Home building is one of the most regulated industries on earth, and a study published by NAHB helps confirm this unfortunate fact.
Regulations come in many forms and can be imposed by governments at different levels. At the local level, jurisdictions may charge permit, hook-up, and impact fees and establish development and construction standards that either directly increase costs to builders and developers, or cause delays that translate to higher costs. State governments may be involved in this process directly or indirectly. Several states, for example, have adopted state-wide building codes. And although impact fees are imposed by local governments, such fees typically cannot be imposed without enabling legislation at the state level. The federal government can also impact the price of a home for example, by requiring permits for stormwater discharge on construction sites, which may lead to delays in addition to the hard cost of filing for a permit. These are only a few examples of regulations that builders and developers encounter in practice.
NAHB's study, How Government Regulation Affects the Price of a New Home, provides estimates of the impact that such regulations have on the price of a home. And those estimates are truly eye-opening; they indicate that, on average, regulations imposed by government at all levels account for 25.0% of the final price of a new single-family home built for sale. Nearly two-thirds of this -- about 16.4% of the final house price -- is tied to higher costs associated with the finished lot due to regulations imposed during the lot’s development. A little over one-third -- 8.6% of the house price -- is the result of costs incurred by the builder after purchasing the finished lot.
The study points out that the relatively high share of regulatory costs affecting a home during its development are particularly significant in the current environment, when there is a low level of developed land in the pipeline. Thus, in most cases the full range of regulatory costs - those that fall on development as well as construction - will need to be overcome if production and employment in the housing industry are to get back on track. For more information, contact study author Paul Emrath at 800-368-5242, x8449.