A new National Association of Home Builders study shows that, on average, regulations imposed by government at all levels account for 24.3 percent of the final price of a new single-family home built for sale. Three-fifths of this—14.6 percent of the final house price—is due to a higher price for a finished lot resulting from regulations imposed during the lot’s development. The other two-fifths—9.7 percent of the house price—is the result of costs incurred by the builder after purchasing the finished lot.
The National Association of Home Builders’ previous 2011 estimates
were fairly similar, showing that regulation on average accounted for a quarter of a home’s price. However, the price of new homes increased substantially in the interim. Applying percentages from the National Association of Home Builders’ studies to Census data on new home prices produces an estimate that regulatory costs in an average home built for sale went from $65,224 to $84,671—a 29.8 percent increase during the roughly five-year span between the National Association of Home Builders’ 2011 and 2016 estimates.
In comparison, during that time, disposable income per capita in the U.S. increased by 14.4 percent. In other words, the cost of regulation in the price of a new home is rising more than twice as fast as the average American’s ability to pay for it.
The above estimates are based largely on questions included in the survey for the March 2016 National Association of Home Builders’/Wells Fargo Housing Market Index, combined with long-run assumptions about average construction times, interest rates, profit margins, etc. The survey questionnaire and an appendix describing each additional assumption and the data on which it’s based can be found in the full study. The full study also contains substantial additional detail on the different types of regulatory costs and where and how they impact the development-construction process.
The National Association of Home Builders’ most recent construction cost survey (conducted in August of 2015) shows that, on average, 61.8% of the sales price goes to construction costs and 18.2% to the finished lot costs. On average builder profit (including owners’ salary and return on capital) accounts for 9.0% of the sales prices. Take a look at the table below and read the full report here.