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Home building costs soar due to government regulations, material price increases *Construction Dive

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Dive Brief:

  • Regulations imposed by all levels of government account for $93,870, or about 24% of the current average sales price ($397,300) of a new single-family home, according to a new study by the National Association of Home Builders. This amount marks a 10.9% increase over the past five years.
  • Of the $93,870 figure, $41,330 is attributable to regulation during development, and $52,540 is due to regulation during construction.
  • Rising material prices have also added to the cost of building new single-family and multifamily homes in recent months, the NAHB said.

Dive Insight:

Changes to building codes over the past 10 years have added the most to regulatory costs. Averaged across all homes, the cost increases associated with codes account for 9.9% of a builder’s construction costs, and 6.1% of the final house price.

During development
Cost of applying for zoning approval $6,473
Hard costs of compliance (fees, studies, etc.) $11,791
Land dedicated to the government or otherwise unbuilt $10,854
Standards that go beyond the ordinary (setbacks, etc.) $8,992
OSHA/other labor regulations $1,779
Cost of delays $1,442
During construction
Fees paid by the builder after purchasing the lot $12,184
Changes to building codes over the past 10 years $24,144
Architectural design standards beyond the ordinary $10,794
OSHA/other labor regulations $4,477
Cost of delays $941
TOTAL $93,870

While NAHB’s previous regulatory estimates in a 2016 study were fairly similar, the price of new homes increased substantially in the interim, the association noted. When applying these percentages to U.S. Census data on new home prices, the data show an estimate that regulatory costs in an average home built for sale went from $84,671 to $93,870 — a 10.9% increase during the five-year span between the 2016 and 2021 estimates.

“This study illustrates how overregulation is exacerbating the nation’s housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Florida.

Other factors have also added to the cost of building new single-family and multifamily homes in recent months. According to NAHB’s latest estimates, rising softwood lumber prices over the last 12 months have added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home. That increase in multifamily value means that households pay $119 a month more to rent a new apartment.

These estimates represent a 184% ($31,210) and 190% ($11,280) increase in lumber costs for single-family and multifamily builders, respectively, in the past year, the NAHB said.

Commercial builders are also dealing with the effects of rising material prices. Skyrocketing prices for key construction materials such as lumber, steel, cement and diesel fuel, have made the already complex operation of building out multi-million dollar projects that much more difficult.

Construction material prices have risen so sharply in 2021 that the Associated General Contractors of America last month issued a rare Construction Inflation Alert, a move the group hasn’t taken since 2008, citing a 12.8% jump of input costs for projects since the pandemic began.

“Contractors should become even more vigilant about changes in materials costs and expected delivery dates and should communicate the information promptly to current and prospective clients,” read the alert from AGC.

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