One of the great things about being the Lucas Professor of Real Estate at Florida Gulf Coast University is that I am able to draw on the collective expertise of an array of industry leaders to bring topics to life through presentations about their current projects. The students and I learn something new with every presentation. One of the most consistent takeaways is the amount of regulatory knowledge required to function in Southwest Florida’s development and construction industry.
As we confront the region’s housing affordability crisis, it is important to recognize the significant contribution of regulation to the current situation in our residential real estate markets. Regulatory compliance costs are not just the explicit costs—attorneys, reports, fees, mitigation—but also opportunity costs. It is not enough for an entrepreneur to have a good idea that addresses a need in the community and provide a product to the marketplace that satisfies that need. Instead, after coming up with the next version of “sliced bread” for the real estate market, they must navigate an increasingly complex matrix of rules and regulations in order to bring a product to market, and do so profitably.
Many regulations are put in place with the collective mindset of “this is not too much to ask.” But, like any choice in life, new rules come with costs—some explicit and others implicit. On a stand-alone basis, these costs may not be significant. However, when they are considered in aggregate, it is apparent that they contribute significantly to the housing affordability crisis.
Please understand, I am not calling for the elimination of regulations that govern development. Instead, my goal is to call attention to the aggregate negative impact on housing affordability of the increasing regulatory burden faced by the construction and development industry.
One of the primary reasons there is demand for the output of our construction and development industry is the region’s amazing natural environment. I believe it is our most valuable amenity. Aside from the probability that both our adult children will eventually reside in the region, the environment is the primary reason my wife and I want to remain in Southwest Florida. It is an asset that must be protected, but it is important to ask a question often posed by one of my favorite economists, Thomas Sowell: “At what cost?” This seemingly simple question prompts us to consider the consequences of increased regulation and, if properly examined, can result in improved decision-making.
In an effort to further enhance decision-making by our future leaders, we are offering a new class at FGCU this fall, Sustainable Real Estate. As my colleagues and I developed the course, I often said that failure to include this class as part of our real estate curriculum would be a disservice to our students and the region. The class will prepare students to carefully examine issues arising from the interaction of our use of real estate and the natural environment. Perhaps the most important lesson that can be learned from this type of analysis is that regulations, like all decisions in life, have consequences and involve tradeoffs. Hopefully, this course will provide our graduates with the skill set to help them avoid unfortunate outcomes such as contributing to the decline in housing affordability via increasingly burdensome regulations for the development and construction industry.
Shelton Weeks is the Lucas Professor of Real Estate and director of the Lucas Institute for Real Estate Development & Finance at Florida Gulf Coast University’s Lutgert College of Business.
