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Home Builders Say They Are Squeezed by Rising Compliance Costs

Wall Street Journal

The average cost for home builders to comply with regulations for new home construction has increased by nearly 30% over the last five years, according to new research from the National Association of Home Builders.

Regulatory costs such as local impact fees, storm-water discharge permits and new construction codes, which have risen at roughly the same rate as the average price for new homes, make it increasingly difficult for builders to pursue affordable single-family construction projects, the group argues.

“It really makes it hard to satisfy the lower end of the market, which is a lot of first-time buyers,” said Paul Emrath, vice president for survey and housing policy research at the NAHB, who conducted the survey of about 400 builders across the country.

The cost of regulation imposed during the land development and construction process on average represented $84,671 of the cost of the average new single-family home in March. That is up from $65,224 in 2011, the last time the home-building industry group conducted a similar survey on regulatory costs.

The 2011 and 2016 surveys used a different panel of home-building executives, who were asked to calculate the costs of environmental mitigation, impact fees and other approvals as a percentage of construction or lot development costs. Both surveys showed that regulatory costs represented about the same percentage of the final price tag of a new home—24.3% this year versus 25% in 2011.

The article was taken from a study by the National Association of Home Builders dated May 2nd. For the complete study Click Here

Another study entitled "Extraordinary Development and Compliance Costs Stifle New Home Construction" by Jody Kahn of John Burns Real Estate Consulting dated April 5, 2016 comes to the same conclusion.

"New regulations to protect the environment and to shore up local city finances have made it extremely difficult for home builders to build affordable homes. Now, more than ever, the demand for affordable entry-level housing will need to be met by the resale market, since new homes have become permanently more expensive to build."

The study specifically lists the following costs in California:
• $6,000+ per house in new greenhouse-gas fees and other green requirements
• $1,000–$3,000 per house for drought tolerant landscaping
• $5,000 for on-lot water retention requirements in certain cities.
• $4,000–$8,000 per house in additional city fees over the last 10 years, with studies underway to raise them $20,000+ per house
• Costs have increased due to the installation of reclaimed water lines, even if reclaimed water is not available.

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