The cost of regulations: loss of a middle class
Picture yourself as that guy or gal that has always dreamed of owning your own business. Let’s say it is a bakery, and you have worked 10 or 15 years with the dream to save up enough money to open your own bakery. Let’s make this easy on you and assume that you had a rich uncle pass away and he left you a nice corner property at a busy intersection. No mortgage, you own the land free and clear; you inherited it.
Great let’s get started, right? Hold on, you don’t have the proper zoning. Most jurisdictions say your property is zoned agricultural or residential and you need commercial zoning if you want to build your dream bakery. OK, so just rezone the property, right? No big deal; you inherited the land so you have zero money invested at this point.
At your first public hearing you recognize some of your neighbors, and walk up to be friendly and say hello. You find out that they are there to protest your application, mainly for the simple reason that they prefer looking at the vacant property and they don’t want you to build anything on it. You kept the property well maintained and looking nice, the grass was always mowed and you didn’t allow litter and trash to pile up. They want you to keep it that way forever. They have organized a letter writing campaign in the local papers and have mobilized a small army of malcontents to help protest your zoning application. Still want to open that bakery?
You have another problem, money. When you add up application fees to the county, fees to the surveyor to map out your property, fees to the land planner, fees to the traffic engineer, fees to the civil engineer, fees to the architect, and fees to the attorney it gets expensive quick. These fees can add up to in excess of $150,000 just to attempt to rezone your 1.5 acre property. Still want to open that bakery?
That is a huge gamble. You have to have enough money saved up from your day job to be able to risk losing all $150,000 in an all-or-nothing gamble on your zoning. How much would you have to actually have saved up for you personally to risk $150,000 on zoning? How long would you have to work for someone else in order to save that money? Remember, we haven’t even finished with the state and local agency approvals yet before we can even break ground. Still want to open that bakery?
Let’s say that you do get your zoning approval from the county. Now you need to get your entrance approval from DelDOT, stormwater management approval from the Conservation District, wastewater approval from DNREC (or county engineering), fire marshal site approval, and site plan approval from the county. The cost of this stage varies greatly, as virtually none of these will approve your plans on the first or even second review.
It is also at this phase that you find out just how much of that prime real estate that is going to end up as empty space. Stormwater ponds, parking lots, drive aisles, dumpster pad, loading zone, fire lanes, entrance turning radius, and setbacks all combine to take up roughly 75 percent of your property. Whatever you are left with is your building envelope. Still want to build that bakery?
Now you get into the fun part, actually building something. And here is where you find out the real cost of these regulations in the form of what you agreed to build in order to obtain the permits. Commercial site work job will cost you a total of about $450,000 on the low end. The majority of those costs are directly attributable to regulations requiring you to build to specifications made by the various regulatory and permitting agencies. These agencies update their technical manuals periodically with virtually no input from private land owners. Most of these public hearings are extremely poorly attended by the general public, and the vast majority of attendees are primarily workers from other government agencies. This results in a certain type of insanity from a design standpoint that is only possible only in an echo chamber. For example, the DelDOT commercial entrance for your bakery will cost you somewhere around $100,000. Still want to open that bakery?
You still need to go through another round of permits to actually build the building, now that the footprint has been approved on the property. Your fees will include building permit fees, fire marshal review fees, sewer impact fees and water impact fees. Most of these are based on the cost of construction, which once again is driven higher every time they change the specifications. Budget roughly $100,000 in various state and local agency fees for this project. Still want to open that bakery?
Finally you are allowed to build the building that will eventually house your hopes and dreams for the future; your long awaited bakery. Since this is a commercial job, the building specifications are also higher. You have to abide by the latest building codes that your jurisdiction has adopted, which for most of us are the 2012 IBCC building codes.
Most people think of building codes in terms of safety of the occupants of the structure itself, but in reality most of the updates to this code in recent memory are strictly about mandating ever higher and higher energy efficiency. That translates to massive increase in costs for your bakery. Additionally you have fire protection, water, wastewater, Americans with Disabilities Act compliance, OSHA, and Health Department compliance issues as well. When you finally get your Certificate of Occupancy you’ve probably spent another $800,000 just to build the building. Still want to open that bakery?
Remember, you have now spent a total of $1,600,000 building your bakery, and you didn’t even have to buy the land! You still haven’t purchased your equipment (ovens, display cases, tables, chairs, freezer, cooler, cash register, etc), decorated your store, purchased any inventory (have you seen the price of food lately?) or hired a single employee! Still want to open that bakery?
Almost every single one of these costs is directly attributable to regulations from one of the various agencies that you need a permit from before you can ever open your bakery. So what is the result? Well of course most of us never open that bakery on our own land. It is way too high of a risk, long before you can ever even open your doors. So what ends up happening is if you really want to be a baker you are either an employee of a baker, or you become a tenant and rent space from a commercial landlord. Either way, you end up fattening someone else’s pocket and not in control of your own destiny. Welcome to European socialism.
Are regulations useful? Sure, some things might make common sense. But the sheer amount of regulations that we have today is overkill, and the cost is the loss of our middle class.
Christian Hudson is a landowner and developer in Delaware's Cape Region.