|
Speedier Building Permitting Increases Local Tax Revenue
 Communities with a more efficient building permit process can gain millions of dollars in tax revenues and significantly bolster their economic development, according to a report released last month by the American Institute of Architects (AIA).
The study, “The Economic Impact of Accelerating Permit Processes on Local Development and Government Revenues,” concluded that implementing a more responsive permit process could enable a municipality to increase its property taxes by 16.5% and local construction spending by 5.7% over a five-year period.
“Within the last five to 10 years, there has been a substantial increase in delays in building permit approvals,” said Kermit Baker, the AIA’s chief economist. “Architects have frontline experience with these delays, and the AIA commissioned this study to shed light on this problematic situation that works against the best interests of businesses and communities.”
Conducted by PricewaterhouseCoopers LLP, the study focuses on nonresidential projects that accounted for $295 billion in new investment in 2004, according to the Department of Commerce. For that year, the department’s Bureau of Economic Analysis reported that new investment in privately owned structures totaled $960 billion, or 8% of GDP; residential structures accounted for $665 billion of this amount.
“Inefficient permitting processes are equivalent to a drain on economic development,” said Linden Smith, managing director for PricewaterhouseCoopers. “Project delays lead to higher costs that either will be passed through to occupants or will discourage new construction. Less new construction, by reducing the total supply of buildings in a community, will tend to lead to higher rents for everyone.
“Conversely,” he said, “a municipality with an efficient and predictable permitting process will attract investment by reducing the risk of scheduling delays and cost overruns. All else equal, investment dollars will be drawn to these municipalities.”
Among the highlights of the report’s findings:
- Reduced permitting times will encourage economic development. The study found that shortening permitting processes by three months on a 22-month project cycle can make the difference in the decision of whether or not to undertake a project.
- Permitting delays raise tenant costs both in new and existing buildings. When permitting delays are the norm, the increased costs and delayed returns on investment are built into rents paid by all tenants. Permitting delays discourage investment, leading to less construction, fewer buildings and a tighter real estate market, with higher rents for all tenants as a result.
- With competition between jurisdictions for new development dollars, more efficient permit processes can attract investment from other areas.
- Accelerating permit processes can increase local government revenues.
- Increased construction spending provides broader economic benefits. The economic benefits of increased construction activity extend beyond employing more construction workers. Construction-related materials and services are purchased from local suppliers, local jobs are created and workers will spend their income at local establishments. Based on information from the Commerce Department, for every 10 jobs directly related to a construction project, another eight local jobs are created.
- Because of the economic importance of investment in structures, even modest efficiency gains in permitting processes can have large impacts.
Prior to the recent U.S. Conference of Mayors, the report was sent to 1,000 mayors, local building permit officers, city council members and local municipal and county officials.
The AIA says that its report is the first step in encouraging local governments to invest in programs and technology that will create state-of-the-art building departments that are more agile and better equipped to expedite the building permit approval process.
|
