Regulations, fees continue to plague home construction

Economists often say that single-family and multifamily housing starts are a good indicator of the health of the economy. If that’s the case, then policymakers need to take a close look at the barriers to new residential construction.

Housing starts are still far below historic norms — starts fell 2.6 percent to a seasonally adjusted annual rate of 1.25 million units in January, the Commerce Department said Thursday — and the constraints on residential construction are hurting families and limiting job growth.

{mosads}Many factors can constrain housing starts — the availability of finished lots, labor supply, credit for land acquisition and home building. But regulations and government fees are the greatest barrier to new housing starts.

As the nation grapples with a growing housing affordability crisis, the policy community needs to recognize that the regulations they impose are impeding new home construction, and the growing problem hurts low and moderate-income families the most.

Housing starts numbers may seem volatile, but watch them over the span of months or years, and the trends that make starts a valued economic indicator become obvious.

In the 50 years from 1957-2006, the United States averaged 1.54 million housing starts per year. Not once over those 50 years did housing starts fall below one million in a single year. Compare that to the six years from 2008-2013, when starts fell below one million every year, and went as low as 554,000 in 2009.

The Great Recession was caused by a credit crisis. That crisis, fortunately, has largely abated. However, even now, almost a decade after the downturn began, the preliminary housing starts number for 2016 — 1.19 million — is still 350,000 starts below the average maintained over the course of 50 years.

This might not be a cause for concern if contemporary housing starts were keeping up with population growth and new household formations, but that is not the case. The reality is that the nation faces a chronic housing shortage. That means higher housing prices, rising rents and increasing economic stress for low and moderate-income households.

The 2016 “State of the Nation’s Housing” report by the Joint Center for Housing Studies of Harvard University found that almost 40 million American households are cost-burdened — they’re paying more than 30 percent of their income for housing. It also found that 11.4 million households are severely cost-burdened, meaning they are paying more than 50 percent of their income for housing.

The single greatest cause of rising housing prices is excessive regulations that increase the time and cost of building new homes. Government regulations limit the supply and drive up the costs of land. They increase the costs of construction. In some places, out-of-control impact fees drive new home costs beyond the reach of the typical household.

Nationally, almost 25 percent of the cost of a typical new single-family home is the result of government regulation. The compounding of myriad local, state, and federal requirements has a profound impact on housing affordability and homeownership. The cost of regulations on a 2016 new home valued at $348,900 would be approximately $84,671.

In some locations, burdensome regulations and steep impact fees sometimes make it infeasible to build a new home at all. It is not a coincidence that the overwhelming majority of the least affordable communities in the nation are in California, the most heavily regulated state in the country.

In Fremont, Calif., for example, production of affordable, entry-level housing is made almost impossible by impact fees that can exceed $77,000. That’s on top of countless local, state and federal regulations.

At all levels of government, the “good ideas” of council members and commissioners, state legislators and federal legislators create a deep, broad morass of excessive and overlapping regulations that leads to the unintended consequence of increased housing costs.  

No matter how well-intentioned these regulations may be, the net effect is a direct and damaging increase in housing costs that disproportionately affects low and moderate-income families.

The policy community needs to be more mindful of how regulations affect housing costs and affordability. The regulatory process, at all levels of government, should provide for increased public participation, and decisions should be based on sound data. Above all, new regulations should take into account the costs and benefits, as well as the potential effects, on small businesses.

The home is central to American family life. It is the place where families make cherished memories, and children are nurtured to build for a better tomorrow. As policymakers monitor housing starts, they should keep in mind that they are more than a marker for the health of the economy, they mark the health of the nation.

Granger MacDonald is the chairman of the National Association of Home Builders.

The views expressed by contributors are their own and not the views of The Hill.