A hidden scourge is hampering millions of American families across the nation from getting a toehold on the housing ladder.
The insidious costs of unnecessary regulations are staggering, and consumers and the business community are all paying a terrible price.
The problem is particularly acute in the homebuilding sector, which is one of the most regulated industries in the nation.
Government regulations account for more than 24 percent of the cost of a new single-family home. In other words, regulations account for more than $50,000 of the cost of a $195,000 new home.
The cost of regulation in the price of a new home is rising more than twice as fast as the average American’s ability to pay for it. The average cost attributable to regulation in the price of an average new home increased by 29.8 percent during the past five years while disposable income per capita rose only 14.4 percent.
This regulatory burden is unduly harming the price-sensitive entry-level market, forcing many young families and millennials to the sidelines. The share of first-time buyers has traditionally averaged about 40 percent but now stands at just less than 30 percent, and this number continues to fall.
The regulatory burden includes costs associated with permitting, land development, construction codes and other financial hindrances imposed on the construction process. The hefty price homebuyers are paying for government regulations represents just one more obstacle that homebuilders need to overcome in restoring the marketplace to normal conditions.
These regulations come in many forms and can be imposed by all levels of government. At the federal level, the list of agencies that regulate the housing industry is long. For example, new regulations from the Occupational Safety and Health Administration, the Environmental Protection Agency, the Federal Emergency Management Agency and other agencies are driving up the cost of housing, resulting in fewer affordable options for homebuyers as well as renters.
Local governments and jurisdictions need to take into account that permit, hook-up and impact fees, along with zoning, development and construction standards, directly increase costs to builders or cause delays that translate to higher costs for the buyer and harm housing affordability.
State building codes and environmental requirements also add to the costs.
For new home buyers with a median income of $62,100, less than two-thirds of the households can afford a median-priced home, according to the latest data from the National Association of Home Builders/Wells Fargo Housing Market Index, a quarterly measure of housing affordability. In terms of affordability, San Antonio ranks 171 out of 236 local markets.
Reducing regulatory burdens would be a promising approach to improve housing affordability.
Regrettably, 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, which will force more of new home buyers to the sidelines.
For example, OSHA’s new silica rules are set to go into effect next year, threatening to impose billions of dollars of extra costs on the construction industry.
Local fire departments continue to advocate in favor of fire sprinklers, which adds on average $6,000 to the cost of building a single-family home, according to a recent Fire Protection Research Foundation study.
It is incumbent on government at all levels — local, state and federal — to slash burdensome and unnecessary regulations on the nation’s small businesses. Moving decisively to cut the excessive red tape will promote job creation, reduce costs for consumers, and boost housing and homeownership.