Government regulations add nearly $132K to cost of new home, builders say

Government regulations now add roughly $132,000 to the cost of a typical newly built home, according to a new study from the National Association of Home Builders (NAHB), as industry leaders warn that mounting costs are worsening the nation's housing affordability challenges.

The NAHB study found that regulations imposed by federal, state and local governments account for 26.4% of the final price of a new single-family home. Applied to the average sales price of a new home in January, the regulatory burden totals approximately $131,734 per house.

The estimate is based on Census Bureau data showing the average sales price of a newly built home sold in January was $499,500.

The report comes as housing affordability remains a challenge for many Americans amid elevated mortgage rates and persistently high home prices. 

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NAHB's analysis found regulatory costs have increased sharply in recent years. The group estimated that regulations added $93,870 to the cost of a new home in 2021, compared with $131,734 today – an increase of roughly 40% over five years.

Among the various regulatory costs examined in the report, changes to building codes over the past decade represented the largest burden. NAHB estimated those changes add approximately $40,288 to the cost of a typical newly built home.

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The study also found that builders face costs associated with zoning approvals, permit and inspection fees, environmental and traffic studies, land-use requirements, labor regulations and delays in obtaining approvals.

"Costly and inefficient regulatory policy is clearly impeding the ability of builders to increase the housing supply," NAHB Chief Economist Robert Dietz said in a statement. "According to a new NAHB study, government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home. Easing permitting bottlenecks, density limits and inefficient zoning rules would help reduce costs and support the housing growth the nation needs."

According to the report, 94.2% of developers surveyed said regulations typically cause project delays, while 88.2% reported facing development standards that go beyond what they would ordinarily build.

NAHB Chairman Bill Owens said the nation remains short roughly 1.2 million homes and argued that reducing barriers to construction could help boost housing supply.

"With the nation short about 1.2 million homes, builder sentiment will remain soft until barriers are eased and conditions improve for home building," Owens said in a statement released alongside the latest NAHB/Wells Fargo Housing Market Index.

Builder confidence remains subdued. The latest NAHB/Wells Fargo Housing Market Index showed builder sentiment fell to 35 in June, marking the 14th consecutive month below 40. The survey also found that 35% of builders cut prices in June, while 62% offered sales incentives to attract buyers.

The NAHB study was based on surveys of 54 land developers and 337 single-family builders conducted in March. Researchers combined the survey responses with Census Bureau housing data and other industry cost assumptions to estimate the aggregate impact of regulations on home prices.

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The report noted that it does not argue all regulations should be eliminated, but said quantifying their cost is important as policymakers consider ways to improve housing affordability and increase homebuilding nationwide.