Most new construction in our area is in the higher price ranges. That’s fine for people who can, and want to, purchase large expensive homes. But what about the people who just want a moderate sized and priced home? The resale market for these homes has very little available inventory. With such low existing availability, one would think the builders would be willing to meet the demand with new construction.
But government regulations stand in the way. A recent study reports that the cost of conforming with regulations in many parts of the country has made building homes for moderate income buyers a thing of the past. In the top third of metro areas with the most regulation on building, only 27% of owner occupied homes are in the moderate price range. On the other hand, in the bottom third areas in terms of building regulation, 67% of moderate priced homes are owner occupied. That shows me that the over regulation of construction is causing builders to forego building the smaller, more affordable homes. It seems the only way builders can provide starter homes in our area is to build condos and townhouses.
The National Association of Homebuilders says that between 2011 and 2016, the regulatory costs of building a home increased by 30%. These costs contribute to 25% of the cost of building a home. And these costs must be passed to the buyer. These builders must wade through vast amounts of paperwork for zoning, safety and environmental requirements, among other regulations.
Adding to the mounting issues they face, the builders have to cope with a shortage of building lots and construction workers. And there seems to be no shortage of ready buyers for the more expensive new homes. With the increased prices, builders can be profitable by building these larger, costlier homes, and they cannot remain profitable by building starter homes.