Building Code Blues; J. Saltzman

However, later court evidence indicates that a city councilwoman did not want the low-rent apartment in her district. So in March of 1992, city inspectors issued the Leaths a stop-work order. For the next five months, city officials refused to explain to the Leaths' attorney why the rehabilitation would not be permitted to continue. And six months after the stop-work order, the city tore down the Leaths' building and sent them a demolition bill for $66,000.1 This tale about the Leaths illustrates the monstrous regulation that cities can impose on property owners through building codes, mandates for safety (and sometimes even for comfort) in new or existing construction. Mr. Saltzman teaches English at St. John's School in Houston and volunteers as a policy analyst for the Houston Property Rights Asso ciation. In other words, dangers flow from the po litical management of risk. When issuing and enforcing safety regulations, govern ments find it all too easy to seize more power over private property than is needed to ensure public safety; too easy to exploit this power for political purposes irrelevant to public safety; and much too easy to exercise this power in ways that actually undermine public safety.

Needlessly Higher Costs The problem comes from conflicting in centives. Private owners, like the Leaths, benefit financially from improving their property. For the Leaths, that meant restor ing the apartments to attract renters. On the other hand, public officialsdon't own what they control and lose nothing from unnec essarily increasing the cost of maintainingor developing property. In fact, three federal commissions in the last 30 years have discovered that needless building code provisions have driven up the cost of housing. In 1968 the Kaiser Com mittee "found that some communities im posed excessive building codes to prevent the construction of low-cost housing, thereby denying local housing opportunities for lower-income groups." Similarly, in 1982 the President's Commission on Hous ing concluded that "unnecessary regulation of land-use and buildings has increased so much over the past two decades that Amer icans have begun to feel the undesirable consequences: fewer housing choices, lim14 ited production, high costs, and lower pro ductivity in residential construction."

The findings of the 1982 study reappeared in the report of another presidential com mission in 1991: "Local building codes are often not geared to supporting cost-effective construction of affordable housing. They sometimes generate excessive costs by re quiring unnecessarily expensive materials, unnecessary safety features, unnecessary building code requirements, or outmoded construction techniques.,,2 So efficiency must take a back seat to the whims of politicians and of building officials. In this system, even good-faith efforts to maintain or restore property can fall into a bureaucratic quicksand of confusing, sense less, and unfair procedures: • In The Death o/Common Sense (1995), Philip K. Howard tells how a married couple from Brooklyn spent several years renovat ing the kitchen and bathrooms of their brownstone. Even though they had satisfied all requirements for submitting plans and having periodic inspections, they were re fused the closing document, a certificate of occupancy, because the family had been living in the home while renovating it. Ac cording to Howard, "[no] inspector, in all their visits, had ever told them of the rule. "

• The city of Angleton, Texas, tried to make a homeless woman of Vivian Barnett, a 69-year-old widow and retired civics teacher. 3 Barnett was refurbishing her home and some vacant adjoining apartments when the city cut off her electricity and con demned the entire complex, threatening to demolish it. Incredibly, no inspector had even entered her property; city officials con demned it after only driving by it. Never theless, the city would not restore her power for several days, and she had to take the city to court to have her buildings declared safe. • Dr. Jack Yetiv got stuck trying to re habilitate a run-down apartment complex to provide low-income housing in Houston. Yetiv had already spent $200,000 clearing debris when the city stopped his project, claiming he didn't have the permits needed to continue. To get these permits, Yetiv had to have the city to approve his "cure plan, "

15 which the city at first falsely claimed Yetiv had failed to submit. Even after "finding" his plan, the city would not approve it until Yetiv got Houston's chief building inspector to give the property an occupancy inspec tion. But the inspector wouldn't look at the property until the city removed its "admin istrative hold" on the complex. Then the city threatened Yetiv with daily fines unless he corrected numerous code violations. Ye tiv had never before been told of these violations, even though city inspectors had visited his site almost weekly while his project was underway. To complete his plans to house the poor, Yetiv had to take the city to court. Accord ing to The Houston Press, Yetiv's experi ence with the city revealed a "frustrating process that would discourage most people from going to the trouble of repairing a dangerous building in Houston.,,4 Weakened Incentives Excessive regulation weakens the incen tives to improve property. In recent years, the city of Houston has been toughening standards for renovating "dangerous"

buildings. The result? "Rehabilitation by owners [of such buildings] has been cut from 1,099 units in 1992 to 184 in 1994,"5 according to the Citizens' Housing Coalition of Houston. As regulation tightens, production slows, becomes more expensive, or moves to a venue with fewer restrictions. In Houston, building code requirements inside the city make it less expensive to construct housing outside the city, in the unincorporated areas of Harris County. In 1981, one Houston home builder tes tified to a federal committee that a "1, 166 square-foot house built in the city will cost a buyer $3,300-or 5.5 percent-more than a similar house built in the county. ,,6 But in Houston, such arguments have fallen on political ears deaf to marketplace realities. One 1992 report cited a complaint by the Greater Houston Builders Association that "90 percent of single-family homes in the 16 THE FREEMAN • JANUARY 1996 Houston area are built outside city limits"

because of the city's "building code and its permitting process.,,7 As regulatory costs mount, builders flee, restricting the housing supply even further and causing housing prices to rise even faster. Special-Interest Regulation But economic common sense hardly reigns in the adoption of building codes. Too often, codes are written and enforced not to serve the needs of consumers, but to appease the demands of organized pressure groups. For example, building codes give local elites a powerful instrument for discrimina tion. A Wall Street Journal article from May 5, 1992, explained how. In Bell Gardens, California, a cadre of Anglo incumbents was accused of using "the petty enforcement of codes and other tools of activist government to try to remake the community," which meant driving out a growing Hispanic pop ulation. One alleged method involved sending out city building inspectors to search low income housing for code violations. These included such hazards as cracked drive ways, scratched kitchen sinks, and smudged walls. As aggressive inspections increased, vacancy rental rates also rose among the largely Hispanic immigrant tenants "under standably wary of house searches." Mean while, the city acquired and sold condemned properties for upscale redevelopment.

Using building safety as an excuse to keep out "undesirables" is nothing new. In "Re discovering the three decker house" (The Public Interest, Winter 1990), Howard Hu sock explained how New England city plan ning boards in the early twentieth century used fire safety as a phony rationale to check the spread of owner-occupied three-family houses, or "three-deckers." However, two observers from 1914 noted that "with stair ways and piazzas on two ends of the house, it would be practically impossible for people to be burned alive-and thus far losses oflife in three decker fires have been infinitesi mal. ,,8 So why did local governments oppose the three-deckers? According to Husock, the "reformers [who opposed three-deckers] were clearly uncomfortable with the market processes that were bringing immigrants into the mainstream of American life," which meant into the communities of the "reformers." Much to their chagrin, the three-decker houses provided a way out of crowded tenements for blue-collar immi grants, who could rent one of the flats in the building or even purchase the building, live in one flat, and pay the mortgage with the rent from the other two. However, at the behest of local leaders, cities passed ordi nances to restrict or prohibit the three deckers "because of the fire hazard their wooded construction and density was said to pose."

Just as a code can be strengthened to expel the poor, it can also be relaxed to indulge the well-connected. The safety of children is a frequent reason for toughening codes, but a March 15, 1995, article in the Houston Post noted "a pattern of stone walling fire code enforcement" by the city's Fire Marshal to avoid inconveniencing cer tain constituents, including the local school district over code violations at "various ... campuses. ' , The Houston Chronicle explained how the Houston Galleria shopping mall won a moratorium from the enforcement of fire code violations relating to the width of exits. The Astrodome got a similar exemption even though it had 30 percent fewer exits than required by the city fire code. Last December, the Chronicle reported that the Houston Museum of Fine Arts had been cited for building and fire code violations. MFA officials "balked" at the initial de mands of officials. A compromise was later reached.

Undermining Health and Safety But heaven help the small property owner who' 'balks" at the demands of city building officials. In fact, -the financially weakest consumers of housing-minorities, the elderly, the handicapped-are the chief victims of municipal crusades to toughen codes. Overzealous laws for building safety only hinder the welfare of those least capable of absorbing the added costs of stiffer regula tion. Poorer is not healthier. In December of 1993, Houston beefed up its housing code, allegedlyto discipline rich, irresponsible "slumlords" and to speed the demolition of crack houses. However, after monitoring over 200 dangerous-building hearings under the new code, the Citizens Housing Coalition of Houston reported that "the owners who are summoned to the [dangerous-building] hearings would not fit anyone's definition of a slumlord. They are generally older Houstonians, many are mi norities, and many of them are sick or suffer from physical impairment."

The Houston Chronicle (Sept. 20, 1994) traveled to one of Houston's poorer neigh borhoods and found the city threatening to demolish a partly fire-damaged house belonging to Lucille Huey, a 90-year-old woman living in another house she owned across the street. Even before she could make any repairs, the city's new housing code was forcing her to spend $1,000simply to "resecure" the building. This meant Mrs. Huey would have to board up the property according to exacting city specifications, regarding such trivia as plywood thickness and the number of anchoring screws. Then she would have to repair her old house to bring the entire structure up to 1994 stan dards, another costly endeavor Mrs. Huey could ill afford. Such a financial drain on poor people hardly leaves them healthier or safer. In other words, the thousands of dollars Mrs. Huey would have to spend on "securing" her house and bringing it up to current code simply reduces her outlay for necessities like food, medicine, and transportation.

The city of Dallas tore down the deterio rated home of Mrs. Agnes Gray, 81. A poor widow, she begged a year's delay to make repairs, but the city refused. They gave her $850 for moving expenses but billed her $1,998for the demolition and offered her no replacement housing.9 In effect, becoming BUILDING CODE BLUES 17 "safe" cost Mrs. Gray her dwelling and a net liability to the city of $1,148. Of course, excessive codes don't just victimize poor property owners; they harm poor renters as well. Recall how codes smothered the efforts of the Leaths and Dr. Yetiv to refurbish apartments for the poor. In the long run, rambunctious code enforce ment leaves the poor with fewer and costlier choices for rental housing. As the 1991 federal report concluded, "[c]odes can cre ate serious problems for those in need of housing, the poor and the homeless." And as the poor have to spend more on housing, they are forced to spend less to feed and clothe themselves and their fami lies. Or they must delay the purchase of a car and forgo desirable employment that's too far away. Or they must wait longer to move up to better housing or to a neighborhood with less crime. By drivingup housing costs, onerous building codes make health and safety harder to acquire. As the economist Thomas Sowell notes in The Vision of the Anointed (1995), the "pursuit of safety in disregard of cost means a degree of sacrifice of economic prosperity-and economic prosperity is one of the key factors in longevity."

For the poor, building codes have even hindered safety by increasing their risk of homelessness. For example, cities have al lowed safety mandates to wipe out dwellings with single room occupancy (SRO) units. "[T]ypically found in rooming houses and residential hotels," SROs are "one of the last remaining forms of affordable living space available to the inner-city transient and poor," according to a report in the February 6, 1992, issue of the Wall Street Journal. For example, the report explained that in Seattle, "half the city's [SRO] units (some 16,000)were destroyed for an urban redevelopment plan because they couldn't comply with a new fire code." San Fran cisco lost one quarter (1,247) of its SRO units between 1976 and 1985, yet "tighten ing fire and building codes ... made the prospect of building new SROs impractical and unprofitable." Apparently, local gov ernments believe that the poor are safer 18 THE FREEMAN • JANUARY 1996 sleeping on the streets than in a building not up to recent codes.

Getting the Incentives Right It's risky to leave building safety in the hands of government officials. Since they don't suffer the direct costs of their deci sions, property controlled by them tends to be abused and wasted. A better approach to building safety would eliminate the political overhead. That means a greater role for private risk man agement, in which the "regulator" has an incentive to promote the most safety at the lowest cost to the property owner. Thomas Sowell explains in The Vision of the Anointed how private insurance controls risk efficiently: When an insurance company seeks addi tional customers for its fire insurance, it must determine incrementally how much risk it is prepared to accept in order to get the additional business and how much it must condition its insurance policies on certain actions by the customer in order to reduce the risks of an outbreak of fire. Make the conditions too stringent and another insurance company gets the customer; make them too lenient and losses from fires will exceed premiums paid by the additional customers.

In his 1978 study, Housing Costs and Government Regulation: Confronting the Regulatory Maze, Stephen Seidel noted how the absence of "government promul gated building codes" in France led to the presence of privately promulgated building codes. For the French, "codes are written by the liability insurance companies. . . . To protect themselves against possible lia bility, those in the construction field obtain insurance which is made contingent on their compliance with minimum construction standards as established by insurance com panies." In other words, developers don't want to incur liability damages and insurance companies don't want to risk their money on dangerous properties. Neither do banks. On December 16,1981, the Houston Chronicle explained how the unincorporated area outside Houston in Harris County lacked a government building code. Nevertheless, "lending institutions control[1ed] construction outside the city by reviewing the plans [themselves], em ploying outside architects to review the plans, and using outside inspection firms to monitor construction." Inspection firms, which employ qualified building engineers, are also available to smaller investors, such as homebuyers.

So getting the incentives right means allowing building safety to arise from the spontaneously coordinated interests of ev eryone with a financial stake in the integrity of the property. That includes the insurer, the lender, the builder, and the owner. The first lesson of building safety is that individuals have a natural inclination to improve their property, a tendency govern ment policies frequently undermine. Over 150 years ago, Henry David Thoreau made a strong moral argument for the right of people to govern what they own. His mes sage makes good practical sense as well. 0 1. The Leaths' story comes from Brian Wallstin, "Ham merin' Helen," The Houston Press, August 25-31, 1994, pp. 8-17, and "Out of the Soup," The Houston Press, November 24-30, 1994,pp. 6-7. The latter article tells how the Leaths won a $150,000court settlement from the city and a release of the $66,000demolition lien on their property.

2. "Not in My Back Yard," Removing Barriers to Afford able Housing, Advisory Commission on Regulatory Barriers to Affordable Housing, The Department of Housing and Urban Development, 1991, pp. 3-3 to 3-4. 3. John Tooth, "Woman fights City Hall-and wins; Jury declares home safe after Angleton condemns it," Houston Chronicle, May 7, 1994, p. A29. 4. This quotation and the rest of the story about Yetiv come from Brian Wallstin, "Nightmare on Peck Road," The Houston Press, December 8-14, 1994, pp. 6-7. 5. Open letter passed out by the Citizens' Housing Coali tion of Houston at a news conference on September 19, 1994. 6. Jim Simmon, "Lack of zoning in Houston cited as lead to follow," The Houston Post, December 16, 1991. 7. Joan Denkler, "Preservationists voice concern over housing plan," Houston Business Journal, August 10, 1992. 8. Howard Husock, "Rediscovering the three decker house," The Public Interest, Winter 1990.

9. Craig Flournoy, "City's demolitions called unfair to poor minorities," The Dallas Morning News, February 12, 1995, p. 1A.