New NAHB Study: How Fees Force Buyers Out of the Market

piggy bankEach $1,000 increase in the cost of a new home price forces 206,000 prospective buyers out of the marketplace, according to a new study from NAHB Economics.

The number of households affected varies across states and metro areas and largely depends on their population, income distribution and new home prices.

Among the states, the number of households that would no longer be eligible to qualify for a mortgage based on a $1,000 increase to a median-priced home ranges from a low of 313 in Wyoming to a high of 18,250 in Texas.

“This study highlights the real effects that building regulations have on housing affordability,” said NAHB Chairman Kevin Kelly.

“Local, state and federal government officials need to know that higher regulatory costs have real consequences for working American families. These regulations end up pushing the price of housing beyond the means of many teachers, police officers, firefighters and other middle-class workers.”

Based on national mortgage underwriting standards and incorporating the latest income distribution data from the American Community Survey and HUD, the report contains detailed results for more than 300 metro areas.

The analysis found that every $833 increase in fees paid during the construction process – such as the cost to pull a permit or an impact fee – adds an additional $1,000 to the final price of the home.

Measured by local metro areas, the number of households who would be priced out based on a $1,000 increase range from a low of 19 in Napa, Calif. to a high of 5,742 in the New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. area.

Looking at affordable metro areas, where roughly 50% or more of households can afford new homes, the priced-out effects are typically large and can often disqualify thousands of new home buyers, as in the case of Houston-Sugar Land-Baytown, Texas (4,234); Atlanta-Sandy Springs-Marietta, Ga. (4,135); and Las Vegas-Paradise, Nev. (2,044).

See a detailed breakdown of how a $1,000 price increase on a median-priced home affects households in individual metropolitan markets or states. Or, read the complete study.

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  1. It is especially rough on first-time buyers in Brownsville and the Rio Grande Valley in deep South Texas.

    Alas our local governments do not understand the hardships imposed with each impact fee, meter fee, water rights fee, inspection fee, etc etc….

  2. Kathy Moore says:

    All the more reason to build more energy efficient homes, where the homeowner can have less expensive utility bills. That would be more money to put towards the mortgage!!

    • JK says:

      Tsk.Tsk. First, people need to not be priced out of purchasing the home due to the municipal fees being discussed here, before they can enjoy lower utility bills. Additionally, energy efficiency (beyond what is already required by current energy codes) costs thousands of $$. In many instances the break-even point for these features is so long they don’t make much financial sense.They are a nice idea, but are luxury items purchased by consumers who can afford the warm fuzzy feeling of a reduced carbon footprint.

  3. john bitely says:

    This is an item that so many people and municipalities and agencies really don’t grasp. It is amazing how many things we spend money on to build a home or neighborhood for items that the future owners would not buy if they had the choice. If the customer wouldn’t choose to spend their money for the item, why does our government insist that they buy it? It really hurts blue collar average Joe American.

  4. we have an article here about ea 1000.00 increase in price forces buyers out of the market. On the other side NAHB endorses/promotes green construction and LEED compliance which adds many thousands in cost. Leaves builders in a catch 22.

    • NAHB Now says:

      Susanna-
      You bring up a very good point and with it an opportunity to clarify NAHB’s position on high-performance green building and remodeling. NAHB promotes voluntary green building programs, not green mandates, and supports code changes that address sustainability and high-performance building only when there is a cost-benefit analysis that shows the change would benefit both home builders and their buyers.
      It also merits clarifying that the association tends to support ANSI-approved consensus standards when they are available, so accordingly the ICC 700 National Green Building Standard (rather than LEED) is the association’s preferred green building standard.

      I know you’re probably aware of this, but for the benefit of others who may read this comment, NAHB’s members includes smaller firms and large firms; custom builders and production builders; green builders and conventional builders; single-family and multifamily builders; architects, land developers and remodelers and combinations of all of the above. Plus there’s suppliers, manufacturers, marketing professionals, lenders, appraisers and more who are looking to NAHB to help them better serve the industry.
      Indeed probably one of the best things about NAHB is the broad scope of the membership which enables the association to develop resources and advocacy initiatives that benefit the full breadth of the industry!

      A core purpose of NAHB is to equip members with relevant information about the housing industry to help them make informed decisions about how to best engage their chosen market. Which is why measuring the impacts of price increases on the aggregate market while also cataloging market trends related to energy efficient or greener homes and promoting tools like the NGBS are not intended to put members in a “Catch 22” situation but rather to provide them with information about key factors they might consider when developing their business strategies.

      Hope that helps, I’m certainly available to discuss further if you’d like.

      Kevin Morrow
      Director
      Sustainability & Green Building

  5. Charlie Rens says:

    This has been something that I have been speaking of for many years. I have been involved in the real estate and building professions for over 30 years. I have had the privilege to serve on boards of both Realtors and building associations, and as a County Planning & Zoning Commissioner. I have attempted to get so many to connect the dots of action and reaction, when it comes to price increase. There is no one group that causes the price to increase, but rather a culmination of many. It starts with the cost of the land for the development, and moves to the government throughout the planning, and then onto the requirements. The pricing journey continues to the costs of the infrastructure (streets, sidewalks, utilities, etc.) now we have finished lots and marketing. Next, comes the builder who deals with the costs of design, permits, impact fees, engineering, material and labor prices. The builder also is consistently dealing with additional code requirements in a variety of aspects. As the project completes there is the marketing of the finished house. At this point, this is where the consumer comes on stage, and they are confronted with the decision of… I will, I won’t, I Can’t.
    As we all know, the market is the market, and the market will only embrace what the consumer is able or willing to purchase. Just as it takes a score of participants to design, develop, enforce, build, and market a property, it take a good view of all involved of the end result pricing. As a builder, my cost breakdown sheet contains roughly 25 to 30 line items. It doesn’t take a rocket scientist to know the end result to the overall price if for example, all lines increased just by 1/2 of 1%. There would be several $1,000 increases, thus eliminating potential buyers.
    My end thought is…. All people, groups, governments, material suppliers, trade contractors, building contractors, Realtors, and mortgage lenders, need to always have in mind the end price, and how they contribute to it.
    Development and building is one of the largest parts of the foundation of economy. If we can not meet the market, we won’t build it. We have had a front-row seat of what/how a weak housing market impacts the overall economy. The other side is income/wages, but that is another discussion of its own.

  6. John DeWitt says:

    Ditto for multifamily development. Our newest development in a small town outside of Madison, Wisc. requires $93,000 in permit and impact fees for a 20-unit bldg…$4,650 per unit driving prices out of the affordability range. And this was after refusing a 3-story bullding adding about $5,000 per unit there. Altogether they cost us $9,600 per unit. Explain to me why it costs $26,000 to hook up to water and $10,500 to hook up to sewer. And don’t tell me it’s to cover past capital costs because they are capitalized and amortized in the monthly fees. We’ll be paying twice. No one else paid that kind of money in the past.

  7. Mark says:

    If a $1000 increase in the median price means that someone cannot qualify to buy a home, maybe these people are not truly ready for the financial responsibility of home ownership?

    • NAHB Now says:

      Thank you. NAHB Economics replies, “The priced-out calculation is based on a standard lenders have long applied to determine if a home fits within a household’s budget. In the absence of other information, a statement that none of these households are ready for home ownership seems very speculative.”

      • Mark says:

        I did not read the entire study, just the first sentence of this article, which lead me to believe that you are saying a $1,000 price increase for a home price translates into people NOT being able to buy at all. I should have said people should buy a home that fits their budget instead of saying they are not ready. I apologize for that.

        Either way, that gets off topic from the point that fees and regulations are hurting home building. Which does upset me to no end. Stuff like this hurts home builders and their employees, the people working in factories that make construction supplies, etc etc. And of course, it hurts the average hard-working person that is looking to buy a home.

  8. This assumes, of course, that the increased regulatory compliance cannot be offset by construction cost savings on other items, especially interior finishes. In coastal markets, increasing the strength of the building can be offset by savings in insurance and maintenance costs, also considered in qualifying a buyer.

    I hear this argument against regulation often but I am skeptical since consumers are buying and builders are building based on a marketable price range that is more dependent on overall building costs that just the regulatory cost of meeting code requirements.

    As a contractor I, too, resist additional regulation but in terms of minimum life safety codes it is a necessary evil. Remember, a code-built home is the worst quality you can legally sell. Unlike automobile manufacturers that usually market safety devices long before they are required, the residential building industry has to be incrementally dragged to even build to minimum standards and many jurisdictions weaken or do not fully enforce these minimum requirements. Many times the increased cost is based on new requirements but building departments that are investing in enforcement.

  9. Marty says:

    Very interesting feedback. Please keep in mind that these people who can not afford a starter home because of the additional $1,000 increase will live somewhere; usually rent substandard housing that doesn’t meet current code requirements. Think of it this way: When we are required to add $2,000 cost to include sprinklers to our starter homes then many families will continue to live in older substandard housing without adequate smoke detectors, proper electrical wiring or other health and safety improvements. Don’t laugh, it’s coming!

  10. Alan says:

    What builders should do: Show a truth in fees paid discloser. It is understood that a building is a business, and margins are necessary. The public is unaware of the fees paid, and believe the builder is making bank.
    Builders should show the following fees:
    • Construction permit
    • Water tap
    • Sewer tap
    • Roads and bridges
    • Parks and recreation
    • Tree
    • Stormwater
    • Environmental impact
    • School
    * Believed tax amount of products supplied, (I call this simple extortion) – Builders can apply for a refund if tax has been found to be paid on products (a true windfall to our cities and counties).

    Just to name a few that come to mind. In many municipalities these fees are real and paid up front. During the years past our top 2 budget items have been foundation, framing. Today, it’s not uncommon to see Permits and Fees as the number two highest cost of building a home.

  11. Armando Cobo says:

    I would love to see all those who wrote this article to take any of my NAHB Green Building classes and learn how to take an additional $1,000 investment on a house, and not only have it ROI is few years, but make it more affordable and cost effective for any homeowner in the long run. Heck, once you get good at it, you can even show the homeowner how to positive cash flow the moment they move in.
    It never sees to amaze me how many some folks can’t practice what we preach, or at least try to learn from many members who know the difference. Just because some have not figure out how to do it right, it does not mean that it can’t be done.
    “Facts do not cease to exist because they are ignored.” – Aldous Huxley

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