Question: Do you think builders will be able to pass on the County’s higher permit costs on to buyers?
Answer: Arlington County recently increased the cost of residential housing permits, including the cost of building a new home or an addition. Builders I’ve spoken with expect their permit costs to roughly double — jumping from around $30,000–$40,000 to $60,000–$80,000 for all permits and significantly more when considering the permit/regulatory related work (e.g. stormwater facilities).
Who Bears the Burden of Higher Permit Costs?
That’s a big increase and it begs an important question: who ultimately pays for the higher fees?
The common answers I hear are:
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Builders will pass the cost along to deep-pocketed buyers and they will absorb the extra cost
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Builders will eat it and make less profit
I’d argue the real answer is that the sellers of the existing homes that will be torn down will ultimately shoulder most of the cost.
Buyers Won’t Pay More
We should assume that the market for new homes in Arlington is operating at or near peak efficiency, meaning buyers are paying as much as they are willing to for new homes and builders are maximizing their returns.
Higher permit costs don’t improve the home in any way that increases its value to a buyer so if buyers are already paying as much as they’re willing to for new homes, builders can’t simply add an extra $30,000-$40,000+ to the asking price and expect buyers to pay it. If they do, and our housing market is working efficiently, buyers will choose not to buy or will purchase a competing home instead.
Builders Won’t Absorb It
Margins on speculative new construction builds are already thin relative to the risk. Most builders don’t have the margins to absorb an extra $30,000–$40,000 in costs per project.
Before purchasing a tear down/lot to build a new home, builders prepare a budget, known as a pro forma, that includes cost projections and forecasted sale price of the future build. The pro forma tells a builder how much they can pay for the existing home/lot to maintain target profit margins – if (permit) costs increase and the future sale price does not, the pro forma tells the builder they must pay less to acquire the lot.
Builders Will Pay Less for Tear Downs/Lots
If we assume that the housing market is operating efficiently, which I believe we should, the logical conclusion is that higher permit costs will mostly be absorbed by homeowners of existing homes that builders will purchase to tear down because builders must offset the higher construction costs with a lower acquisition price. This is an unfortunate outcome for these homeowners, who are generally long-time Arlington residents who have already been burdened by rapidly increasing property taxes due to higher land values.
I think in the near-term (first 6-12 months of higher permit costs), builders will end up absorbing the higher costs because their pro formas haven’t been properly tuned yet to account for higher permit costs and they are acquiring lots based on older, lower costs. Once a builder has seen the higher costs flow through to their bottom line, the budget adjustments will be made accordingly.
Price point also matters. Builders can more easily absorb more of the permit costs on a project with a lot acquisition price of $1.2M-$1.5M and resale price of $3M-$4M than they can on a project with a lot acquisition price of $700k-$900k and a resale price of around $2M, so I expect different market responses at different price levels.
May Increase Supply of Entry-Level Homes
The high price builders are willing to pay for tear-downs has led to fewer entry-level homes (smaller, older homes) in circulation for owner-occupied purchases because those homes are being purchased by builders and turned into large, multi-million dollar homes.
If my theory about higher permit costs is accurate and sellers of existing, entry-level homes get lower offers from builders, the difference in their net return by selling on the open market (available to owner-occupied purchasers) compared to selling to a builder may be high enough to push more entry-level homes into market circulation and away from builders. I think that many in Arlington would consider this a win.
Why the County Raised Fees
Arlington frames the higher fees as cost recovery for the services wrapped into permitting — plan review, inspections, zoning reviews, stormwater/land-disturbing reviews, utility connections, etc. The County also notes mandatory add-ons like a 2% state Code Academy levy and a 10% “automation enhancement” surcharge that sit on top of core fees. Arlington’s permit costs are among the highest in the region and significantly higher than Fairfax County permit costs.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
We have access to the most pre and off-market listings across the DMV of any brokerage and are happy to share what’s available with anybody who asks.
Below are some of our team’s pre/off-market listings, details and additional listings available by request:
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Yorktown – 6BR/6.5BA/6,000+ sqft – Detached Single Family (2026) – N Greencastle St Arlington VA 22207
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Ballston – 4BR/3.5BA+office/4,000 sqft – Four Townhouses (2026/2027) – 11th St N Arlington VA 22201
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Falls Church City – 4BR/4.5BA/3,000+ sqft – End-unit townhouse (1995) – Rees Pl Falls Church VA 22046
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Highland Park/Overlee Knolls – 6BR/5.5BA/5,000+ sqft – Detached Single Family (2025) – 22nd Rd N Arlington VA 22205
