We are all incredibly relieved that the darkest days for housing triggered by the Great Recession are over. In the past few years, our industry has gradually picked up speed. Recent government data show that single-family production has increased 120% from the market low in 2009.
But as far as we’ve come, there’s still a long way to go. Housing production, while improving, remains at only 58% of normal. Several obstacles are preventing a complete recovery, including overregulation of the housing industry.
Overly burdensome regulations complicate our businesses while providing little of their intended benefits. But even more important, they add to the cost of the house—making it more difficult or even impossible for many deserving families to achieve the American dream of homeownership.
A recently published NAHB study shows that government regulations account for 24.3% of the final price of a new single-family home. Three-fifths of this total—or 14.6% of the final house price—is due to regulations imposed during the lot’s development. The other two-fifths—or 9.7% of the home price—are regulatory costs incurred by the builder after purchasing the finished lot.
In this study, our economists also report that regulatory costs imposed on an average single-family home increased almost 30% in the past five years, rising from $65,224 in 2011 to $84,671 in 2016. This trend is likely to continue, as there are a number of regulations in the pipeline. These include OSHA’s new rules on reducing silica exposure, fire sprinkler mandates, and the Department of Labor’s recently finalized regulation on overtime pay.
Equally troubling, the cost of regulations in the price of a new home is rising more than twice as fast as our buyers’ ability to pay for it. Disposable income per capita increased by only 14.4% in this same five-year time span. NAHB economists estimate that 14 million American households are “priced out” of the market for a typical newly built home by government regulations.
Regulations come in many forms and can be imposed by local, state, or federal governments. For instance, local jurisdictions may charge permit, hook-up, and impact fees and establish development and construction standards. State governments may be involved in these processes directly or indirectly. Meanwhile, the federal government can require certain permits for land development, among other measures.
There is a need for sensible regulations in our industry, but we must put a stop to excessive mandates that do little else besides increase the cost of housing. That is why the NAHB devotes a great deal of time and effort to fighting regulatory overreach on behalf of its members. NAHB battles overregulation head-on, engaging with legislators and regulators and using legal measures when necessary.
We are not alone. More and more people are waking up to the fact that housing affordability has become a real problem, with lasting effects on consumers and the overall economy. Our government should be part of the solution to make homeownership accessible to hardworking Americans.