Saturday, April 1, 2017

Are Codes and Regulations Killing the Starter Home Market?

Affordable housing is a term you hear thrown around by every town, city, county and state housing official throughout the nation. They want more of it built to meet the demand. They are looking for innovative new approaches to the problem but are running up against government at all levels that is making it almost impossible to accomplish.

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Many factors can constrain housing starts — the availability of finished lots, labor supply, credit for land acquisition and home building. But regulations and government fees are the greatest barrier to new housing starts.

In the 50 years from 1957-2006, the United States averaged 1.54 million housing starts per year. Not once over those 50 years did housing starts fall below one million in a single year. Compare that to the six years from 2008-2013, when starts fell below one million every year, and went as low as 554,000 in 2009.

The Great Recession was caused by a credit crisis. That crisis, fortunately, has largely abated. However, even now, almost a decade after the downturn began, the preliminary housing starts number for 2016 — 1.19 million — is still 350,000 starts below the average maintained over the course of 50 years.

The reality is that the nation faces a chronic housing shortage. That means higher housing prices, rising rents and increasing economic stress for low and moderate-income households.

The single greatest cause of rising housing prices is excessive regulations that increase the time and cost of building new homes. Government regulations limit the supply and drive up the costs of land. They increase the costs of construction. In some places, out-of-control impact fees drive new home costs beyond the reach of the typical household.

I’ve spoken to many residential modular home factory owners and GM’s about what impact they are facing today that they weren’t just 10 years ago and almost without exception they believe that the rapid changes being made to codes and regulations at all levels is beginning to take its toll on the builders.

Added costs of regs and codes during production of the home, after it’s set and finished are up substantially as well as land and use fees and many other factors that have just about killed traditional affordable housing whether it is off-site or modular.
Nationally, almost 25 percent of the cost of a typical new single-family home is the result of government regulation. The compounding of myriad local, state, and federal requirements has a profound impact on housing affordability and homeownership. The cost of regulations on a 2016 new home valued at $348,900 would be approximately $84,671.

In some locations, burdensome regulations and steep impact fees sometimes make it infeasible to build a new home at all. It is not a coincidence that the overwhelming majority of the least affordable communities in the nation are in California, the most heavily regulated state in the country.

At all levels of government, the “good ideas” of council members and commissioners, state legislators and federal legislators create a deep, broad morass of excessive and overlapping regulations that leads to the unintended consequence of increased housing costs.  

No matter how well-intentioned these regulations may be, the net effect is a direct and damaging increase in housing costs that disproportionately affects low and moderate-income families.

Millennials entering the home buying market are being shut out of starter homes and forced to make decisions that many Boomers like myself can’t even imagine. They want to live independently but are looking at alternatives to the over regulated and affordable 1.400 sq ft detached home built in a nice neighborhood.

Today Millennials have a lot of poorer quality options, some not we might not consider liveable and even some that are not built to any building codes and placed on property illegally. There are tiny houses, container homes, less than 300 sq ft rental apartments, RV’s and of course, Mom and Dad’s basement.

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My God, I’ve been reading stories about people even converting trash dumpsters and garden sheds into homes.

Garden Shed
They may not really want to cut grass or put in gardens like older generations did but the home is central to American family life. It is the place where families make cherished memories, and children are nurtured to build for a better tomorrow.

As policymakers monitor housing starts, they should keep in mind that they are more than a marker for the health of the economy, they mark the health of the nation.

4 comments:

Tom Hardiman said...

Coach - yes, yes, yes. Excessive codes and regulations most certainly are adding big costs to all new home starts. At a time when interest in modular construction is at an all time high, new rules, regulations, and codes threaten to crush that momentum.

The State of Connecticut imposes ridiculous restrictions on the shipment of oversize units to and through their state. Their rules (complete outliers from surrounding states) double the cost of transportation.

In Maryland, we all remember when the state implemented new sprinkler requirements but allowed various counties the option to delay or opt out. But our industry was not allowed to opt out of the statewide IB program rules, costing the industry untold millions in lost opportunities. Harris Woodward, Ken Semler and I met last week with MD officials in an effort to ensure this type of mismatch doesn't occur again and to seek some relief from existing procedures. More news to follow on that meeting soon.

There is a "CYA" mentality among many state bureaucrats that have oversight in our industry. They have no business or economic incentives and no real urgency or motivation to improve their processes. We MUST provide that motivation for them in the form of active lobbying and advocacy efforts.

But one of the biggest concerns I see is the evolution of the building codes. The intent of the codes is to provide a basic minimum level of standards for safe construction of homes. Now, the codes are drifting into mandating what I consider "lifestyle choices."

While testifying at the public hearing for the 9th Edition of the building codes in Massachusetts last month, I was shocked to see how many people were advocating for the mandatory inclusion of electric car charging stations in all new homes. Don't be surprised if this passes.

In my experience, agencies and officials are going to continue "drifting" into our profit margins and its our job to not only stop that drift, but to push back against them.

Steve L said...

Lifestyle choices will determine future building envelopes in the next decade. Traditional houses will become obsolete due to performance expectation and corrective issues.
The invention of Solar, Batteries and energy efficient building envelopes will impact the minds of buyers and the operation of municipal revenue models for utility and zoning infrastructure requirements in the future.

The building departments are not now endorsing utility disconnections but force acceptance of long held beliefs of past building regulations to support and control this change. Disruptive technology like Water delivery versus Rain water harvesting + storage, Septic discharge filtered to 100% containment free to be reused, Disconnection of utility infrastructure where appliances operating with DC direct power from PV/Batteries/Generator and Off-The-Grid capabilities are a few elements becoming popular.

- "Thank you for being Late" is a popular term being used by Tech companies to force review traditional beliefs into agents of shaping and shifting future changes.

Tom Hardiman said...

Steve, I agree with your comments and certainly believe its better to conserve energy and incorporate new products and technology. I guess the question is whether that is the role of the building codes, and where does customer choice enter the equation? Today we may have to install electric charging stations in new homes. What happens in 3-5 years when a new technology surpasses the old? If we allowed the building codes to dictate our lifestyle choices, all homes built in the 70's would have built-in 8 track players.

I think the modular industry is MUCH better poised to address and meet these new challenges such as the ever increasing energy codes. But I guess my point is about the purpose of building codes in general. If this door opens wider, what WON'T be considered in the codes going forward?

Joshua Margulies said...

Ironically Tom, many things Steve says with regard to disconnecting from conventional public and utility provided sources to alternate means is a bit more suited to the profile of the individual.

But you are correct. And I think we'd be a damn site more productive if epa zealots quit telling us what to do.

"Disruptive technology like Water delivery versus Rain water harvesting + storage, Septic discharge filtered to 100% containment free to be reused, Disconnection of utility infrastructure where appliances operating with DC direct power from PV/Batteries/Generator and Off-The-Grid capabilities....."

Who wouldn't love that shit!