Silent Moratorium in Real Estate

By
October 31, 2023

An explanation of how silent moratorium is making obtaining permitting in real estate more difficult

"Silent Moratorium" - what the heck does that mean?

First, I'd like to say that I cannot take credit for coining this term as someone much smarter than me identified this phenomenon. It’s something I've been dealing with for quite some time now as a broker-developer and if you're active in real estate, you likely have too.

Silent moratorium can be summed up as the government slowing down land development by making it more difficult to obtain permitting. Areas experiencing significant growth outside of established cities cannot keep up with the volume of new projects due to:

  • Staffing issues

  • Outdated land use plans & subdivision ordinances

  • Overcrowding schools & environmental concerns

  • Lack of infrastructure & utilities

County planning, environmental quality, transportation, and utilities are some of the key departments developers must work with throughout the project in order to subdivide a tract of land. Each department presents unique challenges that collectively create a silent moratorium and must be overcome in order to keep a project moving.  I believe the market is really beginning to feel these effects and hope that these observations will help clients and other brokers understand why these things are occurring and how their business or investments are impacted.

Staffing Issues

Staffing shortages and turnover haven’t improved in our local area and may be even worse than during the pandemic. Many planning departments are having trouble finding qualified candidates that possess both a degree in land use planning and experience. Many planning staff members now wear multiple hats and facilitate individual roles that used to be comprised of two or even three full-time positions.

I can’t blame them for not answering their phone most of the time because so many people are contacting them and they’re enduring an endless loop of playing catch-up. Top that off with managing existing projects and you’ve got a nasty situation. But what's interesting is that there doesn’t appear to be any intent to go back to fully staffed departments because the perception of having fewer staff members justifies longer response times and buys more time before decisions are made.

Outdated land use plans & unified subdivision ordinances

Every county, city, or town has a land use plan and corresponding map that identifies all remaining land parcels and estimates how they’ll be developed. The unified subdivision ordinance lists the parameters of how these parcels can be developed including what unit density or business types are permissible. Some areas are marked low-density residential, highway business corridor, industrial, etc. These two items guide the planning department when making decisions on whether to approve development applications, hopefully resulting in well-designed communities.

The major problem is that larger cities had the time and resources to create strategic land use plans and subdivision ordinances but the smaller ones outside established areas have not. As the demand for housing pushes developers to seek out land in more affordable areas, the local planning department may be operating off materials that were created 20 years ago. Without the time and manpower to provide updates and revisions, these smaller departments are struggling to keep up with changing market conditions and resort to additional permitting processes or require zoning changes that often end up in conflict with existing materials.

Overcrowding schools & environmental concerns

This factor is pretty self-explanatory but what makes it particularly frustrating during the permitting process is the timing of it. Preliminary approval for development can be provided by the planning department but if they require rezoning or a special use permit then the battle has only just begun. Multiple public hearings will likely occur so now the support of three different groups will be required to move forward with the project.

The public hearings are formal meetings held by government officials such as a planning board or board of county commissioners to determine whether projects will be granted development approval or not. The public is notified of the meetings and allowed to attend and even provide comments on the topic. The two main issues that come up are the overcrowding of schools and environmental concerns like wildlife displacement or construction impacts on drinking water sources. 

Developers often use the term “NIMBY” - not in my backyard - to sum up negative public comments about projects but sometimes the concerns are valid. A competitive school district experiencing rapid growth may be facing overcrowded classrooms or a proposed high-density multifamily development will be adjoining a major aquifer that provides water to the town. Elected officials will listen to their constituents voice their concerns and reserve the right to either table a project for future consideration, deny an application, or place contingencies on development approval - resulting in added permitting expenses and costly delays that are passed onto the eventual homeowner.

Lack of infrastructure & utilities

If a project is approved and development can begin, the next challenge entails even more permitting to facilitate all of the necessary improvements to turn raw land into a finished product. Planning department approval doesn’t necessarily mean that construction will proceed as planned. Once the transportation and utility departments become involved, there’s no telling as to what modifications or unforeseen circumstances will arise.

Let’s say a traffic impact analysis was performed prior to planning board approval for a development and the initial results determined that no major improvements to the current infrastructure were required. While waiting on the next round of permits like driveway entrances, the transportation department suddenly decides that a new traffic interchange is necessary for the site before they'll issue the permits. Now the developer is looking at a massive expense that could kill their project budget and no other way to move forward with developing the site.

Another scenario: the utilities department informs the developer there's a massive queue of projects they’re currently addressing on a first-come, first-serve basis. They refuse to schedule pre-construction meetings in the meantime and cannot provide any timeline for when they will. To top it off, their procedures require that all of the materials for each utility to be installed must be on-site before they’ll schedule the meeting. In other words, the developer is required to make a considerable expenditure without any guarantee that their construction plans will be approved by the department while taking on the added risk of materials being stolen while they wait. The developer's contractor cannot sit idly by waiting for the go-ahead from the county so it’s months before a meeting is scheduled, approval is granted, and the work can be completed. Guess who all of the holding costs are passed onto?

Conclusion

There are many other instances of silent moratorium that haven't been discussed but apply to individuals other than developers. A tenant struggles with getting their up-fit improvements for their new business space approved by the county, despite sending in all of the requested information, only to be told they need to furnish even more information which takes weeks to resolve and delays their grand opening. Or a newly married couple who purchased a lot with an approved septic permit a few years ago finds out the permit recently expired when they're ready to build. They immediately contact the health department to get a new one but it takes several weeks to get the new permit and now their interest rate increased unexpectedly, preventing them from moving forward with building as planned.

Being aware of silent moratorium can help everyone in real estate anticipate how they could be impacted; carefully considering all of the risks to make an informed decision before closing on a deal. It also provides some context on the difficulties decision makers are facing throughout the permitting process. Both the public and private sector will need to work together in a productive manner that'll definitely require lots of patience and resiliency, in order to continue satisfying the demand for providing housing to our growing communities.

If you need help navigating these challenges affecting the real estate market or even just have some questions on how this impacts you, please feel free to contact my office anytime.

Thank you for reading and best of luck with your next real estate transaction!