Study: Henrico building permit costs among lowest nationally

A new study that credits Henrico with lower-than-average building permit costs misses the mark when it comes to measuring the true cost of building a new home, local industry and housing officials say.

A 2022 study by Construction Coverage concluded that in counties of between 200,000 and 349,999 residents, Henrico’s construction costs are significantly lower than all but one nationwide.

Authorized units in Henrico County have an average permit value of $115,119, compared to $218,791 per unit nationally, according to data used in the analysis from the U.S. Census Bureau’s Building Permits Survey (2021).

The report aims to identify where it costs the most or least to build new homes and to provide a sense of how costs vary in the housing market, said Michael Welker, who assisted with the study.

Home Building Association of Richmond CEO Danna Markland didn’t necessarily disagree with the findings but did take issue with the use of permit values to draw conclusions about construction costs.

Factors such as the cost of development to acquire land, rezoning and preparing the home site all comprise the cost of home construction, she said.

Permit value, however, is most often submitted before full estimates of a project, and the reporting method will vary by builder, she said. As a result, initial permit price does not include options and upgrades during construction.

"It's actually kind of an industry secret that nobody anywhere puts realistic or accurate estimated total cost on permits," said Michael Roach, the owner of Apex Construction.

Markland said it’s also difficult to credibly measure construction costs in different localities, making permit value an inaccurate measure.

“It's hard to draw comparisons from area to area, because nothing is consistent,” she said.

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The study by Construction Coverage, which is a website publishing guides, research and reviews pertaining to the construction industry, notes that the value of the building permit does not reflect the ultimate market value of the unit, but assumes that the permit represents the total value of all construction work for which it is issued.

However, Welker also acknowledged that permit values aren’t the only metric to use when thinking about new construction value.

“I think that they're a good indicator, but certainly, I would agree that it's not the only indicator,” he said.

With the effects of inflation, labor shortages in the construction industry, material costs and supply chain challenges, the costs for a project when it's permitted may not ultimately be what it costs the builder to build, he said. Overall, the study just used the data that was available from the Census Bureau to see differences in the market, he said.

The actual cost of construction must take into account not only the cost of construction overhead, but also superintendents, labor and fluctuating commodity pricing, Markland said.

“The permitting process is one thing,” said Jovan Burton, the executive director of Partnership for Housing Affordability. But construction costs can continue to rise because of inflation and supply chain challenges, he said.

However, this does not mean that permit value has nothing to do with the construction process itself, Roach said.

For example, Roach said he was more likely to close deals in Henrico than other counties because the permitting process can speed things up and estimates can get out faster.

Richmond Association of Realtors CEO Laura Lafayette similarly expressed that she would take the report with a grain of salt because of its methodology, but agreed that her dealings with the county had been highly efficient.

Average turnaround time for permits is 10-14 days, Roach said.

“If I hit three or four weeks, I start getting concerned. It just doesn't really happen.”

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Roach said he would speculate that construction costs are lower in Henrico compared to other counties and said the county’s process is easier compared to neighboring Richmond.

Lower prices in Henrico likely were a testament to the predictability and dependability of working with the county and the ease of the permitting process, Burton said.

“That process saves developers a lot of time, which saves them a lot of money,” he said.

Lower construction values, however, don’t necessarily result in lower-than-average home prices during a time of inflation and a tight labor market, among other factors, Lafayette said.

For example, while average permit price in Henrico may have stayed low in comparison to other counties, the median sales price of a single family home went up 11.2% from August 2021 to August 2022, according to the Central Virginia Regional Multiple Listing Service’s local market update.

Developers are going to build what the market demands and set the price accordingly, and there are plenty of people who are still paying over the list price to have their contract accepted, Lafayette said.

Although it is generally beneficial for affordability when it's easier to build new construction at a more cost-effective rate, a difficult path still exists for first-time homebuyers, Burton said.

The median home price in Henrico is $350,000, the lowest among the region's major localities (Richmond, Henrico, Chesterfield and Hanover).

But while the median home price may be lower in Henrico, that doesn't diminish the challenges that exist to gaining access to new homes.

The majority of people who are looking for more affordable options will not be able to access new construction as much as resale, Burton said.

“[Construction] costs will continue to be high across the board for everyone, no matter where you're where you're doing work,” he said. “But you can save a little bit if the permitting process is fairly efficient.”