Planning and land development take place within a regulatory framework. There are federal, state and local laws regulating a spectrum of issues, from environmental clean-up standards for a former industrial site to how high a fence can be in your front yard.
If there’s too little regulation, or not the right kind, consumers and communities suffer the consequences, most notably around issues of safety and the environment. If there’s too much regulation, the private sector goes elsewhere, or may selectively build where it can pass the additional costs of regulation onto well-to-do consumers who can afford it. For our purposes: the regulatory environment in any given state or locality plays a huge role in what kind of market activity happens there.
I’ve worked and volunteered largely in the public and not-for-profit sectors. However, I learned early on in my work in affordable housing that municipal and non-profit developers have to think and act like private sector developers if they want to achieve their mission. If a project fails, they may never get another chance. Also, they are not using their own money and have to carefully consider what level of risk is appropriate to assume on behalf of their public funders/taxpayers or private donors. But no matter what your end product, you have to be savvy if you’re getting in the game. Land development is not for the faint of heart.
When my kids were young and attending a small Montessori school in central New Jersey, I took a spot on the board as this 20-year-old organization was re-negotiating a lease and found itself with a healthy surplus. When faced with the question of how/if the school wanted to grow, we decided to consider all possibilities: renovate and continue to lease at the current location; purchase and renovate a building nearby; or look for land and build a new school. Within a 3-year period, I led the school – with a lot of help from staff and other parent volunteers! – through the analysis, planning and construction of a new 10,000 square foot facility just about a mile from the old location. It involved negotiations with the current landlord, working with a realtor, scouting properties and options, constantly running in-house financial analyses and income/expense projections, lining up an architect experienced in designing pre-schools, getting a land use lawyer, a builder, and securing construction financing and permanent tax-exempt bond financing through a local bank, with the services of a bond lawyer.
I tell you all this to establish some degree of “street cred” when I say: land development is a risky, expensive, gut-churning business, in which “time is money.”
Developers put money into escrow with a municipality when they put in an application for approval. The town’s engineers, codes staff and planners are all getting paid from that escrow account when they do their reviews of the application – all those nit-picky details that are supposed to ensure the “health, safety and welfare” of the eventual users of the buildings, roads, parking lots, etc. And every time a developer has to talk to his own lawyer, architect, planner or engineer, the meter is running.
Once the project starts, municipal inspections have to be timely; enforcement can’t be arbitrary. Because construction financing is typically at a higher interest rate than permanent financing, if a project’s timeline keeps getting extended, it could sink the project, or at least result in serious losses for the developer. A clear, streamlined set of regulations, consistently enforced in a timely manner, is critical for enticing the private sector to choose your town over another town for the location of their buildings and business.
The logic is similar for potential home buyers and small business owners, whose budgets have an even smaller margin for error. No one is going to put their hard-earned money into play – whether it’s for a home in the historic district or for retail space on High Street – if there’s a great deal of uncertainty and wasted time in the land use approval and enforcement processes. Who needs it, if things are likely to go smoother elsewhere?
Next up: The regulatory framework– Part 2: Walking a mile in a property owner’s shoes