Regulations Add a Whopping $84,671 to New Home Prices

Filed in Codes and Regulations, Economics by on May 9, 2016 44 Comments

A new NAHB study shows that, on average, government regulations account for 24.3% of the final price of a new single-family home.

Three-fifths of the regulatory costs – 14.6% of the final house price – is due to a higher price for a finished lot resulting from regulations imposed during the lot’s development. The other two-fifths – 9.7% of the house price – is the result of costs incurred by the builder after purchasing the finished lot.

NAHB’s previous 2011 estimates were fairly similar, showing that regulation on average accounted for a quarter of a home’s price. However, the price of new homes has gone up quite a bit since then.

Applying percentages from NAHB’s studies to Census data on new home prices during this five-year span shows that regulatory costs for an average single-family home went from $65,224 to $84,671 – a 29.8% increase.

By comparison, disposable income per capita increased by 14.4% from 2011-2016. In other words, the cost of regulation in the price of a new home is rising more than twice as fast as the average American’s ability to pay for it.

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  1. Mark Sowers says:

    Dont forget to add taxes and fees

  2. Chris Wood says:

    The big picture theorists lost their pragmatic approach years ago. Groundwater, energy, safety improvements aside, the consumer always has a choice. They can buy an outdated existing building and remodel under the radar, saving the regulatory hassle (and much of the costs). The result is new construction is now reserved for those with the resources who don’t rely on “comps” to make their financing work. Had a majority of these regulators actually built a home for themselves before pushing their agenda, we might not have gotten this far to date.

  3. Let’s remember that electing people who are pro-government, pro-protection, and pro-green is what gave us this high cost environment. Pro-government voters have been more successful electing their representatives than pro-building voters. Each of us must educate voters and our legislators to the impact regulatory rules have on the cost of a home. These costs affect our industry, but our focus needs to be on how difficult it has become for middle income and first-time home buyers to get their first step on the home ownership ladder.

    It’s tough to argue against specific regulations when they appear so well-meaning. Their supporters have well-formed arguments against the economic high-cost argument. The industry needs to find a non-economic, emotional argument to counter the dirty-air and dirty-water argument used by the environmental left.

    Ideas?

    • Al Zichella says:

      …” The industry needs to find a non-economic, emotional argument to counter the dirty-air and dirty-water argument used by the environmental left.”

      No we don’t. the argument we need to make is at the ballot box, and get rid of those politicians who insist on the feel good regulations that are choking us.

      The economic argument is still the strongest, as we can quantify the impact of regulation, as NAHB has done above.

      What we need to fear is not that the touchy feely argument resonates among those with no knowledge of economics, it is that if we are not careful, we will not be able to compete with general real estate prices, and new homes may not even appraise out anymore.

      Want to know why there is less and less housing being supplied to the middle class buyer, and by extension those who serve us best, i.e.: teachers, police, EMT’s and those in the Fire service? …Because we can’t afford to. Everything is related, and cannot be ignored. Make the economic argument and make it loud.

      • You actually hit on the emotional argument I suggested at the end of your comment. “Less housing is being supplied to, and affordable by, the very people who serve us best, i.e. teachers, police, EMT’s and those in the fire service.”

        When we make an economics-only argument, the opposition brands us as greedy. They don’t care that contractors have to deal with, and pay for, the costs of development and code compliance because they see those expenses and worthy, protecting the population. It’s when they feel that the regular people are being harmed, not helped, that change will occur.

        We decide on emotion, and justify on rationality. We have to win the emotional argument before we can win the economic one.

      • James says:

        I’d like to see builders who are responsible with storm water management, land use/preservation, energy efficient construction and healthier housing get a break/rebate/reduction in regulation related fees. As a builder, I serve clients in the middle class that currently live in housing with $300 month utility bills and moisture issues…the house was cheaper to buy but harder to keep. I build homes with bills averaging $60 month and above code moisture management strategies…and I should get a break since I don’t need regulation to build a better home like many of my competitors.

        • To give you the break you seek requires a regulatory agency to review what you do and give you credit for doing it. It’s a Catch 22.

          • IRW - been on both sides says:

            Interesting how these studies and reports never include a meaningful discussion of why the regulations are enacted. The entire scope of police power enactments by government could be abandoned by one simple law being enforced: Any developer/builder must live in the subdivision developed for 10 years. If the motive the development industry was as focused on delivering a quality product as the industry is focused on profit, roads would last decades, concrete would not need replacement in a few short years after pouring, pipes would not freeze in cold weather, and on and on. The response from the development/building community that better quality would demand even higher prices is intellectually dishonest and fools only those who make such excuses.

          • William E Gschwind says:

            So the problem is greedy developers and contractors? Maybe the government should take over construction and everything would be okay. After all, capitalism is the cause of all evil and suffering in the world. Right?

    • Dave B says:

      Sorry but the fess charged are NOT enough to cover the total cost additional homes add to the overall impact of the financial burden placed on a area when the new homes are built. Starting with cost to build added schools, build police and fire stations, and the man power. Widening of freeways and just so much more.

      • William E Gschwind says:

        So new home construction should be discouraged by making homes too expensive for all but the well to do?

        • Dave B says:

          You fail to understand this is why are taxes are always going up. If the true and actual impact cost were included in the price of new homes as well as itemized MAYBE people would begin to wake up and not have the number of children they do. This is the basic reason so many cities, counties and states are constantly placing bond measures as well as raising taxes to build new and or improve or upgrade infrastructure. Example Los Angeles area, 405 freeway widening to improve traffic entire project from I5 Sylmar to I5 Orange County, Cost 8.4 billion..

          I feel every new home, condo etc, and every new apartment door should have been charged enough to cover the cost to do it. Not have it paid for by the feds.

          Same thing for when a new school is needed or expanding existing because the density has increased.

  4. Kay Russell says:

    Every time a new law or regulation is put in place it is usually because of a lawsuit. So, litigation has a lot to do with the fees.

    • The lawsuit is in response to a particular set of circumstances, and is the proper venue for resolving specific disputes (although a healthy dose of tort reform in the construction and development arena would do wonders.) Sitting back while legislators use the lawsuit as a breeding ground for a comprehensive regulation damages the entire industry. Lawsuits are surgical, as they should be. Regulations are a shotgun approach that results in more injury to the industry and fewer choices for consumers.

  5. David Tompos says:

    The study shows that 15% of the cost is because of delays in approval. Builder should use modular construction to avoid these costs.

    “On average, survey respondents said complying with regulation adds 6.6 months to the development process, but the variation was considerable, with the responses ranging from no time at all to over 5 years.”

  6. Ron Vallandingham says:

    So here is the problem at least here in California where the New Home Market is still selling hot and heavy. The general public just doesn’t care enough because in their view and in the builders view building companies will get top dollar for every home they can sell. So unless your premise is that if all these regulations would go away somehow the builders would reduce the price to the consumer the public is not going to care. If a new home can sell for $700,000 and does the buying public does not care if a large portion of that goes to the Government or to the builders bottom line profit. Yes regulations add to the sales price of a home but this fact is much more important in a down or buyers market then it is right now in California.

  7. Steve Williams says:

    I think there is a very important component missed in analyzing these facts. Politicians are not mistakenly off base with their thinking. Our government is achieving their goal of a more pliable constituency, with a higher level of government dependence for survival. A rental based housing market becomes far more compliant. Without home ownership, there is far less to defend. Some will greatly disagree, but behind independence in general, healthcare, loss of freedom and economic choices constricts protests by working citizens, but you have a wider range of public bathroom selections open to you now.

  8. Scott says:

    I’m not seeing it. A new manufactured home could be purchased, delivered and set up on a lot you just bought for about $85k all in.
    According to Home Advisor, the average cost of a new home permit is $908. It’s a cheap insurance policy to ensure you don’t have a sloppy contractor who will have his work reviewed. They are citing things like installing drainage which aught to be done anyway so it’s really not an added cost. Anyone who would lay 1/8 inch plywood on their roof sheathing is an idiot. Building codes provide a level of durability.

    I gutted my house and remodeled. My permit only cost $100. I called for verification to the inspector at least 10 times. He came 2 times. The county shouldn’t have provided that service to me for free. I was willing to pay $100 for extra services.

    Now when NAHB claims a home costs over $250K look at the inflated numbers. $16k in plumbing alone? My 3 bath home was completely replumbed by a liscenced plumber with fixtures for $5500.

  9. Don Dostal says:

    I am an electrical contractor in northwest Wisconsin. I work with a contractor who builds a 2300 sq. ft. four bedroom, two full baths, three car garage with paved drive way on a city lot for 175K. The lot cost is $16,500. The 84K amount is not for a lot is not realistic in our part of the country.

  10. Glen @ APL says:

    Wow, that’s pretty astonishing. But what ‘regulations’ are these exactly? If they’re to ensure the safety and durability of a new home, then that cost would surely be saved in the long run?

    • William E Gschwind says:

      All regs serve a noble goal, but when well-intentioned goals cause unintended consequences, is the reg doing more harm than good. Too many first time home biyers are shut out of the market by the higher cost of housing.

  11. mulp says:

    Given the price of housing in many parts of the US are well under $85k, the reason for such high costs for new construction is the high level of public services and amenities that make housing in those areas extremely desirable.

    For example, great transportation (roads, access to air, public transit), great schools, local parks and recreation, little to no pollution, reliable utilities, great access to shopping and services, great healthcare, and the colleges and universities that draw in great industries and global corporations.

    TANSTAAFL.

    Pay nothing for anything but the land and house on the lot, and there will be nothing but the lot and house to sell, no schools, no recration, no great jobs, no access to medical care, no transportation that makes the world accessible.

    I live in New Hampshire where there are “no (broadbased) taxes” so to cut the costs of such things as schools, lots are sized for wealthy dual earners to limit the number of kids per household, but to keep real estate attractive, housing is forced to not pollute, but building water and sewer systems is costly, so each lot needs to invest in its own water and sewer of first rate design, so every lot carried the engineering cost of clean water and sewer. Building one house on a country road isn’t a big deal, but turning a farm into housing means expanding the country road to handle suburban traffic. And given the developer is not interested in maintaining the roads for a century including plowing them, the developer is required to build roads to public works standards which will not flood, not suffer frost heaves, be easy to plow, and last a long time before requiring more than topcoat paving.

    Developers love to sell the great features of many New Hampshire suburban housing, the open public land (bought to prevent housing development requiring higher taxes to build new schools), roads, schools, and no income or sales taxes, but they don’t want pay for them. No free lunch.

    And the zoning laws mean insurance rates are low because fires are uncommon, and buildings handle the snow, rain, wind that we get quite well, so few insurance claims.

    • When you are a supporter of government services, it is easy to justify the costs associated with them. Who doesn’t want the ideal living situation? And if you can afford it, that choice should be available for you.

      Trouble comes when you expect others to live as you believe they should, even if they can’t afford the lifestyle you’ve earned. Now, your ideals become obstacles to others who are still working their way up the ladder you’ve succeeded in climbing, most likely in an environment where your current ideals were not government mandates.

      There is a difference between having the ability and desire to choose the improved home you describe, and the government mandating that if you can’t afford it, then you deserve nothing. That is the choice well meaning regulations leave for too many young people just starting out, or lesser-earning families looking for a place to live.

      This is not about developer/builder greed, it is about their ability to build a decent, not great, home that a large number of our fellow citizens would love the opportunity to buy.

  12. jambo says:

    While I admit that adding 82k to the average price of a home sounds like a lot, what regulations would you eliminate? Surely you are not advocating there be NO regulations. Regulations are in place to protect the environment, the workers, and the homeowner. Houses built according to codes are far safer and more efficient. Would you eliminate the types and amounts of materials required to be used in construction (use lower grades of wood, materials loaded with toxic substances, etc). Eliminate hurricane, flood and earthquake resistance requirements (think Haiti)? Protections for workers on the job (which make construction take longer) Doing things right saves a lot of money in daily costs (heating/cooling) and maintainence/repairs further out. Affordable housing needs to stand up and not just be disposable.
    I see a thread in these discussions that is pretty political, blaming one particular segment of society or another. The issues we face are complicated. Any simple solutions are probably inadequate at best and harmful at worst. Rational solutions trump the use of emotional ‘strategies’ to get what we want . I believe our government tries to fix problems as best they can. That doesn’t mean their solutions are always the greatest, or perhaps sometimes unecessary. Too often it is influenced by the rich and powerful. The best way to accomplish a fix is to work together and see each others views.

  13. Mark F. says:

    I understand that some of you are in areas that are much cheaper to build a home and these numbers seem way out of line. That is exactly the point. Where these regs are in place they are onerous and cause home prices to rise to levels that most can not afford.

    Some of you mentioned modular or prefab homes as a way that builders could reduce costs while keeping quality high. In my area, they are not allowed. Just another reg that keeps construction costs high.

    Many of you don’t see the dirty little secret behind these high-cost regulations. In towns like mine, a very liberal, wealthy town in Illinois, these regs are intentional, increasing the costs so that they can keep out people that they don’t want. It is a way to discriminate without having acknowledge that they are discriminating.

    Anyone who has ever watched This Old House or something similar knows that modular construction can be every bit as high in quality, exceed code, look great, and be half the cost to construct. They just don’t allow it to keep the costs higher.
    Also, taxes are collected based on the home value. If you lower the selling price through efficient construction, you reduce the taxes that the city takes in.

    An altruistic developer wants to price and sell some of his condos in a new development to low-income buyers? Just make a new requirement for him to use bird-safe windows. Like magic, now his costs have increased by 150k and he can only make one of those low-cost condos available instead of three. Now the permitting board gets to congratulate themselves on saving some birds instead of feeling like they are hurting low-income people and they can all feel good about their liberal credentials.

    Sometimes the best way to help people is to allow them a chance to do for themselves. Burdensome regulations prevent this in housing and elsewhere.

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