U.S. Regulatory Costs Account for Quarter of a New Home's Price

U.S. Regulatory Costs Account for Quarter of a New Home's Price

Residential News » United States Edition | By Michael Gerrity | May 10, 2016 10:00 AM ET

According to a new study released this week by the National Association of Home Builders (NAHB), on average, regulations imposed by all levels of government account for 24.3 percent of the sales price of a new single-family home in the U.S. in 2016.

Breaking down the total regulatory costs further, the study revealed that three-fifths of this--14.6 percent 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 percent of the house price--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 NAHB Chairman 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."

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 percent increase during the roughly 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 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, or are in the process of being implemented or actively considered by key policymakers.

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