Home / Blog / Article


May 10 2016

Regulations Add $84,000 to New House Prices

Patrice J. Lee

If you’re an HGTV addict you’re familiar with the sundry shows dedicated to buying, flipping, renovating, and selling homes and the escapades that singles, couples, and families face. Cheap fixer-upper becomes costly boondoggles as unexpected house problems add thousands to the final budget. Safety may be involved, but sometimes, the added costs are just due to red tape and regulations.

New analysis from the National Association of Home Builders puts a price tag on regulations for home building and the added price is massive. Government regulations at all levels account for on average 24.3 percent of the final price of a newly built single-family home. The majority of this cost (14.6 percent of the final house price) is solely because of higher price regulations on the development of the lot. The other 9.7 percent of the house price is the result of costs incurred by the builder after purchasing the finished lot. For more expensive houses, regulations account for 30 percent of the final house price.

During the development phases there are costs for applying for zoning, post-zoning approval, compliance, and delaying work while awaiting approvals. Then there is a labyrinth of costs for construction permitting, compliance with construction codes, and standards.

The average costs of regulations in total have risen 30 percent from $65,224 in 2011 to $84,671 in 2016. This far outpaces our ability to pay for these costs. For example, regulatory costs grew five times faster than the consumer price index (which rose 6.1 percent) and twice the rate of growth in disposable income per capita (14.4 percent). With regulations already in the pipeline, these costs are only projected to accelerate.

Researchers note:

... Governments presumably impose regulations under the belief that they will generate some benefits, but no attempt is made to estimate such possible benefits here. The rest of this article explains the data underlying Figure 1 and discusses trends in regulatory costs since NAHB released its last set of estimates.

… 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. 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.

The challenge with home building regulations is that there’s no transparency justifying the regulations. What is truly in place for safety and security and what is there to benefit some specific interests?

In a short but sweet Salt Lake Tribune response, one man explains that the costs of housing are rising not absent government intervention but because of it:

There is no market failure with respect to housing.

Instead, it is oppressive governmental meddling in the marketplace that causes a higher break-even point, forcing developers to target higher prices just to break even. Let's get rid of the useless regulations and the bureaucrats who dream them up so well-meaning developers can build housing at the low price point that low-income families require.

Well said.

 

 

 

 

 

 

 

 

 

 

 

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
Follow us