Cutting building regulations not likely to help middle class

December 17, 2013

Recently, Christian Hudson wrote a column for the Cape Gazette that offered a reason for the disappearing middle class: regulations.

In the column, Hudson offered the imaginary example of a man who dreamed of opening a bakery. But first he needed to build it. Hudson described how his fictional baker would face a wide variety of real-life obstacles to achieve his dream, even though he already owned a 1.5-acre property on which to build.

The baker, Hudson said, would not only have to face rezoning hearings, he would be required to pay a dizzying array of fees: to the land planner, traffic engineer, civil engineer, architect, lawyer - $150,00 before he even broke ground.

That was just the beginning. Hudson estimated that by the time the baker finished jumping through all the regulatory hoops to develop his commercial property he would have spent a whopping $1.6 million. Only then would he be ready to start paying for basics like ovens, chairs, tables, etc.

Wow. Obviously, not many would-be bakers have that kind of bread. Nor would many be able to borrow that amount.

It was a thoughtful article and made many good points. State and local governments should streamline the approval process and make it easier for people to achieve their dream.

Another complaint I’ve heard is that state agencies don’t communicate and work well with each other, slowing the process. And of course there are some unnecessary regulations that should be abolished. (The last time I spoke to Rep. Steve Smyk, he said legislators were making progress on that front.)

But I disagree with the article’s central contention: that building regulations are making it impossible for people like Hudson’s baker to open a business and establish a middle-class living for himself and his family.

The disappearing middle class is one of the great economic and political problems of our age. A nationwide issue, its roots go back to 1974, when wages fell 2.1 percent, the first drop in decades. Since 2000, according to economist Harold Meyerson, “even as the economy has grown by 18 percent, the median income of households headed by people under 65 has declined by 12.4 percent.”

In Sussex, we’ve seen firsthand one of the reasons why this has happened. High-wage manufacturing jobs that used to provide a solid middle class living have disappeared. In the late ‘60s, the DuPont plant in Seaford employed about 4,000 people. Today, DuPont no longer has a plant in Sussex County.

Those manufacturing jobs have been replaced - well, not really replaced - with lower-paying service and retail positions. Adding to the problem is that the minimum wage, in constant dollars, has gradually deteriorated.

While Hudson’s plan for helping this middle class by cutting regulations is admirable, it’s unlikely to have much impact.

That’s because it ignores how businesses begin. According to national statistics cited in Forbes magazine, 69 percent of new businesses begin at home. Even more surprising, 59 percent of established businesses are home-based.

The Forbes article went on to say that the median amount of cash needed for a start-up is $15,000.

That’s still a lot of money for many struggling entrepreneurs to come up with, but it’s a lot more manageable than the $1.6 million cited by Hudson.

And for those new businesses that require a building outside the home, coastal Sussex has many empty commercial properties available for sale or rent. Hudson appears to equate renting with giving up your dream, but I have no idea why: “You end up fattening someone else’s pocket and not in control of your destiny. Welcome to European socialism,” he wrote.

What? The vast majority of businesses, even such giants as Apple and Microsoft, start out small, sometimes in garages. For most, that’s the reality of starting a business, raising what little cash you can and scraping by. It’s your vision and willingness to work that are paramount, not whether you own your building.

For our family business, we started out renting. Our offices were cramped and unsuitable. We made the best of it. Later we did own buildings, but it sure didn’t start out that way. We employed about 200 people.

It’s hard to argue against streamlining the approval process for developers, as long as it doesn’t compromise the public good. But it’s not likely to help the middle class. That’s going to require very different policies.

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