Texas Considers Bill To Privatize the Business of Issuing Building Permits

If a municipality fails to approve or deny a permit by state-set deadlines, developers could hire private third parties to get the job done.

Dallas builders construct a huge amount of housing, in part because the city government approves their projects pretty quickly.

While it can take some jurisdictions around the country a year or more to process permits, Dallas' in-person approval system could normally get an applicant their permits within a few days.

At least, that was true before COVID, which shut down Dallas' in-person system. Meanwhile, the online permitting system the city had been in the process of setting up proved to be a disaster.  The result was a "permitting crisis" says Phil Crone, of the Dallas Builders Association, whereby applications for thousands of new units were sitting idle and untouched at city hall for months.

Under an 18-year-old Texas "shot clock" law, municipalities have to approve or deny development permits within 45 days. Subsequent reforms have reduced those deadlines to 30 days for some applications.

If cities miss those deadlines, they have to refund applicants' permit fees. "As far as I know in 18 years, no one has ever gotten a refund," says Crone.

That's because cities like Dallas give applicants the option of waiving their rights to a refund if the city misses the state deadline. The alternative is the city can just deny your permit after the 45 days are up.

Crone says most builders end up taking that deal as the only way of getting their project approved. "You only have one way through if you're applying for a permit in a city. The city is the only vendor you can work with there," he tells Reason.

This year, the Texas legislature is considering injecting a little bit of competition into the issuance of building permits.

Working its way through the process currently is H.B. 14. Under the bill, if a city doesn't act on a development application or conduct a necessary inspection within 15 days of state-set deadlines, an applicant could hire a third party to perform the necessary reviews for them and sign off on their permits.

The third party could be a contractor hired by a regulatory agency. Or they could be a private party, provided they're a licensed engineer, or (if they're being hired to perform building inspections) certified by the International Code Council.

The bill requires that these third-party reviewers actually be a third party. They couldn't be the applicant or someone whose work is the subject of the application.

Supporters argue that speeding up the approval of new housing projects will route around Texas' existing layers of bureaucracy.

H.B. 14 creates a "market-based mechanism by which professionals who have already been licensed by the state can apply their talents in such a way that kind of circumvents the bottleneck that exists in municipal governments," says James Quintero, director of the Center for Local Governance at the Texas Public Policy Foundation.

The bill is part of a package of zoning reforms that would make already-affordable, development-friendly Texas an easier and cheaper place to build.

Another bill being considered this session would shrink minimum lot sizes to just 1,400 square feet, down from the 5,000 and 7,000 square feet some cities require. The idea is that by reducing the amount of land required for each house, homes can be delivered more cheaply. Houston's shrinking of minimum lot sizes down to 1,400 square feet is credited with kicking off a boom in the construction of smaller townhomes. The bill would only apply to cities in counties of 300,000 or more people.

Additionally, the legislature is considering bills that would allow homeowners to build accessory dwelling units on their property by right and pare back local height restrictions.

The idea is to "get government out of the way and allow the private sector to increase the supply of housing and meet demand and bring down the cost of living," says Quintero.