Galvan on Rehabilitating Building Codes

In this month’s Yale Law Journal, Sara Galvan has an article entitled Rehabilitating Rehab Through State Building Codes.  Here is the abstract:

Building codes are not neutral documents. Traditional codes have the effect of
deterring the rehabilitation of older structures. But rehabilitation—which can have many positive effects, especially on cities—should be encouraged, not deterred. One promising method of encouraging rehabilitation has been the adoption of “rehabilitation codes”: building codes that establish flexible but clear requirements for renovators. After analyzing traditional building codes and three different rehabilitation codes, this Note concludes that more states should adopt mandatory rehabilitation codes.

I highly recommend readers of this blog check out Galvan’s article.  It raises many important points about urban revitalization and the role that property rules and regulations affect the economics and physical characteristics of cities. 

Galvan highlights three states’ efforts at statewide “rehabilitation” building codes, New Jersey, Pennsylvania and Maryland.

New Jersey’s case represents the best example.  Information on the rehabilitation code can be found here.  New Jersey adopted a state-wide mandatory rehabilitation sub-code in 1997.  Galvan reports evidence that the sub-code led to significant rehabilitation efforts in Newark, Jersey City and Trenton.

Pennsylvania adopted the International Building Code (from the International Code Council) as the statewide building code in 2004.  As part of its Uniform Construction Code, Pennsylvania also adopted the International Existing Building Code.

There has been some interesting research recently suggesting that imposing excessive building, zoning, and platting standards to urban areas significantly depresses private-market rehabilitation and revitalization efforts.  For example, Joe Gyourko and Albert Saiz at University of Pennsylvania have a fascinating paper on the role of construction costs in facilitating or hindering reinvestment in urban housing stock.  Basically, when construction costs are high relative to the value of the housing unit, owners do not spend much on renovation and revitalization.  They find that local regulations and unionization explain some of the variation in construction costs across cities.  Their paper was published as “Reinvestment in the Housing Stock: The Role of Construction Costs and the Supply Side.” J. Urban Econ. 55:238-256. 

Gyourko and Saiz calculate a Value to Cost ratio to explain investments in renovations and rehabilitations.  The charts in their paper provide an empirical confirmation of Galvan’s main argument.  Consider a place such as Los Angeles or New York, where the value of housing stock far exceeds construction or replacement costs.  In those places, there is already significant reinvestment and renovation of existing housing stock because it is economically viable.  On the converse, consider Detroit or Buffalo where a high percentage of units are below cost.  In those places, virtually no reinvestment takes place. 

But the effect of costs on private-market reinvestment should be most significant at the margin in cities where a large number of housing units are at or near construction costs.  Consider Gyourko and Saiz’s graph of Philadelphia.  A significant clustering of housing units are at or near construction costs.  In this case, even relatively small changes in regulatory or construction costs should provide significant reinvestment in the housing stock, as seen in New Jersey.

Consider recent reports from the Building Industry Association of Philadelphia, If We Fix It, They Will Come and Philadelphia’s Home Repair Crisis.  For example, the report identifies the plumber’s union resistance to using PVC pipe, and therefore the Plumbing Code’s requirement of cast-iron pipes.  This report estimates that this requirement raises the cost of a single-family home in Philadelphia $3000. 

Building codes, like zoning and subdivision ordinances, are an exercise of the police power to protect health, safety and welfare.  When compared to 100 years ago, these codes have worked very well at improving the physical quality of the nation’s housing stock.  Yet, maybe they have worked too well?  When standards and codes become excessive, rigid and bureaucratic, they can stifle investment and innovation.  Galvan’s article is an important contribution to our thinking about the investment and economic effects of police power regulations.   

May I suggest to Ms. Galvan that she next turn to a similar analysis of the role of subdivision regulations in promoting uniformly ugly housing developments and driving up housing costs.  Eran Ben-Joseph and Terry Szold have recently published Regulation Place: Standards and the Shaping of Urban America (2005, Routledge), an important discussion of how standards and subdivision regulations have shaped the physical environment.  Again, New Jersey seems to be in the lead in state standardization of subdivision regulations.

Kurt Paulsen

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