reform. Under a new California law, for example, religious institutions and nonprofit colleges can now turn their parking lots and other properties into low-income housing. Beginning this year, they’ll be able to bypass most local permitting and environmental review rules to bring much-needed multifamily housing to the state. A study by the University of California, Berkeley, Terner Center for Housing Innovation estimated the state’s religious and higher education campuses have more than 170,000 acres that would be eligible under the law.
In another example, the Miami Association of REALTORS®, in the process of constructing a shipping container prototype home, identified nonsensical irregularities in the zoning code. The association’s work led to the allowance of flexible zoning and permitting for smaller nonconforming lots so more affordable units could be built, establishment of eco-friendly container homes as viable dwellings for single lots, and allowance of container homes as accessory dwelling units.
Advocacy by NAR members, even on a small scale, can have a big impact on fostering needed development, and redevelopment, in the nation’s towns and cities.