Don’t Ask People to Choose
Late last month in Minneapolis, the fire service and its industry partners secured final confirmation of changes to the International Residential Code that will provide communities with mandates for the installation of automatic fire sprinklers in new one- and two-family dwellings. After years of active opposition from home-builders, lackluster support from the sprinkler industry, and ambivalence in many quarters of the fire service, this milestone represents the end of the beginning rather than the beginning of the end.
Who would have imagined that such a long-sought change in fundamental life-safety requirements would come just as the housing sector in some markets around the country is in a freefall? How will the prospect of a worldwide economic crisis affect efforts to implement the new fire sprinkler requirements?
While home builders decried fire sprinklers suggesting they would render housing unaffordable, housing markets in most parts of the country surged ahead at a pace hardly seen before. While home values ballooned, new home prices soared higher than many families could afford. These conditions coincided with rising costs of energy to heat and cool homes, questionable lending practices, and lax (perhaps non-existent) regulatory oversight.
The deep and damaging recession that many homeowners fear may already have begun. Just as we have seen the crisis influence the politics around the race for president, we can be sure that it will affect the local politics surrounding the adoption of the residential code and its new fire sprinkler requirement.
Communities that already have an oversupply of housing or home values less than the mortgages held by their owners will be reluctant to adopt new requirements while homes sit vacant and more families become homeless. That should neither come as a surprise nor cause much concern, since very little building subject to the new code will occur until conditions ease significantly.
In communities that have blessedly avoided such calamities, lack of access to or the high cost of credit will make it difficult for homeowners or their builders to justify any costs they could otherwise avoid. They will have no trouble finding political support to keep costs low and restore housing affordability and price stability.
Neither firefighters nor the communities they serve will want to see economic conditions curtail the level of fire service. In some communities though, the costs of providing these services, like the costs of housing, have become unsustainable. When a community can afford neither housing nor its fire department, which do you think it will work harder to keep?
Firefighters can do little to make fire sprinklers more economical or attractive to homeowners. They can make sure people do not have to choose between fire sprinklers and their fire service by recognizing that fire sprinkler requirements reduce demand for fire services. Fire chiefs who want their communities to adopt the new fire sprinkler requirements must look for ways to change their departments‘ structures, improve systems and reduce costs to help communities recoup these investments.
Related Topics: Mark Chubb
October 9th, 2008 at 10:59 pm
When I submitted this post for Mutual Aid, I had no idea that Rick was working on his own post concerning his reaction to Habitat for Humanity’s opposition to the IRC amendment. These two posts illustrate the contrasting positions nicely. Rick has taken issue with the economics of Habitat’s position, so I’m taking this opportunity to update my argument by revisiting some of the figures he presents.
In August, CNN reported that the U.S. median home price had fallen over the past year to $206,500, a drop of 7.6%. This represents a significant reversal compared to the relentless rise in property values illustrated using figures supplied by the National Association of Realtors (see http://www.realestateabc.com/graphs/natlmedian.htm).
MSN Money reports elsewhere (see http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx) that the median property tax rate in the U.S. stands at about 0.82% of home values. (It should be noted that both home values and property tax rates vary pretty widely among states. The states at or near the median home value are not the same as those at or near the median property tax rate.)
This suggests the average homeowner is paying something just shy of $1,700 per year in property taxes. (These figures appear to include all property taxes paid to any type of jurisdiction that uses this form of revenue generation. It does not include other forms of taxation collected in or by the same jurisdictions, such as sales taxes, user fees, income taxes, and other measures.) And as most of you know, the people paying these taxes are none too happy about paying it either.
I doubt very seriously that many jurisdictions will be in a position to reduce their property tax rates anytime soon. And with property values falling like a stone in some markets, they will be looking for every way possible to boost their revenues, their rates, or both to cover the shortfall that could result from the devaluation of property and the freezing of credit markets, including those trading municipal bonds.
Now, Rick’s analysis understates the cost of sprinklers both in real and relative terms compared to Habitat homes. Because they build these homes using largely volunteer labor and often from donated or deeply discounted materials, increases in construction costs will inevitably translate into a higher marginal cost compared to other inputs. Before applying the oft-quoted marginal cost factor of 1-1.5% for fire sprinklers, one must determine whether volunteer labor can be used to install the sprinklers, and, if so, whether or not this results in a different marginal cost for the system. (Let’s hope sprinkler advocates put their money where their mouth is and volunteer the labor to install them in Habitat homes, and only recoup their direct expenses for materials and taxes.)
Even if the costs were comparable as a percentage of construction costs using paid labor, Rick’s calculations are incorrect. Two percent of $60,000 is not $120, it’s $1200. So, using Rick’s logic, installing 50 (not 500) sprinkler systems might mean one less family gets housed. For those of you keeping count 1-in-50 is 2 percent fewer homes.
In addition to understating the costs, Rick’s math errors overstate the benefits. A $45,000 fire loss average (based on his Scottsdale figures) in an unsprinklered dwelling translates to 75% of the Habitat new home construction cost, not 150%. We have no information about how frequent fires in Habitat homes are, or whether they produce losses comparable to Scottsdale, but I suspect that even if fires are no more or less frequent in Habitat homes, they probably result in less dollar loss. Scottsdale, you see, is a relatively affluent community. People who qualify for Habitat homes are usually not very well-off. Although we know the that poverty and fire risk track closely with one another, we have to recognize that this is a generalization and may not apply quite the same in families screened and accepted by Habitat for its programs. Ideally, they would be at less risk because the Habitat people favor people who will take care of their investments.
Habitat should get some credit for taking a comprehensive approach to addressing the nation’s housing problem, They don’t just build people houses, they work assiduously to address housing issues in a way that ensures the community gets a return on its volunteer investment.
Getting back to our original problem, we need to look not just at why Habitat found sprinklers a hard sell but what it will take to sell them to “Joe Sixpack” in the tough economic times we now face. As far as Joe is concerned, a property tax bill of $1,700 and a fire sprinkler bill of $1,200 don’t look much different from one another, and neither looks like an investment in the future. Rather, they just looks like $2,900 growing feet and walking out the door instead of going to cover cover the rising food and heating bills or paying for gasoline to fuel the daily commute.
Because government is responsible for the regulatory costs and tax rates that take $2,900 out of his pay packet, Joe will surely wonder whether it’s worth it to keep things as they are, especially if his pay packet does not get any fatter (and that’s assuming he doesn’t lose his job altogether). As you can see, if Joe’s unhappy and does not yet face a sprinkler requirement, he will surely oppose a new one.
I must state here (in closing) that I strongly favor the installation of home sprinklers, and I’m glad the codes are finally recognizing their benefits. But I am also well aware of the challenges that lie ahead, and wonder how we will cross the hurdles that lie before us. We could do ourselves and our communities a lot of good by thinking about ways we can reduce Joe’s tax burden by questioning everything we do, not just how we do it.
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