Builders Hampered by Soaring Regulatory Costs

DAILY REAL ESTATE NEWS | MONDAY, MAY 09, 2016

The skyrocketing cost of regulations involving new-home construction is one culprit keeping homebuilders from building more at the lower end of the market for first-time home buyers, despite the rising demand, a trade group says.

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The average cost to comply with regulations for new-home construction has climbed nearly 30 percent in just five years, according to the National Association of Home Builders. These costs include everything from new construction codes and storm-water discharge permits to local impact fees. The jump in regulatory costs has grown at about the same rate as the average price for a new home, The Wall Street Journal reports.

“It really makes it hard to satisfy the lower end of the market, which is a lot of first-time buyers,” Paul Emrath, the NAHB’s vice president for survey and housing policy research, told The Wall Street Journal.

For example, the regulatory cost of land development and the construction process is about $84,671, on average, for a new single-family home, up from $65,224 in 2011, the NAHB’s research shows.

Also, local infrastructure impact fees have risen by 45 percent, on average, since 2005 in 37 major home-building markets nationwide (about $21,000 per home), according to a separate study by Zelman & Associates, a housing research firm.

Builders are facing regulatory fees that they didn’t have in the past in some areas. For example, in Georgia, some jurisdictions are requiring $7,500 to $15,000 in extra costs per home project for a tree-planting requirement and $5,000 in extra costs for each lot to prevent storm-water runoff.

In Houston, a homebuilder says local regulatory costs there have jumped 20 percent to 30 percent in the last three years.

“We’ve always had very, very affordable housing compared to other parts of the country, but you’re definitely starting to see that gap lessen,” says Lance Wright, a partner with Castle Rock Communities in Houston. “To maintain our margin, we have to pass it on. So the customer is paying for it, but they’re not really getting any benefit from it.”

Source: “Home Builders Say They Are Squeezed by Rising Compliance Costs,” The Wall Street Journal (May 7, 2016)