It's Not the Red Tape, Stupid

Another town and another enlightening conversation with an elected official. Over a cup of coffee, this particular mayor was filling me in on his city's strategy to rebuild their economy. He explained how they were assembling a parking task-force, creating a merchants organization, recruiting out of town businesses, building an industrial park and loosening building regulations. It was like he read my new book “5 Failed Strategies that Have Proven Ineffective at Growing Your Local Economy Time and Time Again” dropping this fall! 

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Working with city leaders is incredibly rewarding at times. Then there was this time I was having coffee with this mayor. The frustration stems from seeing the same mistakes repeated time and time again, with no lessons being learned. I feel like there is enough evidence available to give people better guidance in terms of what works and what doesn’t, but I have to realize I am working against decades of conventional thinking and that doesn’t change overnight. Or over decades apparently. 

Many of these strategies the mayor mentioned are what got us into this mess in the first place. These outdated ways of thinking about economic development, which were adopted during the heydays of sprawl, have wreaked havoc on small town life and local municipal budgets. It is frustrating to see strategies that have proven ineffective time and time again continue to be perpetuated, especially knowing the cost to the community. Even more so, when we have countless examples and demonstrable proof of economic revitalization strategies that have proven effective. There is no reason to continue to try and do things the same way we have done them since the 60’s hoping that somehow we will get a different outcome. I will resist the overused and often misattributed quote about insanity here. 

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The particular strategy I find most infuriating is the idea that somehow in reducing building regulations investment is going to increase. This exhausted and severely detrimental concept needs to be drowned, then set on fire, then buried, then dug up, then drowned again.  Where did this dumb idea come from and can someone show me an example? Typically, decreasing standards does not result in an increase in anything beneficial. I have known many single friends that have taken this approach to dating and it has yet to work out all that well. It seems rational to say that lower standards produce poorer results. 

I understand the line of thinking here. A city leader looks at the condition of their downtown and makes an assumption about what caused the situation. After building 9 parking decks, the downtown is still in a state of disrepair. Inconceivable! Well, we know there is a never-ending debate in DC about how regulations kill the economy, so the same thinking probably applies locally. At some point, some hippy building hugger put in place a bunch of building ordinances and design codes that have scared away investors, because real investors don’t want to deal with any “red tape”. If it was easier to invest in local buildings, more people would do it, so by making it easier, the city should experience an influx of investment. GREAT! Problem solved. Let’s get back to parking. 

The only problem with this thinking is that it is completely wrong. The assumption that investor’s primary concern is with “ease of use” is flawed. A deadbeat property owner, a half-assed developer, and a shady contractor all love the “ease of use” argument, but maybe this isn’t who you want to court as a community. If this is your community’s investment strategy, don’t be surprised who you get as building owners. I will say it again, lowering standards doesn’t produce better results. Never has, never will. So stop it. 

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Here is the thing; real investors primary concern is risk.  If the investors in your downtown buildings are not concerned with risk, you’ve got a problem. Serious investors are risk averse, they seek out investments that provide them less chance of experiencing losses. If “ease of use” is a primary concern, this means an investor is risk inclined. That should be concerning. Or to put it more plainly, ”red tape" is the most effective means of reducing risk. It is in fact, not the “red tape" that scares off investors, quite the opposite. It is the lack of regulations that scare off serious investors. A lack of regulation just means high risk. I repeat, a lack of regulation means high risk. Regulations reduce risk. I don’t want to drive on a road that has no speed limit or lane markers or traffic signs, because I am at an age where I value my life, but at 18, that probably would have been a blast, because I was a stupid idiot then. You don’t want to set up a system that is only appealing to stupid idiots. 

When we don’t enforce existing codes and/or we begin removing codes and design regulations, we scare away most investors. Need proof? Think of the most vibrant cities, neighborhoods and districts. Think of the places that experience the most tourism and have the highest property values. These are the places that have the most “red tape”. These are likely the places that are hardest to invest in, but it is because of the strict regulations that they are least risky. Give it a little more thought. If “ease of use” was the primary concern, developers would no longer put money in Manhattan, Savannah, Charleston, Boston, San Francisco etc. Every small town with no building regulations would explode with new investment. That just isn’t happening though. 

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It turns out, “red tape” is very useful. “red tape" is the guardrails a city needs to reduce risk and attract new investment. I’ve always wanted to fix up an old building, and if the time ever comes, I will avoid cities with no code enforcement or design controls. I will avoid them because I know my investment would be at risk if the building next to mine could be demolished, is a possible fire hazard, might get covered in vinyl siding or could be housing a colony of badgers. The lack of control of surrounding property would be a significant deterrent, no matter how easy it was to work with the building department. I would, in fact, seek out a city that provided me with sufficient confidence that my investment would be protected by adjacent property owners. I would feel secure in knowing what the building code allowed and what design controls were in place. This would provide me with a sense of confidence knowing the city is working to protect my investment and other property owners were also in the same boat. This is the point of “red tape", it isn’t a deterrent to investment, but an incentive. It provides potential investors clear guidelines and expectations. Any process is improved by having clear guidelines and expectations, especially construction. These regulations and controls that so many people lament as being an impediment are the exact opposite. They are safety net, the guardrails, the accountability measures. These regulations are how we provide potential investors with a sense of security and confidence that their investment is not at risk. 

We must stop talking about design review and building code enforcement like they are an economic hindrance. We have to stop acting like building regulations are bad for the economy, there is simply no proof of this. We are so upside down on the idea of property rights, that we are more concerned with defending the rights of the absentee owner than the highly invested one. We must start applying logic and reason to the way we manage our cities. If we want to foster investment in downtown, we have to start enforcing building codes and raising standards. We have to ask more of existing owners so that someday we will experience another generation of owners. We have to embrace the idea that risk is a deterrent to investors and begin putting in place the guardrails that mitigate it. We have to simply look to other successful cities to see what works. All the answers are already right in front of us; we simply have to be willing to open our eyes. 

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*Thank you very much for taking the time to read my blog, if you found the information useful, I do hope you will consider sharing it with your friends and colleagues.

- Jeff Siegler

Amber Davidson