When it comes to building entry-level homes, the home building industry is stuck in a bit of a vicious cycle. Builders aren’t simply ignoring the entry-level markets and focusing on higher-end homes just because they want to. They fully recognize the need for starter homes on the market, but the problem is, despite the need for entry-level homes, compliance costs can often times render them almost impossible to build while still keeping them affordable.
The cycle the industry has fallen into may look something like this: Builders consider affordable single-family home projects, the compliance costs they encounter either cause the builders to forgo the project completely or jack the price up so much that the project can no longer be considered affordable, so, what started as a project to increase the inventory of entry-level homes transitioned into building more expensive homes, and inventory for starter homes remains low. Rinse and repeat.
Regulatory costs for construction new homes have risen about as fast as the average price for a new home, and according to the National Association of Home Builders, the cost to comply with regulations for new home construction has increased by almost 30 percent over the last half decade, The Wall Street Journal reports.
In March 2016, the cost of regulation during the land development and construction process totaled $84,671 of the cost of the average single-family home. In 2001, that total was $65,224.
Other studies are showing similar results. A Zelman & Associates study found that local infrastructure impact fees increased by 45 percent on average since 2005 in 37 key homebuilding markets throughout the U.S. That equals about $21,000 per home. Another survey from John Burns Real Estate Consulting, located in Irvine, Calif. brought to light a variety of new regulations and fees that didn’t even exist 10 years ago. Some of the fees cost as much as $15,000 in order to comply.
