January 15, 2019
By: Vittorio Nastasi and Adam A. Millsap
Florida is the third most populous state in the country and has no problem attracting new residents: From 2010 to 2016, 114,744 new households moved to Florida each year. Unfortunately, only 57,952 housing units were added each year. This discrepancy — with demand outpacing supply — has pushed home prices up throughout the state.
In a new report published by the James Madison Institute and co-authored with Samuel Staley at the DeVoe L. Moore Center, we explore the causes behind the rising cost of housing in Florida. We find that land-use regulations, cumbersome impact fee schedules, and permitting delays have contributed to the insufficient growth of the housing stock in recent years.
Some factors that contribute to higher home prices are outside of the control of policy makers. These include higher incomes that fuel demand for larger homes and higher quality construction. But while higher construction costs can lead to higher housing prices, that doesn’t seem to be the main driver right now in Florida.
Instead, public policy that hinders the construction of new homes is a big factor here in the Sunshine State. Minimum lot sizes, building height restrictions, and building permit limits reduce the amount of housing that can be built in a given area, which leads to higher prices.
Permitting delays also lead to greater costs for builders. Builders often use loans to buy land and materials, and the loan payments need to be made even if construction isn’t occurring or a sale is held up due to a missing permit.
We estimate that land-use regulations and permitting delays add as much as $27,000 to the cost of a home in some Florida communities. And what’s worse is that the additional cost makes up a greater portion of the total price of smaller homes, which are the types of homes lower-income people typically purchase. This means regulations and permitting delays are often regressive.
Impact fees are another way local governments can affect the cost of housing. Impact fees are levied on new development to pay for the extension of public goods and services including roads, schools and utilities. When they are designed well, impact fees are an effective tool to raise money for these purposes, even if they do make housing a little more expensive.
Unfortunately, not all impact fee policies are designed well. Impact fee rules vary widely across Florida’s communities and many of them are confusing and — like regulations and permitting delays — regressive. There are several reforms that would improve impact fees in Florida, such as linking them to the size of the unit and assessing them at the time a building permit is requested rather than when the permit is issued, which would create more certainty for builders.
By reforming their land-use regulations, permitting processes and impact fee schedules, Florida communities can make housing in our great state more affordable and ensure that Florida remains an attractive place for people at all income levels.
Vittorio Nastasi is a senior majoring in economics and political science at Florida State University. Adam A. Millsap is the assistant director of the L. Charles Hilton Jr. Center at Florida State University.