Dive Brief:
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Tight supply in today’s residential construction market can be credited to regulatory processes that flare out project timelines and add costs, thus reducing available housing inventory and putting upward pressure prices, according to The New York Times, citing new research by economists at Harvard University and the University of Pennsylvania’s Wharton School of Business.
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The authors isolate land-use regulations as the major cost driver and differentiator in housing markets across the country. By reducing those costs, they figure a typical single-family home could be priced from $200,000 to $265,000, as other construction costs have changed little in recent years. They contend that housing size, typology and features would vary from market to market within that range — with the priciest markets edging slightly higher, but not by much.
- The result, The Times reported, would be growth in the nation’s gross domestic product by spurring activity along the construction supply chain as well as improving the mobility of individuals from distressed markets to thriving ones through the creation of new, affordable housing supply.
Dive Insight:
The paper provides a nuanced counterpoint to the general belief that rising home prices are a sign of a strong economy and beneficial in many cases, particularly for owners.
Still, attitudes are unlikely to change in the near term and strict land-use laws in areas of the country like California, where prices remain elevated, are expected to remain in place for the time being.
For their part, homebuilders often cite a rigorous regulatory environment as a major industry bugbear. One outcome of that is lot availability and development costs, which were recently reported as one of their key concerns over the next year.
A report released by the National Association of Home Builders in May 2016 found that local, state and federal regulatory costs make up, on average, 24.3% of a home’s final selling price, while the value of those costs has shot up 30% from 2011 to 2016.
NAHB CEO Jerry Howard told Construction Dive in December that loosening some of the regulatory restrictions would help to lower construction costs and could narrow the affordability gap.
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