Are Government Regulations Hindering the Market for New Homes?July 24th, 2023 by Drew Vass, Executive Editor
Officials from the National Association of Home Builders (NAHB) met with members of Congress to address how they see government regulations impacting housing production and affordability.
NAHB chairperson Alicia Huey told members of the House Financial Services subcommittee that the growing number of regulations and mandates supporting environmental, social and governance (ESG) policies are leading to a domino effect of negative repercussions. Several codes and regulatory policies fuel the housing affordability crises, including the increased costs associated with updating energy codes to meet the 2021 International Energy Conservation Code (IECC), she suggested. According to NAHB officials, adopting the 2021 IECC can add as much as $31,000 to the price of a new home, yet it can take as long as 90 years for homeowners to see paybacks.
Impact of Regulations
Huey suggested that approximately 24% of the price for a newly built single-family home stems from various regulatory burdens imposed by state, local and federal governments. This also includes apartment construction, where 41% of development costs are due to regulations, according to an NAHB and National Multifamily Housing Council study.
She also said ESG policies have already caused home insurance companies to drop out of some areas, while raising rates in others.
“Bank lenders are being urged to minimize the risks associated with their portfolios, causing concern they may cease lending in certain locations or increase their borrowing rates,” she says. “And as supply chain woes continue to stifle residential construction projects across the nation, we worry that ESG disclosure requirements could further impede or prevent the availability of needed building supplies and transportation to their required destinations.”
Overregulation Sinks Small Business
ESG policies are implemented at the local, state and federal levels to understand how organizations manage risks and opportunities around sustainability issues. While ESGs are not regulated by the federal government, the government increasingly relies on these policies to “justify regulatory actions,” Huey said. As a result, ESG policies are directly impacting housing production and affordability, she suggested.
Huey said governmental regulations hinder the abilities of local builders to provide affordable housing and remain in the black financially. According to NAHB, small businesses cannot handle ESG paperwork, reporting obligations or further project delays.
“They are family-operated businesses that generally lack in-house counsel or compliance experts,” said Huey. “Given the uncertainties surrounding risk disclosures, recordkeeping protocols and even the lack of standards measurement metrics, our members are concerned about future compliance requirements. Placing additional reporting obligations on an already tight regulatory regime and further limiting the availability of property insurance will add costs and inefficiencies to the homebuilding process, delay closings and increase home prices and rents to home buyers, homeowners and renters.”
Call to Action
Huey argued that Congress needs to address the factors limiting the supply and affordability of new housing. These factors include new laws and regulatory burdens, lack of labor, shortage of lots and land, lumber and materials shortage, and lending challenges.
“While there is no silver bullet, rather than further incentivizing and supporting ESG policies that unnecessarily add to the regulatory burdens homebuilders already face and further impede the ability of our industry to increase the supply of affordable housing nationwide, NAHB urges Congress to pass legislation to alleviate these regulatory burdens and let the market forces determine how best to incorporate ESG considerations into the residential sector,” she said.