Study: Regulations Add 24.3 Percent to Cost of a New Home

May 9th, 2016 by Editor

Regulations imposed by all levels of government account for an average of 24.3 percent of the sales price of a new single-family home, according to a new study by the National Association of Home Builders (NAHB).

Breaking down the total regulatory costs, the study shows that three-fifths of this total–14.6 percent of the final house price–is due to a higher price for a finished lot thanks to  regulations imposed during the lot’s development. The other two-fifths–9.7 percent of the house price–is the result of costs incurred by the builder after purchasing the finished lot.

While NAHB’s previous regulatory estimates in a 2011 study were similar, the price of new homes has increased substantially since then. 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 $65,224 to $84,671–a 29.8 percent increase during the five-year span between NAHB’s 2011 and 2016 estimates. Meanwhile, disposable income per capita in the U.S. increased 14.4 percent during that time.

“Among the conclusions that emerge from the new analysis is that the average cost of regulation embodied in a new home is rising more than twice as fast as the average American’s ability to pay for it,” writes study author Paul Emrath, NAHB’s vice president for survey and housing policy research. “Moreover, the article discusses the possibilities that 1) the costs embodied in a new home are understated because some types of regulation impact costs in a way that is difficult for builders to see, and 2) the pace of regulatory cost increases is accelerating due to the number of regulations in the pipeline.”

“This study demonstrates the type of over-regulation our industry is facing,” said NAHB chairperson Ed Brady, a home builder and developer from Bloomington, Ill. “Not only is it inhibiting builders’ ability to produce competitively priced homes in a still recovering housing market, but this regulatory burden trickles down to the consumer level and prices many would-be buyers out of the market.”

Builders and developers can expect to feel the impact of additional regulations in the near future. A substantial number of regulations have been implemented recently, or are in the process of being implemented or actively considered by key policymakers.

“The NAHB study just further underscores the challenges posed to the entire building industry and consumers by the increasing burden of over-reaching regulations on housing affordability,” said WDMA President and CEO Michael O’Brien.  “WDMA launched its aggressive advocacy program several years ago because of this very issue.  We will continue to advocate for policies that will reduce this burden on the window, door and skylight industry so that we can deliver high-quality and high-performance products to our customers without unnecessary regulatory costs built in.”

 

 

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