Soaring Compliance Costs Ruffle Homebuilders’ Feathers, Could Affect First-Time Buyers

Homebuilders beware: The cost of regulatory compliance is on the rise. How much? Almost 30 percent in the last five years, the Wall Street Journal reported.

That number comes from a study conducted by the National Association of Home Builders (NAHB), which found regulatory costs now account for $84,671 of the total cost of a new home. In 2011, the number was $65,224.

It should be noted, though, the price of a new home has increased 33.8 percent since 2011, and while the dollar amount of regulatory costs is higher, it actually comprises a slightly lower percentage of a new home’s final price today (24.3 percent) than in 2011 (25 percent).

“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,” Lance Wright, a Houston builder, told the Journal. “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.”

Some of the increases stem from requirements like sprinkler systems or tree-planting (in Georgia). Tree planting alone can tack on as much as $15,000 per new home, and avoiding stormwater runoff can mean an extra $5,000. The wide-ranging jurisdictional requirements, which vary within states, aren’t helping big builders, who are able to keep costs down by making homes with little variation.

The practical implications for the regulatory cost increases are mainly felt on the lower end of the housing spectrum — those building for first-time buyers or people with lower incomes. The incentive just isn’t there: “It really makes it hard to satisfy the lower end of the market, which is a lot of first-time buyers,” Paul Emrath, vice president for survey and housing policy research at NAHB, told the Journal.