Construction costs have ballooned over the past several years, which unexpectedly limited the number of new homes built in the Twin Cities in 2018. Part of the reason for cost increases is due to labor shortages. Contractors are simply unable to hire enough skilled workers for the amount of work, meaning they take on less jobs and therefore need to charge more for the jobs they can manage. Another factor contributing to rising building costs is increased regulations. Builders must jump through all sorts of additional hoops in order for homes and remodeling projects to be up to code. This means more time and material for builders which adds to the bottom line, but it also means higher permit costs, which are tied to the cost of the project. Cities charge more for permits as project costs increase because they will theoretically need to inspect more. It’s a cycle here, people.
Builders have long been skeptical of permit costs across the metro, and a recent Star Tribune article reported reason for additional pushback. In this article, a building official was quoted saying that cities had gotten “their hand caught in the cookie jar” in reference to a report that showed local cities over 5 years received $78 million more in permit revenue than paying for the related projects’ inspections. He’s also quoted saying, “cities depend on permit revenue to help balance the budget.” It’s this point that builders deem out of line. The state of Minnesota dictates that fees should be “proportionate to the actual cost of service”, but those on the other side of the argument would say it’s difficult to determine the cost because it goes beyond the billable hours for inspections. As stated in the article, a lobbyist for the League of Minnesota Cities points to the cost of zoning and planning as also needing to be covered by permit revenue.
The issue has gotten enough attention that MN Senate held a hearing on the topic this week. The non-profit that compiled the initial report is arguing that the high permit fees are contributing to MN’s housing affordability crisis, as shared in this other article from the Pioneer Press. There’s clearly no change coming out of the hearing, but it’s a start. If there’s one positive to come out of this seething mess of bureaucratic disfunction, it would be cities implementing better tracking and accounting practices to determine where the permit revenue is being spent rather than just being a nice addition to the total pot. One can hope!