Regulations Account for Nearly a Quarter of New Home Price
On average, regulations imposed by all levels of government account for 24.3% of the sales price of a new single-family home.
On average, regulations imposed by all levels of government account for 24.3% of the sales price of a new single-family home, according to a recent study by the National Association of Home Builders (NAHB). Breaking down the total regulatory costs further, the study revealed that 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%) is the result of costs incurred by the builder after purchasing the finished lot.
“This study demonstrates the type of over-regulation our industry is facing,” said Ed Brady, NAHB chairman. “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.”
While NAHB’s previous regulatory estimates in a 2011 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 $65,224 to $84,671, a 29.8% increase during the roughly five-year span between the NAHB’s 2011 and 2016 estimates. Meanwhile, disposable income per capita in the U.S. increased only 14.4% during that same time period, meaning 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.
Builders and developers can expect to feel the impact of additional regulations in the near future, and the rate of increase in regulatory costs embodied in the price of a new home will likely be accelerated. A substantial number of regulations have been implemented recently, are in the process of being implemented, or are being actively considered by key policymakers.
For more information, visit www.nahb.org.