Ordinances threaten to crush construction industry, developers say

In Mecklenburg County, developers and builders feel like a row of dominoes is about to come crashing down on them.

They say the cumulative effect of new ordinances is going to put a serious hurting on commercial and residential development — and the county’s efforts to rebound from the recession.

The new ordinances — most have to do with protecting the environment — are going to drive up the costs of development, drive down the value of land and run people and businesses out of the county, they say.

Karla Knotts, owner of Knotts Builders, a Charlotte real estate development firm, said that while not any single ordinance is too damaging, all three added together are bad news.

“The compounded effect is dramatic,” she said. “It’s like when developers are least likely to afford it, the city of Charlotte passed regulations that will drive up costs.”

But city officials see things much differently.

They say the ordinances are necessary to protect Charlotte’s environment and quality of life as the city continues to experience explosive growth. While they don’t deny that the new rules will add costs to construction projects, they say they will help prevent problems as opposed to addressing them after the fact, which is a far costlier proposition.

Brian Pace, owner of Pace Development Group in Charlotte, isn’t buying it. He said that if city officials are going to change regulations, the revisions should help taxpayers and the economy.

“And these reforms don’t do that,” he said. “It might look good on paper, but when you start adding these layers of rules and regulations, it drives up costs to the point that starting a new development isn’t viable from an affordability standpoint.”

The ordinances do everything from protecting water quality and tree cover to providing safer streets for drivers and pedestrians.

Those are all noble and important causes, but officials have implemented versions of these ordinances — in some cases mandated by the state and federal government — that go beyond their original purpose and scope, developers say.

“It throws an extra layer of complications on top of what is already a challenging market to get financing,” said Frank Warren, president of Warren Associates, a Charlotte real estate consulting firm. “It really impacts the feasibility of projects.”

Storm over stormwater rules

The most comprehensive and far-reaching ordinance riling the real estate industry is the post-construction controls ordinance.

Daryl Hammock, Charlotte’s water quality and environmental permitting manager, described it as a permitting process required by the Environmental Protection Agency’s Clean Water Act.

Some developers, though, describe it differently: a law that will make less land available for them to develop.

Federal law requires at least a 30-foot buffer between a stream and any residential and commercial construction. But Mecklenburg County’s buffer requirements, which were adopted by the City Council in 2008, vary from 30 to 100 feet, depending on the location, Hammock said.

“Certain areas, like lakes or watersheds, that contain endangered species need a great level of protection,” he said.

The version of the federal post-construction ordinance adopted by the council in July 2008 not only went beyond federal mandates but also for the first time established stormwater controls for single-family construction sites in the county.

“We thought our community wanted us to do a better job than the bare minimum for protecting water quality,” Hammock said.

There are other differences between the federal requirements and Charlotte’s.

The city in July 2008 adopted a rule in which new single-family residential developments have to have stormwater-retention systems, which hold stormwater and release it slowly over time. Ponds are the most common systems.

Hammock said that rule was prompted by the city’s flooding problems. In many instances the city has had to go into properties downstream from new developments and replace culverts that were not large enough, he said.

“We were just transferring the problem to the public, which had to pay for these repairs through stormwater fees,” he said.

How many stormwater-retention systems a developer has to provide depends on factors such as the type of development and the amount of parking lots, sidewalks and other impervious surfaces, he said.

Jon Morris, a partner at Beacon Partners, an office and industrial development firm in Charlotte, is among those who don’t have nice things to say about the ordinance.

The overall effect of the ordinance is that less land is available for development thanks to the larger retention ponds and buffers, he said.

“Say you used to pay $100,000 an acre for a 10-acre site,” he said. “Now because of these ordinances, 2 or 3 acres of that site has in essence been taken away for public uses. So instead of a 200,000-square-foot building that I’m getting $3.50 a square foot for, now I can only build an 180,000-square-foot building.”

Get ready for the costs of the retention systems to get passed along to tenants, he said.

“You’re going to have this slingshot effect in rents, where instead of paying $3.25 per square foot, it’s going to be $4.50,” he said.

Morris is not the only developer upset about the ordinance.

While Pace said he approves of the ordinance’s goal to improve water quality and prevent flooding, he said Charlotte has taken the ordinance far beyond what it was initially meant to accomplish.

“We’re now at a point where all the water running off our roofs, driveways and streets has been deemed polluted,” he said. “Was it really all that bad that we let our gutters run off into the yards and absorb the water, like 95 percent of the communities that have been developed in Charlotte?”

Hammock, though, points to a 2007 cost analysis of the post-construction ordinance, which found that about 75 percent of the cost of the ordinance to developers came from federal and state regulations, while the other 25 percent came from the city’s amendments.

He said the analysis also showed that development costs increased anywhere from 1 to five 5 percent as a result of the ordinance.

“But we’ve heard statements from the construction industry that costs are a lot more than that, like 50 percent more,” he said. “But that’s not been demonstrated through an objective analysis.”

Tree rules

If the post-construction ordinance wasn’t enough for developers, there’s the new Mecklenburg County tree ordinance, which took effect in January.

For commercial developers, the new regulations increased the number of trees that have to be planted in parking lots. Now, a tree has to be planted every 40 feet as opposed to the old requirement of every 60 feet.

Another change: The old ordinance required commercial developers to save at least 10 percent of the trees in the front building setback along the street. The new ordinance requires developers to save at least 15 percent of the total site area for trees, but the trees can be anywhere on the site.

Like the post-construction ordinance, the new tree rules mean less land available for development, which in turn hurts property values, developers say.

“Mecklenburg County has to worry about other urban areas it competes against,” said Jim Merrifield, managing partner at Merrifield Partners, a Charlotte real estate firm. “By passing the new tree ordinance, they raised the value of land outside Mecklenburg County. It becomes more cost-effective to build elsewhere. The economics of building here become harder to justify and overcome.”

‘More land area is taken away’

Also driving some developers crazy: the newly revised Urban Street Design Guidelines.

Mike Davis, the Charlotte Department of Transportation’s development services manager, said the City Council adopted the policy in 2007 and revised it in December.

The guidelines are used for planning and designing the city’s streets.

“We need to build street networks that are appropriate for different parts of the city,” Davis said. “Uptown has different needs than Ballantyne, and the streets should reflect that.”

The biggest revisions address how often streets should be built, which is particularly important in trying to improve connectivity in subdivisions and neighborhoods, Davis said.

The old guidelines required streets to be built at least every 1,000 feet. The new guidelines range from 400 to 1,000 feet, depending on infrastructure needs and the type of development.

“We’ve gone from a system based on sizing streets purely around traffic to designing them based on land uses,” Davis said. “But on average we expect to get more streets in new developments than we currently have.”

The requirement for more streets is what has sparked most of the debate: Developers say it will likely mean less available land for commercial and residential development.

“The city wants more streets and sidewalks so we can have better connectivity in our neighborhoods,” Morris said. “This means having to build public streets down the middle of project instead of a parking lot, so more land area is taken away.”

Hurting Meck’s competitiveness

Some developers say the ordinances will do more than make their lives difficult.

There will be a ripple effect, they warn: As it becomes harder and more expensive to build in the county, developers will opt to do business in other counties.

“When the economy finally starts to turn around, there’s going to be a lot of competition from other communities, which have far less stringent development rules,” Merrifield said.

Pace said the ordinances will drive down the value of land and make costs for new homes skyrocket, resulting in more people choosing to move to other counties, such as Cabarrus and Union.

“It’s not helping the affordability of our housing stock, and that’s the fabric of our society,” he said.

Charlotte and Mecklenburg’s rules are far more stringent than surrounding counties, which don’t have many of the post-construction rules and urban street guidelines, he said.

“If it’s more expensive to build and live here, and the property tax rate is higher, why would you move to Mecklenburg County?” he said.

Tom Pearson, president of Pearson Land Corp. in Charlotte, agrees.

“Charlotte-Mecklenburg officials need to figure out ways to help and make houses more affordable at a price people can pay,” he said. “People are buying houses under $300,000 now. But if you have rules that drive prices up to $350,000 and $400,000, nothing is going to sell.”

Pearson said what frustrates him is that the ordinances conflict with one other. The tree ordinance requires developers to save a certain percentage of trees, which frequently grow along streams and creeks. But the post-construction ordinance in some cases requires developers to cut down trees in order to build stormwater-management devices, such as ponds.

“So we’re having to take out trees to make stormwater more pure as it enters the ground. But one of the best ways to purify water is trees,” he said. “It seems like we’re working backwards on this.”

Felt over time

The full effect of the three ordinances will become more evident in coming years as companies try to start development projects, real estate industry officials say.

They say the full impact of the ordinances has not been felt yet because they’ve been enacted during the recession, when there’s been little new development.

“As the ice begins to melt, these ordinances will come to the surface,” Warren said.

Morris said Beacon Partners hasn’t built anything new over the past few years because of the recession. But even with the economy showing signs of improvement, the new ordinances have stalled projects, he said.

“We’re looking at a few new projects, but it (the post-construction ordinance) makes starting a new building economically infeasible right now,” he said.

Hammock agrees with those who say the new rules make less land available for developers and increase construction costs.

But the increases are incremental and not dramatic, he said.

Costs aside, there’s the environment to think about, he said.

“The environment is more important than ever. And it’s a whole lot cheaper to prevent problems from happening in the first place than to address them afterwards,” he said.

Sam Boykin can be reached at [email protected].