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June 2021

Study shows how overregulation worsens housing affordability crisis

June 7, 2021

Regulatory costs account for $93,870, or 23.8% of the current average sales price of a new home ($394,300), according to a recent study by the National Association of Home Builders (NAHB). The group said rising regulatory costs are a limiting factor on housing supply, "particularly for the entry-level market in need of inventory."

Of that nearly $94,000 in costs attributable to regulations imposed by all levels of government, about 42% ($41,330) is associated with regulation during development, with the remaining $52,540 due to regulation during construction.

In 2011, regularly costs for a new home were around $65,000.

"This study illustrates how overregulation is exacerbating the nation's housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand," said NAHB Chairman Chuck Fowke.

In another report, NAHB found lumber prices have tripled over the past 12 months. Consequently, the price of the average new single family home increased by $35,872. From April 2020 to the beginning of May 2021, the price of framing lumber was nearly $1,500 per thousand board feet - a jump of 250%. That figure is on top of the $93,870 due to regulation.

Fowke said he expects lumber price hikes will ease, thanks to the successful rollout of the COVID-19 vaccine, which is enabling more plans to reopen in Canada and the U.S. To the relief of buyers, inventory should increase, and overall prices should decline.

NAHB's survey reflects the views of 2,071 builder-members and 57 developers. Nearly every builder (98.9%) who participated reported experiencing some type of regulatory cost during construction.

NAHB analyzed the impact of costs on the price of a house:

Additional charges passed on to the home buyer depending on when a cost is incurred:


 Cost imposed directly on buyer at closing

 0.00%

 Cost incurred by builder during construction

14.94% 

 Cost incurred at start of construction

16.35% 

 Cost incurred when applying for building permit

16.82% 

 Cost incurred during site development

27.63% 

 Cost incurred when applying for development approval

 30.17%


Nine of every 10 respondents said changes to building codes over the past decade have added to their costs. Averaged across all homes, the cost increases associated with codes account for 9.9% of the builder's construction costs, and 6.1% of the final house price.

NAHB research indicated 84.5% of the developers reported being subject to design standards under regulation that "went beyond" what they would ordinarily do, which added to their costs. On average, the requirements accounted for 9.1% of the price of the lot, and 2.3% of the final price of the house.

The vast majority of developers (95.9%) said complying with regulations usually caused a delay, typically averaging six months.

In the report, Paul Emrath, Ph.D., NAHB's vice president for survey and housing policy research, said the study is not arguing that all regulation is bad or should be eliminated.

Nevertheless, NAHB said regulatory barriers add significantly to the overall expense of housing, they can consume a considerable amount of builders' time, and the lengthy and complicated review processes "represent an especially difficult challenge for affordably priced housing, fundamentally affecting who can afford to purchase a home."