Regulatory Costs Add a Whopping $93,870 to New Home Prices

regulatory costsRegulations imposed by all levels of government account for $93,870, or 23.8% of the current average sales price ($397,300) of a new single-family home, according to a new study by NAHB.

Of the $93,870 figure, $41,330 is attributable to regulation during development, and $52,540 is due to regulation during construction.

“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.

Of note, the study on the cost of regulation does not take into effect how rising lumber and other material prices over the past 12 months have raised housing costs. NAHB completed another report last month that shows rising lumber prices, which have soared more than 250% since April 2020, have added $35,872 to the price of a typical new home. This figure is on top of the $93,870 cost due solely to regulation.

While NAHB’s previous regulatory estimates in a 2016 study were fairly similar, the price of new homes increased substantially in the interim. When applying these percentages to Census data on new home prices, the data show an estimate that regulatory costs in an average home built for sale went from $84,671 to $93,879 — a 10.9% increase during the five-year span between NAHB’s 2016 and 2021 estimates.

View the full study on the cost of regulation and the analysis on rising lumber prices increasing home prices nearly $36,000.

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  1. Jon Neuert says:

    While affordability is a pressing matter, Chuck Fowle conclusions, regarding “overregulation” are completely unrelated to the study that he is referencing, which does not even use the term overregulation. In fact the following quote from the report indicates the opposite …“This study is not arguing that all regulation is bad or should be eliminated. Nor is it trying to estimate a share of regulation that may be excessive”.

    Accountability regarding the proper use of language and interpretation of study information is direly needed and expected of housing leadership representatives. Please get specific about how to enhance affordability rather than demonization “overregulation” in a hollow and misleading manner.

    • NAHB Now says:

      NAHB has many specific recommendations for how to address the housing affordability issue at the federal, state and local levels on nahb.org, including our Creating Housing For All Toolkit. The toolkit includes extensive research on state and local policies and incentives that are being used to help make housing more affordable in communities across the country. Key strategies for achieving affordability goals are spotlighted as a blueprint for collaboration, as there is no silver bullet solution to this challenge.

  2. Bob says:

    NeedS more details.
    What are we getting for the regulations. Safer homes for example?

    • Richard White says:

      CEQA, environmental lawsuits, complex permitting processes, union influence, over design to avoid litigation, and SWPPS are examples of regulation that might be over reaching.

  3. Craig Allen says:

    That’s a good thing, preventing houses from burning down or blowing away, making them tighter & use less energy are good for all of us.

    • Tom Goll says:

      Craig Allen, where do you live? In Texas , for example the building associations have classes and the private sector handles updating new and existing homes from burning down or blowing away. This is how we all improve our builds without the Government involvement in a Capitalism society, I an thankful to belong to groups like the NAHB and others, we are Blessed. I am sure it is understood we can all improve our builds with the best safety for future home buyers and older homes. This is my thoughts.

  4. Tim Beckett says:

    It seems like most of the regulatory changes in recent years have to do with energy efficiency, not safety. It nice to deliver a home when you know your client will enjoy a lower utility bill, but it has priced many people out of the market, hence the pent up need for housing that drives up prices even more. Ever heard of income disparity?

  5. Steve Porter says:

    What regulations specifically are adding these cost?

    • NAHB Now says:

      The study referenced in the post details all of the regulations included in the calculation:
      “…$41,330 is attributable to regulation during development, $52,540 due to regulation during construction.”
      You can learn more by reading the study.

      • Mike G says:

        Without a line by line comparison of each bundled item, it is not really useful. Generalized categories don’t add up to the $94k without detail of each category by comparison from prior years. Start in 2000 and do a spread sheet by line item for each category every 5 years would be more relevant.

  6. Mark Paskell says:

    Until we get responsible and reasonable people in government nationally and locally, costs will continue to escalate. More and more people are being forced financially to stay where they are and remodel.
    I have seen an huge increase in remodeling business coaching requests and am finding many consumers of my clients are forgoing a new home due to the huge increase in costs from federal and local regulations. On top we have more costs for lumber, materials and labor. I have never seen so many builders starting to consider remodeling to fill in the loss of new home clients.
    I suggest we continue to fight regulatory movements as best we can and also work on our business and sales skill sets to win profitable projects from consumers.

  7. Terry Taylor says:

    What unnecessary regulations are you referring to?

    • NAHB Now says:

      The report referenced in the post outlines the regulations covered in the study. For example:
      “In addition to traditional building codes, jurisdictions have increasingly sought to impose architectural design standards motivated by aesthetics, or possibly even, in some cases, a desire to price less affluent residents out of particular neighborhoods. Prohibition of vinyl siding has become relatively common, for example, but NAHB has also reviewed ordinances that mandate details like the orientation of a garage, material used in fences, window shutters, the square footage of window space, and dimensions of particular features down to a quarter of an inch. Over half (57.5 percent) of single-family builders report being subject to architectural design standards of this type that force them to spend more than the otherwise would on particular home features. Averaged across all homes in the survey sample, these standards account for 4.4 percent of the builder’s construction costs, and 2.7 percent of the final house price.”

  8. Joe Roberts says:

    Agree this article needs details. Exactly what regulations? And what are they calling over-regulation? Flood zone regs? Erosion control requirements? Bracing requirements for framing? These all cost me money (I build and develop), but I don’t consider them overly burdensome. Rather, they are practical solutions to common problems. NAHB needs to drop the “all regulation is over regulation” dogma, and focus on specific regulations that truly need changing. This figure is simply propaganda. We need facts.

  9. Steve says:

    You can’t make a blanket statement that all regulation is “over regulation”. Do we care if houses blow away during hurricanes, fall apart during earthquakes, collapse from snow loads, burn down from faulty wiring, are poorly insulated – of course not! I imagine there may be some excessive regulation at the margins, but most regulation protects those working on the house and those who ultimately live in it.

  10. Christy says:

    It’s no wonder I can’t afford a house as a single woman and I make a pretty decent salary. Some regulations are good to make sure homes are constructed safely, however I know there are a lot of silly regulations as well. For example, in the Asheville, NC market, we can’t give our customers their CO until the grass has grown several inches.

  11. Regulations should ensure a base level safe and sound home, so a little regulation may be necessary. However, we should guard against letting one person’s idea of a minimally safe and energy efficient home prevent others from being able to afford to buy it. When government mandates add $100k to the cost of an average home, even the well-intentioned need to ask whether those regulations have gone too far.

    No one is saying get rid of all of them, but couldn’t builders build a safe sound home without half of the regulations and save prospective buyers $50k?

  12. Scott says:

    No doubt that costs go up and that there may be unnecessary regulations. However, holding developers and builders accountable for the product they deliver is good for all of us. This article acts as if the world would be better if we all lived in houses built with no regulation.

  13. Sandra Sweeney says:

    Regulations on most levels are good. We often cannot rely on industry to do the right things for individuals and communities and our planet!

  14. Jeff Cutliff says:

    Many of these regulations cost far more than they will ever save over the life of the item. Heat pump water heaters is one example.
    Some ‘green’ items fail to take into account the added carbon footprint for shipping or additional manufacturing expenses.

    • James Morgan says:

      Please let us all know where in the US heat pump water heaters are a regulatory requirement.

  15. Wayne Hiott says:

    It’s interesting how politicians talk about affordable housing. As a builder and developer, two things are apparent from my years in this business.
    1) Nobody wants affordable housing next to them. They talk a good game but it’s just a show. They really don’t want to have this product anywhere near them.
    2) In our state, the legislature says what needs to be the minimum standard. The real costs go up when you get to the local level. All these costs are under the guise of local control. Also, the state pushes enforcement down to the county level. You get more eyes and a cover yourself mentality. You end up with a product that is over engineered and architecturally heavy with detail and cost.

  16. John j Piazza says:

    I wrote a piece back in 1994..called “Regulation is Inflation”….nothing gas changed…jurist gets worse each year

  17. Brad H. says:

    My perspective is PM building residential homes. A couple thoughts. No regulation has ever outpaced how all players avoid legal responsibility. While lumber has skyrocketed, the only one being hurt are the builder & buyer. Everyone else is still making more and delivering less. Because of regulations, builders often do the least to satisfy rather than the most to surpass their competition. And lastly, when you squeeze out 1st time home buyers due to high prices, you open the door for Fannie/Freddie & predatory lending rules FROM the govt.

    • Bill Hall says:

      There are two aspects of goverment over regulations. As to building in some respects you are right but many codes are unnecessary and do add to cost. The other issue is the development cost of improving the land. The cost associated with getting approvals for development have increased housing cost 24% in many cases. The large team of Landscape Architects , Land Use Attorneys,, traffic engineers, environmental consultants, real estate consultants proving need analysis and more to respond to goverment and public request is gotten totally out of hand. Not only do they have to do this dog and pony show once but normally three times through the process and then again at Commission or Board meetings and God forbid there is a postponement.

      People talk about affordable housing and blame builders for charging to much. NOT THE CASE. I have always said if a local goverment really wanted to provide low cost housing all they need to do is fast track the development approval process and restructure the requirements and lower the codes for building approvals.

  18. Every community across the nation imposes restrictions on what sort of development occurs and where. In addition to building codes that establish minimum permitted quality of construction, decisions are made regarding lot size, unit density, height restrictions, set-back requirements, and what infrastructure improvements must be completed by the developer. Taking into consideration the costs of compliance and all other costs of construction, developers then make offers to owners of vacant land (or land that is “improved” with structures that highest, best use of the location calls for demolition, another cost to be factored in). Generally speaking, the owner of land holds all the cards. Why is that? Because all across the United States the effective rate of taxation on vacant land is extraordinary low. Rarely is vacant land regularly reassessed based on current market values.

    More generally, the entire design of the conventional property tax works in favor of land owners and against those who produce residential housing units, or any other type of building. First, think about the fact that a building is a depreciating asset, an asset that requires ongoing expenditures for maintenance and about every ten years replacement of essential components and systems. The annual taxation of the depreciating value of a housing unit is terrible public policy. By this logic, government ought to impost an annual tax on the value of automobiles, trucks, computers, televisions, boats, refrigerators, etc. etc.

    What about the parcel of land on which buildings are constructed. Take a page out Adam Smith’s book “The Wealth of Nations.” Smith described the workings of land markets and the role of what political economists termed “rent.” What is rent? Every parcel or tract of land has some potential annual rental value. This value is directly based on whatever advantages are attached to the location as compared to other locations. Smith observed that because this value — the rent — has nothing to do with what the holder of the land does or does not do to improve the location, rent should be captured by the community to pay for the cost of public goods and services. Doing so would remove the potential to profit from simply holding land out of use as a speculative investment, or simply holding on to much more land than needed. The hoarding of land, which reduces the supply offered for development, drives up land prices, which drives up the cost of housing and other types of development. Impose an annual charge equal to the potential annual rental value of whatever land is held and there is no imputed income to be capitalized into a selling price for land. The result would be land markets in which land owners compete for developers rather than the other way around.

    The bottom line: Real estate developers should make the case with local communities for the elimination of the property tax on property improvements in favor of a land-value only property tax base. Proponents of this systemic reform (of which I am one) argue this can be done with little or no market disruptions by gradual implementation over a number of years.

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