Housing

In 2019 the National Association of Home Builders (NAHB) produced their most recent Construction Cost Survey. This survey excluded infrastructure associated with new development such as streets, utility extensions and stormwater facilities, focusing only on costs connected to construction of a house and the site costs for its lot (infrastructure costs are discussed in section 2.3). According to this report, 61.1 percent of the final home sales price goes to construction costs, 18.5 percent to finished lot costs, 9.1 percent to builder profit, and 11.3 percent to other costs such as financing, marketing, commissions, and other expenses.¹ This data illustrates that the bulk of construction costs are attributed to areas outside of the direct control of a municipality (construction material costs, etc.), however costs within municipal control or influence are not negligible.

On a national level, site work represents 3.8 percent or $18,323 of total costs as estimated for 2019.² Within the "total construction cost" category are embedded the "site work" costs. Additional costs the municipality can impact are within the "finished lot" and "total construction cost", such as utilities, infrastructure, and stormwater management. Site work costs include costs more attributed to the municipality, such as permits and utility connection fees. Additionally, total construction costs are also impacted indirectly through the additional time it can take getting through the municipal approval process that can impact overall project financing.

Any reduction in costs and or time can promote home construction as a result of reduced risk and potentially promote increased affordability.

For multi-family construction, the costs associated with municipal regulatory structure is greater than that of single-family construction. In 2018 the NAHB produced a study in conjunction with the National Multifamily Housing Council (NMHC) that indicated municipal regulation is attributable to over 30 percent of the total construction costs for multi-family development.³ Beyond costs associated with changes to the building code, costs such as those associated with applying for zoning approval or dedication of land to municipalities range from under one percent to just over seven percent as a share of total development costs.

The Samuel Zell and Robert Lurie Real Estate Center at the Wharton School of the University of Pennsylvania has conducted research that indicates regulatory barriers impact overall construction costs. In their most recent analysis, the Center estimates a range of $60,000-$80,000 in additional costs for the development of a single-family home on a vacant, one-quarter acre parcel is attributable to what they deem "restrictive residential land use environments" that result from local land use regulations in the Philadelphia region.⁴

In their analysis, they further looked at this additional cost in properties at a distance of between 15-30 miles and greater than 30 miles from Philadelphia. As the distance from Philadelphia increases, the additional costs decrease from $32,771 in the 15-30 mile range to $7,009 at the 30 mile range.⁵ In Chester County, these cost ranges would generally be highest in the eastern areas of the County and decrease moving outward and into the western, southern, and northern areas of the County.

Chester County has some of the highest lad costs in the Commonwealth, and this also is a significant factor impacting overall housing costs. Although variable across the growth areas of the County, in April 2020 Zillow had listing ranging from near $300,000 per acre in the eastern areas to $20,000 per acre in the southern areas of the County. Costs are impacted by a variety of factors including, but not limited to: general availability of land, access to existing infrastructure, type of zoning and overall restrictions, access to quality of life amenities, and desirability of school district.

For new housing developments, a wide range of infrastructure costs are a significant factor as it relates to overall housing costs. Infrastructure costs generally include, but are not limited to: roads, stormwater management, and sanitary sewers.

Roads have significant soft costs associated with their initial design and engineering. In terms of physical road construction, their costs are variable, with the American Road and Transportation Builders Association estimates the cost to construct a new, two-lane undivided road at between $2-$3 million in rural areas and $3-$5 million in urban areas.⁶ Further, PennDOT estimates the long-term maintenance for lower-volume roads to costs as being: $24,700 to seal coat per mile; $101,400 to resurface per mile; and $910,000 for full rehabilitation per mile.⁷

Stormwater management facilities (Best Management Practices or BMPs), represent another significant infrastructure costs as they relate to new construction. In addition to those facilities for the road network, BMPs are required for the actual development areas and can be implemented as larger shared facilities on common areas, or as smaller facilities on individual lots. Examples of BMPs include raingardens and permeable hardscapes, and these range in cost from $7-$11 per cubic foot for a raingarden and $15-$20 per square foot for hardscapes.⁸ The EPA estimates larger BMPs such as wet detention ponds cost between $17.50-$35 per cubic meter and dry detention basins from $5-$10 per square meter.⁹

For expansions to sanitary sewer networks, most of the costs associated with this falls to the developer. In addition to required tapping fees that range into the thousands of dollars per Equivalent Dwelling Unit (EDU), upgrades to existing infrastructure (pump stations, mains, etc.) as well as expansions of new lines and other required infrastructure, come at a significant investment to the developer.

Soft costs are those associated with development that are not directly related to physical construction. These costs can include, but are not limited to: architect fees, surveys, engineering fees, municipal fees, financing costs, project management, taxes, etc. Depending on the complexity and regulatory structure in place, soft costs can range from 25 to 75 percent of a total construction budget.¹⁰