Flawed, unnecessary and costly regulations burden small home builders by raising expenses and slowing the home building process, which ultimately robs builders of time and money and results in higher housing costs for consumers, NAHB told Congress recently.

The problem is so severe that a 2011 study by NAHB found that on average, regulations imposed by governments at all levels account for 25% of the final price of a new single-family home.

Nearly two-thirds of this regulatory burden – 16.4% of the final price of the house – is imposed during the land development process, resulting in a higher-priced finished lot.

About one-third – 8.6% of the house price – is the result of the construct costs incurred by the builder after purchasing the finished lot.

Higher regulatory costs are particularly significant in the current business environment, and represent a major obstacle that home builders need to overcome as the market returns to normal conditions.

Small Business Input Imperative on Regulations
So lawmakers received an earful when NAHB had the opportunity to talk about the impact of regulations on small home builders at a March 14 hearing by the House Small Business Committee’s Subcommittee on Investigations, Oversight and Regulations.

Testifying on behalf of NAHB, Carl Harris, co-founder of Carl Harris Co., Inc., based in Wichita, Kansas, told Congress that federal agencies must stop ignoring the input from small businesses when making rules that directly affect their livelihood and the way they do business.

Federal agencies are circumventing the intent and the letter of a law that is intended to make the regulatory process more cost effective and less burdensome for small businesses, he said. As a result, the regulatory process continues to unnecessarily increase compliance costs and is acting as a drag on the housing and economic recovery.

Harris was referring to agency compliance with the Regulatory Flexibility Act (RFA), which requires federal agencies to convene a Small Business Advocacy Review Panel to evaluate a regulation’s potential impact on small businesses before finalizing the rulemaking process.

Harris, who has represented the residential construction industry on a number of small business review panels over the years, described a process that is seriously flawed.

“Far too often, federal agencies either view compliance with the act as little more than a procedural ‘check-the-box’ exercise or they artfully avoid compliance by other means,” he said. “Agencies should seek to partner with small entities to help create more efficient, more effective regulations and, in so doing, reduce the compliance costs for small businesses. We truly are the experts in the field.”

Cranes and Derricks Rule

For example, in 2008 OSHA proposed the Cranes and Derricks Rule which was intended to protect workers from the hazards associated with hoisting equipment during construction. The Regulatory Flexibility Act required OSHA to convene a Small Business Advocacy Review Panel to evaluate the rule’s potential impact on small businesses. However, OSHA did not establish a panel until after the rulemaking process was completed.

Harris, who participated on the review panel, explained to OSHA officials that the rule does not take into account the differences between crane applications on residential construction sites and large commercial construction sites.

“I personally put forward an effective, feasible alternative that would save lives while keeping the cost of compliance low for small businesses,” he said.

However, since small businesses were not brought into the process until after the rule was finalized, Harris said his comments “fell on deaf ears. It seemed little more than a procedural hurdle with little interest from OSHA to make changes based on the feedback received.”

Stormwater Discharges
In 2010, the Environmental Protection Agency issued changes to its policies covering stormwater discharges from developed sites that had major ramifications for home builders. Once again, EPA failed to provide sufficient information about the proposed changes to a small business review panel on which Harris also served.

“As a result, we had no way to estimate compliance costs or provide meaningful feedback on ways to reduce the regulatory burden for small businesses,” he said.

“Unfortunately, the pattern is often the same: Agencies either fail to comply with the Regulatory Flexibility Act by ignoring the statutory obligation to convene a small entity review panel or convene a panel but fail to provide the panelists sufficient information concerning the proposed rule to allow them to evaluate regulatory options or provide alternatives,” Harris added.

In his testimony, Harris provided numerous other examples – lead paint abatement rules, OSHA reporting requirements on work-related musculoskeletal disorders, critical habitat designations and other instances where a smarter and more sensible regulatory process would benefit the housing industry, home builders and small businesses as well as consumers.

“Unfortunately, all too often federal agencies view compliance with the Regulatory Flexibility Act as either a technicality of the federal rulemaking process or, worse yet, as unnecessary,” Harris said. “I urge Congress to seek ways to improve agency compliance with this law.”