No-Code Comfort

Safe and sound housing at a lower cost-that's what Houston-area home buyers are getting without building codes.

Imagine an area with tremendous population growth—an extra 1,742 people each week—yet with no land-use zoning and with most new housing construction entirely free of any local building codes. Does this bring to mind an image of a sprawling mining boom town with shoddy development and an angry public being ripped off by unsafe construction at exorbitant prices?

The area is real—it is today's Houston. But the image is false.

Most people are aware of Houston's rapid growth. With over 2.9 million people, it is the nation's fifth-largest metropolis. But few are aware that Houston has no zoning laws and never has. Fewer still realize that the vast majority of new housing in the metropolitan Houston market is being developed outside of the jurisdiction of any local building codes. In other words, the fastest-growing residential area in the United States is growing mainly without local codes.

To understand what this means, it's useful to begin with a definition of building codes. They are simply documents that prescribe in detail the materials and standards that all construction must meet. Cities, and counties and states when they adopt codes, generally base them on one of four model building codes, all drafted by private trade organizations. They are the Basic, or BOCA, Building Code, from the Building Officials Conference of America; the Southern Standard Building Code; the National Building Code, from the American Insurance Association; and the Uniform Building Code, from the International Conference of Building Officials. There are also a number of specialized codes such as the National Plumbing Code and the National Electrical Code.

The city of Houston does have a building code, a modified version of the 1970 edition of the Uniform Building Code. All new construction within the Houston city limits must comply with it. However, the great majority of new residential construction in the metropolitan Houston market occurs outside the city limits in unincorporated parts of Harris and adjoining counties. Texas law prevents counties from adopting and enforcing building codes, and city governments' extraterritorial jurisdiction does not include any power to enforce building codes beyond their city limits. So, while Houston does enforce a building code, the vast majority of new housing units in the Houston market are constructed without the enforcement of any government building codes.

The Houston metropolitan area has had more annual housing starts than any other metropolitan area every year since 1975. In 1982, permits were granted for nearly 67,000 housing units in the Houston area. Only about 16,000—less than one-fourth—were constructed within the Houston city limits and subject to the city's building code. Most of the rest were built in unincorporated Harris County and subject only to a county requirement that the ground floor be constructed above the established flood plain.

And how has the unincorporated area of Harris County fared without building codes? Residential development there is anything but substandard. For in the absence of "government quality controls," participants in the housing market have adopted other protective mechanisms. Builders subscribe to various warranty programs, and private lending and insurance institutions enforce construction requirements for their own and consumers' protection. The evidence is that these voluntary arrangements are providing effective nongovernmental controls on housing construction.

Even a Houston building official, M.S. Parmley, a defender of building codes, testified in 1980 before the President's Commission on Housing that construction problems have been encountered with only "a small percentage" of builders and contractors in Harris County. And a past president of the Greater Houston Builders Association, Michael Marix, testified that problems occurred in less than one percent of the construction.

Housing Commission members asked Parmley what types of problems are the most common. He responded that cracked slabs is one of the major structural problems—but he conceded, upon further questioning, that cracked slabs also occur in housing constructed under the Houston building codes. Whether there are proportionately more structural problems with buildings in Houston itself or in unincorporated Harris County has not been established, but builders, lenders, and public officials generally agree that there is no significant difference in the quality of housing constructed in the two areas.

If the quality of housing is essentially the same, though, the cost is not. In 1979, a National Conference on Housing Codes sponsored by the Department of Housing and Urban Development (HUD) found that state and local regulations are directly responsible for increasing the costs of housing by imposing standards that are "higher than those needed for adequate engineering purposes or for the general life style of the American public."

To determine the impact of local government regulation on the cost of housing, HUD initiated a Housing Cost Reduction Demonstration project in 1980. Four communities across the country were selected for this limited demonstration project, which used reduced local government regulations as the only variable. The demonstration was concerned with the impact of zoning ordinances, subdivision regulations, and building codes on the cost of housing.

In the initial three projects for which early figures are available, the prices of homes were reduced by an incredible 21 percent to 33 percent. In Shreveport, Louisiana, demonstration housing units (with two bedrooms, two baths, and 1,500 square feet) had a sales price of $52,850, while homes in a comparable suburban project with conventional processing times and standards sold for $70,000. In Hayward, California, the demonstration units ranged in price from $53,000 for two-bedroom units to $65,000 for four-bedroom units. Comparable units in the area were selling for $79,500 to $97,500.

The differences between regulated Houston and unregulated Harris County areas are actually less than one might think, though, because Houston city government is far less obtrusive in the housing market than big-city governments usually are. Experienced developers who have built in other parts of Texas and the country usually agree that the cooperativeness of city and county officials, as well as the relatively low number of local regulations, makes the entire Houston market—including the city itself—one of the easiest in which to operate. For a national developer, the contrast between building under the Houston code and building in the no-code situation in Harris County is like a contrast between the trip to heaven and heaven itself.

The hassles and cost differences within the metropolitan Houston market are minimal compared to the differences between that market and the typically more restrictive building environment in other parts of the country, particularly California. For example, Harlan Smith, president of Homecraft Land Development, Inc., testified before the President's Commission on Housing that the average sales price for his company's single-family detached home in the Houston market is $55,000, far less than the national average of $76,300 for 1980. He attributed much of this difference to Houston's lack of zoning, which has allowed Homecraft to respond to the market with smaller lot sizes that would be prohibited by most local zoning laws elsewhere.

Still, the cost of building codes is a significant factor in increasing the price of housing. "A number of clients," architect Marion Spiers told the commission, have noted that "doing business in the city [under the Houston building code] can and does cost in the neighborhood of 5–10 percent more than out of the city [with no building code]."

Mike Marix, president of Marix Housing Corporation, has carefully documented the difference between construction costs in Houston and the rest of Harris County. He found that in 1981 it cost $2,071 more and took three weeks longer to build a typical 1,166-square-foot home under the building code than in the no-code situation, assuming that both were built to meet FHA minimum property standards. Marix considered specific labor and material cost components in the two situations, including everything from building permits to framing, slab costs, and electrical and plumbing work. And when the final sales price was calculated, adding in standard cost items such as administrative overhead, marketing, construction financing, discount points, and profit, the difference rose to $3,300.

This $3,300, Marix figures, means the following for the home buyer:

• an additional down payment of $175.00,
• an additional monthly payment of $37.03, and
• an increase of $106.00 per month in the level of income required to qualify for a loan.

While builders believe that interest rates have the single greatest impact on housing costs, the extra costs of complying with the Houston building code are indeed significant. Even the requirement of an extra $106 in a home buyer's monthly income—a direct result of the higher building-code costs—is certainly critical to a large number of families for whom home ownership is almost, but not quite, within reach.

One of the most striking lessons of the metropolitan Houston experience is that in the absence of government-imposed building codes, there is still a variety of market and legal safeguards available to provide effective protection for home purchasers. Ranging from liability laws to warranty and guarantee programs, these nonregulatory mechanisms can provide even more reliable protection than is afforded by building codes.

Recent case law and legislation have clarified and extended liability for faulty design and construction in several states. Engineers, architects, and builders are keenly aware of the potentially disastrous costs of faulty design or negligence. A column in Progressive Architecture two years ago noted that "if an architect's [or engineer's] design for a building project does not adequately provide for the safety of its users, he may be subject to liability in the event of injury to person or damage to property."

The liability of building designers was expanded in 1980 when a lower appellate court in New York (Cubito v. Gindele and Johnson) ruled in favor of a tenant who had slipped on a laundry-room floor where water had accumulated because of faulty design. The defendant, an architect, contended that the defect in the laundry room was "patent and observable" and therefore the architect's liability was ended when the owner accepted the building (as had been established in a 1957 landmark decision). The court disagreed. It held that under more recent precedent, a manufacturer is subject to liability for defects in his product and that "there was no justification for distinguishing between the liability of a manufacturer and a design professional." The New York Court of Appeals subsequently affirmed this ruling.

Developers and others who market housing units also can be liable for their construction. In Texas, the precedent was established in the case of Humber v. Morton. Once this liability and the principle of "implied habitability" were established by the courts, the Texas legislature stepped in and established by state statute a 10-year limit on the term of liability. This builder liability includes any structural problems. Without building codes, according to one Houston-area builder, "builders are very careful and sympathetic with respect to liability."

Liability for construction has gained currency in this country only since the mid-1960s, but it has long been the basis of building quality control in France. The builder and architect are held liable for major structural defects for 10 years and minor defects for two years. Since 1978, this liability has been extended to include structural engineers and others under contract with the building developer—plus the building owners themselves. All are now required to take out insurance to cover their professional and personal liability. To minimize damages, establish premiums, and measure risk, French construction liability insurers require—by government mandate—that certain standards and criteria are met and that regulated private inspectors examine essentially all buildings, including residences. The French system is not perfect, but its concept of civil liability offers a useful alternative to local government building codes.

Lending institution security is another protection employed in the market. Lending institutions have a vested interest in assuring that the structures for which they loan money are sound. In the Houston market, some lending institutions control construction they help finance outside the city limits by reviewing the building plans, employing outside architects to examine the plans, and hiring inspection firms to monitor construction.

Home Owners Warranty (HOW) is another, and fast-growing, approach. The HOW Corporation, founded in 1973 by the National Association of Home Builders, is a private program that provides two assurances of quality in home building: a written warranty from participating builders who have pledged to meet HOW's standard for workmanship and materials, and an insurance policy protecting the homeowner against the builder's failure to perform.

According to Houston HOW Council administrator Mike Proctor, over half of all new housing units in the Houston market are covered by HOW, which was first introduced in Houston only in 1980. In other urban markets that have had HOW for a longer period of time, the portion of new residential buildings covered by HOW is as high as 90 percent. In fact, some banks and lending institutions offer preferential interest rates to buyers of homes with a HOW warranty, and other lenders require that builders they deal with be approved by HOW.

How does the system work? First, the organization screens builders. For his houses to qualify for HOW warranties, a builder has to provide evidence of professional competence in his trade, demonstrate financial stability, and have a history of favorable customer service relationships.

Second, HOW has a three-stage inspection process for all new homes (there is a fourth stage—soil inspection—in parts of Colorado). The first inspection is conducted before the pouring of the foundation; the second after the building framing but before sheet rock examine the structure and its electrical and plumbing systems; and the final inspection to assure that the structure is ready for the owner to move in and that site grading is adequate.

Third, HOW has an effective procedure for settling disputes that avoids all government involvement. If a disagreement between a homeowner and builder occurs over warrantied items and face-to-face communication reaches an impasse, either the homeowner or the builder can file a complaint with the local HOW Council, which in Houston is made up of 12 builders and one lender. The effectiveness of the HOW program in screening homebuilders and establishing a successful inspection process is indicated by the fact that in a little over three years, only 172 complaints have been received by HOW in the Houston area. That's 172 complaints out of more than 37,000 HOW housing units—less than one-half of one percent! And nearly a third of the builders who are notified of a homeowner's formal complaint against them settle directly with the homeowner.

If the dispute is not settled within a week of the builder being notified of a complaint, a private "dispute settler" is assigned by HOW to resolve the issue by negotiation or to render a settlement decision. Only about 100 cases in the Houston market have made it to this stage. Dispute settlers come from either the American Arbitration Association or the National Association of Conciliators, and they have 40 days to resolve the dispute. All but one of the cases in the Houston market submitted to these conciliators have been settled.

In the event that a homeowner is still not satisfied with the settlement, he may seek legal remedy through the courts. And if the builder is not satisfied with the settlement, he may go through an appeals process with the national HOW organization. Only one builder has ever appealed the third-party settlement. He won the appeal, but the homeowner still received the necessary repairs to his home—at HOW's expense.

It is virtually inconceivable that any local government building code could successfully guarantee 37,000 homes with less than one-half of one percent of the homeowners having serious problems. It is even more inconceivable that a public court system could successfully resolve 100 consecutive homeowner/builder disputes with only one contested settlement or appeal. Yet this is precisely what HOW in the Houston area has accomplished.

While private alternatives and safeguards provide truly viable options to government building codes, some people argue that government codes and inspectors are needed for commercial and office development to protect the public. Again, the unincorporated areas of Harris County provide a good case study, for in addition to the enormous amount of residential development occurring there, there is a significant amount of office and commercial development.

Local office, commercial, and industrial developers are quite aware of their legal liability, and they rely on the expertise of professional engineers and architects to design safe structures. These architects and engineers are also aware of their responsibilities and generally follow the Uniform Building Code as well as other privately developed codes such as the National Electrical Code and National Plumbing Code.

In addition to these assurances of quality construction, it is customary for insurance companies to examine carefully the building plans prior to classifying structures for insurability. Since insurance costs are determined by the building's rate classification (particularly relative to fire), builders and designers make every effort to construct a safe structure to minimize these costs.

Local deregulation of construction is an idea now surfacing as the costs of government controls become obvious to the public and as fewer people find it possible to own a home. Home buyers are increasingly demanding the freedom to make their own choices and to bear the consequences rather than having a single uniform government standard imposed on them.

An examination of the Houston area reveals a unique working laboratory for nongovernmental alternatives to regulations and controls. With its lack of zoning and (in unincorporated areas) building codes, the Houston development model serves as real-world evidence that many of the local public regulations and controls considered sacred elsewhere are not only unnecessary but costly to both the developer and the consumer. It's well past time to consider repeal of such local codes. The evidence is mounting.

Dick Bjornseth is a senior planner with Bovay Engineers in Houston and cofounder of the Association for Rational Environmental Alternatives.

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How Codes Cost

Houston may have some of the least-obtrusive regulations in the country, but in his testimony to the President's Commission on Housing, Houston builder Michael Marix was still able to cite chapter and verse accounting for an additional cost of $2,071 for building a house in Houston compared to unincorporated Harris County. The same house in Houston would require expenditures like $736 for extra fees and blueprints, $213 for extra plumbing pipes, and $100 for an inefficient mode of constructing the driveway apron that required using a concrete saw to cut into the street rather than a continuous pour along the side of a street. As another builder told REASON, "These codes will nickel-and-dime you to death."

California's building codes are a bit more typical and much more restrictive than Houston's. All residential construction in the state is subject to a code called the State Housing Act. Local governments have to make a special effort to win approval for any variation from the state code. Among its requirements:

• electrical outlets must be installed within 6 feet of every doorway and no more than 12 feet from each other elsewhere, which is superfluous for households that don't happen to use many electrical appliances;

• all pipes other than for waste drainage and vents must be made of copper or galvanized steel, even though certain plastic pipes are cheaper and entirely adequate for far more extensive use;

• heating-duct insulation must meet stringent standards appropriate for considerably colder climates than the Los Angeles area, the largest housing market in the state;

• all ceilings in inhabitable rooms must be at least seven feet six inches high and, in other rooms such as hallways, seven feet high (a boon for Californians who are six feet eleven inches tall, little help for citizens seven feet one inch tall, and nothing but a guarantee of unnecessary construction costs and higher heating bills for everyone shorter than that).

Among the victims of building codes are those contractors interested in exploring new or unconventional modes of construction. Plantse Corporation of East Falmouth, Massachusetts, which specializes in innovative construction methods and the use of appropriate technology in housing, is typical.

Some time ago, Plantse wanted to introduce the so-called Alaskan slab technique in homes it was building in northern Massachusetts. The Alaskan slab has a "footer"—a reinforced foot-wide perimeter that extends six inches above ground level, which means that the house is, in a sense, "floating" above ground. This has proven to be tremendously energy-efficient in Alaska's permafrost climate—yet several Massachusetts building inspectors who are used to slabs with four-foot frost walls imposed stiff extra requirements before Plantse could use the technique that the inspectors had never seen before. Because building code ordinances give inspectors considerable discretion, there's little Plantse could do.

An aspect of building codes that is often overlooked is that they frequently restrict building and major maintenance to certified workpeople and thus exclude most homeowners from doing that work. This means that the people with the strongest natural interest in a structurally sound, economically built house—the house's owners—have nothing directly to do with how well the building is built and maintained.

And because of the artificially high costs of compliance with the building specifications in the code, the negative effect of the "certified workpeople" restriction is multiplied. As MIT economist John Turner points out, in New York City "a license has to be obtained in order to replace a defective roof, but if the building is obsolescent, this may not be granted unless the entire building is brought up to standard and by licensed builders. Therefore, because the owner or a willing tenant is forbidden to do a job he would have been quite able to do, and very cheaply, an entire building is lost, thus accelerating the decay of the neighborhood."

These are a few examples of the ways building codes raise housing costs. But the metropolitan Houston experience shows that in the absence of codes, consumers do get safe and sound housing.

—Paul Gordon