Post-Harvey Flood Control Regulations Are Hitting Developers Hard
Since the first round of new local flood plain regulations went into effect at the beginning of 2018, the real estate industry has been scrambling to understand and implement the standards. The ordinances, put into place after Hurricane Harvey’s flooding devastated Houston, called for stricter regulations on properties within the region's flood plains.
With some experience building within the new codes under their belts, some developers and contractors throughout Harris County say their burden — higher construction costs, fewer favorable sites and increased time to permit and build — is too steep.
"It is almost a tax to people," Edifis Group President Josh Aruh said. "If things cost us more to develop, we are going to pass that back down to the tenant. What do you think the tenant is going to do? He is going to charge more to the customers."
The new codes took effect in most of Harris County on Jan. 1, 2018, and in the city of Houston Sept. 1. Within Houston city limits, the new standard is to build 24 inches above the 500-year flood plain for all new construction and additions larger than a third of the original footprint.
The rest of Harris County requires the lowest finished level to be at the 500-year flood level plus 36 inches, a big change over the former policy of 100-year level plus 18 inches. New construction will have to be at least twice as high. For projects within the 100-year flood plain, permits will also require a pier-and-beam foundation and additional wind design.
No longer can developers in the city build slab-on-grade foundations, a standard in the industry. (Sites within Harris County can use slab on grade.) Industry leaders will discuss best practices and challenges under the new flood plain regulations at the Houston State of the Market event May 1.
"The new regulations are planning for things that historically have not been the case," Aruh said. "Raising and building to the new regulations are very costly."
Construction of 249 Business Park near the intersection of Highway 249 and Beltway 8 was being planned as the new regulations were being discussed, and building up to those codes would have increased costs by $2M, Alston Construction Vice President Radie Stroud said.
"We are not talking about a little money on a project. These are big increases," Stroud said.
The new regulations would have required increased mitigation, such as bigger detention ponds and higher elevations, so the developer pushed the construction timeline ahead. Instead of only constructing Phase 1, which had two industrial buildings, the developer secured the appropriate permitting before the new codes were set and is building all four buildings at one time.
"It may not have helped the developer, but it did help us," Stroud said. "It was going to make doing the second phase of the project really challenging."
The new detention policies aren't just more expensive; they are also more complicated.
Previously, there was a specific formula across the board to determine detention. With the new requirements, it is more site-specific and takes a more holistic view of the community, Lee & Associates principal Patrick Wolford said.
Developers must weigh the unknowns that may lead to higher land costs, construction costs and rents, Wolford said. He suggested developers work with engineers early in the pre-planning process to discover the detention requirements at a property.
"It causes issues for developers because they don't know when they purchase a land tract how much detention will be required for any specific tract of land," he said. "It is a big question mark."
Many clients are passing on sites within the 100-year flood plain in unincorporated Harris County because they have become economically unfeasible to develop under the new codes, Wolford said.
In September, Harris County launched the years-long process of drawing new maps, according to the Houston Chronicle.
"If [Harris County] expands the 100-year flood plains then that will reduce the amount of dirt outside of the flood plains for development, which will drive prices up," he said.
The new regulations will impact areas like Kingwood that were flooded for the first time in Harvey, Aruh said. Edifis Group owns and manages properties in Kingwood, and if it wanted to redevelop any of the properties now they would have to be raised above the 500-year flood plain.
While Aruh hasn't calculated the cost difference, he said retail properties will be required to build stairs, ramps and other improvements to accommodate the elevation difference for customers while meeting American Disability Act standards.
There is a workaround, Stroud said. A developer can submit a Letter of Map Revision (a LOMR-F) to the Federal Emergency Management Agency to request a land site be removed from the 100-year flood plain. This process can take between six and eight months and there is no guarantee it would be approved, he said.
Sophisticated property owners will opt to increase mitigation prior to marketing sites as it might be easier to sell, Stroud said.
"No one is going to want to buy a site without knowing the LOMR-F has been approved," he said. "It slows down the transaction process."
Aruh believes the regulations happened too fast and further research needs to be considered for commercial property vs. residential property since the loss of life — though maybe not the loss of property — is lower at commercial property.
“In a storm, people stay at home," he said. "Usually, people know when a storm it is coming. They close down the businesses and go home. Forcing commercial developers to build to the 500-year regulation is pretty punitive.”
Along with the impact of flood control regulations, industry experts such as Transwestern CEO Larry Heard, Midway CEO Jonathan Brinsden and The Howard Hughes Corp. Central Region President Paul Layne will discuss the state of the market, opportunity zones and the Innovation District on May 1.