Cost/benefit analysis

Introduction

The main rationale for building codes is the health, safety, and general welfare of the residents. However, it can be argued that the main reason for building codes is for added revenue to municipal and county authorities, through permitting costs, increased tax revenue and fees for violations. Either way, there are significant problems with both reasons, as the cost of housing remains high and more people are facing bankruptcies and foreclosures. Understanding the cost of building codes and zoning laws is especially important considering the recent housing crisis given the reliance of our economy on the housing market. This increase in cost is not a zero sum transaction, rather, it has severe externalities carried both by the public and administrations. This paper will examine these externalities and offer alternatives to the current implementation of building codes.

Considering the health, safety, and general welfare argument

The development of tenement housing has alarmed many citizens and public administrators. The case of landlords profiting from destitute residents forced to pay rent in substandard housing clearly warrants intervention.  The implementation of code regulation was intended to decrease the probability of landlords taking advantage of tenants in this way. The problems associated with using building codes as a solution to the problem of tenement housing are as follows: 1) It does not allow for lower cost housing, as it adds between $30,000 to $220,000 to the cost of building a house. 2) It takes away individual choice concerning living conditions and environment 3) Building code regulation has increased significantly without appropriate cost/benefit analysis since the cost is absorbed by the consumer. These three issues can in turn cause secondary problems for homeowners, such as increased poverty, stress, and illness, therefore creating the very issues these codes were implemented to solve.

Increased cost of housing

Given that the single biggest expense of most American households is housing itself, reducing the cost of housing could have a major effect on increasing the welfare of the public. Currently affordable homes such as yurts, domes, strawbale, or even trailers are considered illegal residences under most conditions in most states, even though they can cost as little as 10% per square footage as a new standard construction house. Therefore, the relaxation of building codes could dramatically help with reducing the cost of living.

The problem of tenement housing emerges when the cheapest homes are also unsafe or unhealthy, leaving the poorest in substandard conditions they did not choose. It is therefore important to maintain affordable housing that meets code as an option for anyone. Beyond the basics, there is no need to enforce building codes on people who choose to pay more for their home, as long as they are aware that their home does not meet certain codes.

The right to choose your personal living environment

Using building codes as a solution to the problem of tenement housing does not allow for choice and preference for those who wish to live outside certain regulations. As an alternative to mandatory compliance, a home whether for rent or for sale could have the stamp of “permitted” by an architect, engineer, or county code compliance and therefore inform the consumer. If having a home permitted was a choice, many people would still choose to do so, as this could provide comfort in the added security. Having a permitted home would increase the desirability and price of a home, and therefore many landlords would still choose to permit homes as the added cost would be compensated by higher rent. This is similar to other products and services that may contain a stamp of approval such as “energy star” “organic” or “recommended by the American Dental Association”. The choice then is transfered to the consumer to evaluate their preferences vs. their budget and to decide what’s right for them.

This is of particular relevance to scenarios of owner-builder. People who do not intend to sell or sublease their homes should be allowed to build it as they see fit. Such provisions are common in many rural counties and states. It might be argued that people will underestimate the value of their own health, safety, and welfare in building a home; however, several studies point to the fact that counties or states that do not have building codes do not, in fact, have a higher injury or fatality rates in accidents at home. This is analogous to the provision of households to cook in their own kitchen without the inspections of the local heath department, as people are not likely to want to poison themselves on purpose.

Beyond the argument of choosing your own level of safety, having the ability to choose non-standard housing such as yurts, domes, canvas homes, and strawbale, is an important step towards sustainability. These types of buildings reduce construction waste, decrease rainshed area, often use natural materials, are light enough to pose little threat in an earthquake, are affordable, and easy to construct.

The insufficient data on the benefits of building codes

A closer look at building codes and their effectiveness in reducing injuries and fatalities reveals further flaws in the argument. Many codes are instated because of a previous accident, however, there is rarely a cost/benefit analysis of the new code. A simple internet search for “QALY” (the common measurement for quality-adjusted life year cost) and “building codes” yields one study only. This study, conducted by the Harvard school of policy and decision making, does not show the benefits of the codes but only their cost. A personal correspondence with the authors yielded no further information or direction to find studies demonstrating their benefits in any quantifiable terms. Dr. Jon Levy’s response was: “My strong suspicion is that there aren’t many studies on this topic, since people rarely link specific building codes to QALYs”. Dr. James Hammitt said: “There are probably code changes that would yield greater benefit than the offsetting harm that we tried to estimate (maybe reductions in radon concentrations in areas where that is a problem). There are surely other code changes that would provide little or no health benefit.”

The few “post-facto” studies done on the benefits of building codes demonstrate a very minimal benefit. One particularly interesting code is regarding the minimum size of a house. There are arguments against smaller homes as they introduce a greater risk of burns and injury in case of a fire, though there is no evidence for any correlation between house size and injury/fatality rates. Research on fire fatalities and injuries demonstrate that rather than fire code, the main preventative measures for house fires is smoke detectors and restricting indoor smoking. The reduced or lack of fire code compliance barely increases the fire risk of such homes.

Another example is the retrofit code for earthquake safety in residential homes in San Francisco. The new code requires such expensive retrofit for such a reduced life saving value that the cost of one lifeyear saved is over $4 million. (Quigley, 1989). Just to put this figure in context of other life and injury saving measures, the average lifeyear cost in the medical field currently stands at $16,000 per life year saved, with a common cut-off price enforced by health insurance companies of $50,000.

There are many building codes which are cost-effective and do significantly increase the health and safety of the residents, however, the list of building codes is extensive and the majority of which are not in this category. As we have found in our research, these codes are not tested and there is no evidence of their cost-effectiveness. Many codes increase cost of living significantly and increase safety minimally.

Secondary complications: The hidden cost of building codes on families

There are several aspects to the harm caused by increased in cost of living due to building codes: 1. Health risks due to poverty 2. Accident risk due to increased commute frequency 3. Increase in stress and stress related illnesses.

The price of poverty: available funds for personal care

According to Hammitt et al from Harvard school of policy and decision making, for every increase of $150 in building codes costs about 225 Quality adjusted life-years are lost due to reduction of disposable income. This translates to an average of 4 deaths a year simply due to reduction in available funds for personal care. It is difficult to extrapolate the total health cost of building codes according to this figure, but given that permits and codes cost an average household an additional $50,000-$80,000 (to a large extent because of the minimal size requirements for a home) it can be safely estimated that several hundreds of lives are lost annually unnecessarily due to diminished funds for self-care.

Accident risk due to commute frequency

If the cost of buying a home is significantly increased, as it is due to building codes, that cost is transferred to the consumer who may have to increase their income due to the higher rent or mortgage. For those in lower income brackets, this could mean finding a second job, or increasing hours or days worked.

According to the Nationwide Household Transportation Survey, the average adult spends 80 minutes driving every day, out of which 22 minutes are work commute. Given that car Accidents cause 30,000 deaths a year, it can be assumed that a quarter of which may involve people driving to work. The combination of these figures would yield work commute as responsible for 7,500 deaths a year, assuming no significant effects of other interacting variables.

It is very hard to estimate how many car accidents could be prevented if only people didn’t have to work as much to pay for their expensive homes. If that was the case, we could expect to see a saving of about several hunderd lives a year, if housing wasn’t made so expensive by the enforcement of building codes.

The cost of stress

As we all know, money, or lack thereof, is a big source of stress for many people. Though the link between disposable income and stress is filled with confounding variables, we all share the experience of increased stress during financially challenging times.

According to the Franklin Institute of Scientific Learning there are several known effects of stress on our health; they include: high blood pressure, peptic ulcers, cardiovascular deaths, strokes, suicides, degradation of the immune system, weakening of the blood-brain-barrier, reduced neurogenesis in the hippocampus and impairment of learning. Overall, the estimates of the effects of stress on reducing life expectancy vary between 9 months to 10 years. These results depend greatly on the degree to which the study attempts to be factoring out confounding variables.

The New York Times reported on Sept 5, 2004 that “Workplace stress costs the nation more than $300 billion each year in health care, missed work and the stress-reduction industry. ” It is hard to estimate how much of personal financing has to do with workplace stress as there are many other aspects of the actual work environment that are probably more directly affecting stress levels at work. On the other hand it is quite likely that financial pressure due to increase in cost of living is contributing to stress level at work or at least increases the amount of time people have to spend at work to pay their bills.

The over-all cost of poverty in terms of mortality and morbidity can be measured in life expectancy. Wage differences of mere $7000 annually below or above the median income will have consequent average of 1-3 years lower life expectancy (according to the Kaiser family foundation). This estimate is relevant to most income brackets besides the upper class. This would mean that an increase in cost of living at that level would translate to at least 2,000,000 life-years lost annually, or 50,000 premature deaths.

Financial Revenue for County Governments

County governments do rely on revenue from building permits, fees and fines due to code violation. However, this is not cost effective due to the fact that the residents carry the majority of the cost. For instance, the code concerning the minimum size of a house costs six times as much for the consumer than the county receives. Although it is not popular, increasing taxes instead of trying to increase revenue through permitting would save everybody money.

Certain safety regulations that are cost effective should still be in place. However, these regulations should not cost extra to the consumer. Just as police services are paid for by the state so as to protect all individuals, not just those with enough money, so should the permitting for the safety of our homes. The revenue that the county or city governments receive due to permitting can be paid for directly by higher income houses through taxes. This would increase the revenue, increase desirability of smaller and more sustainable homes, and provide affordable and safe housing for those in need.

Conclusion

Building codes increase the cost of housing; both through paying for permits, and through requiring homes that are either too large or unnecessarily overbuilt. The specific degree to which building codes increase the cost of housing depends greatly on the type of alternative housing that could replace a permitted one. There is ample evidence that the cost of building codes take a big toll on the subjected population; first of all in monetary terms and consequently in health and well being. However, the benefit of many building codes for residential buildings is still not clear. Evidence from states that do not have zoning codes demonstrates that most people are interested in a home which is safe and comfortable, and would not build a grossly unsafe house for themselves and their families, nor would they build an unsafe house if they cannot sell it due to its hazardous condition.

Affordability of homes is incredibly important in the light of the real estate bubble that bursted recently. According to Nobel Laureate economist Paul Krugman of Princeton University and the The New York  Times the house price bubble has been limited to metropolitan areas with strong land use regulation. Though we cannot derive the direction of causality with much certainty, we should consider the idea that land zoning and building laws may have a big part in what turned into a severe recession.

County and city governments should consider providing safety consultation as a service and increase property tax for the highest income residents. Otherwise, they could consider selling a zoning variance permit for interested land owners who are interested in taking on liability for the safety of their buildings. This would increase safety, increase county revenue, support more sustainable housing, and increase availability of safe, low-income housing.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: