The Very High Cost of Housing Regulation

By: Victor Normand

We count on government to do many things like keeping us safe, protecting the environment and making sure the economy is run well. Our elected officials pass laws for the common good, then hand them over to bureaucrats who write the regulations to make the laws work. Every law in its implementation has a cost, though not always apparent for an individual regulation and eventually, those costs add up.

The National Association of Home Builders (NAHB) did add up those costs last year and determined that the cost of regulation at all levels of government accounted for almost 25% of the cost of a new home nationally. The breakdown is 14.6% of the final price to produce a finished lot and 9.7% for meeting requirements associated with actually building the house. Separately, in a 2015 study by the Pacific Research Institute, Massachusetts ranked 34th for its regulatory burden on small businesses; one being the least burdensome. So, it is safe to assume that regulation adds even more to the cost of new housing locally.

Here’s how the regulatory percentages translate into the actual cost of a new home sold in Acton in 2016:

Who can say whether all of the regulation is truly needed, but it seems that the cost benefit may not be present here. In the 1960’s, highway deaths averaged around 50,000 each year. Regulations requiring seat belts, air bags and other safety features have resulted in today’s average of around 30,000 deaths each year, one third of which are attributable to speeding. So, we could regulate speeds, not to exceed 5 or 10 miles per hour everywhere and possibly save lives, but how reasonable is it to think that we can make the world safe for everyone all the time?

And then there are regulations that are patently ridiculous. On the commercial real estate side, our new office is about 1,700 square feet. It is open concept with glass walls and doors, yet required to have no fewer than 8 fire alarm/strobe devices, any one of which could be heard or seen from anywhere in the office.

Compliance is another issue. The cost or effort to comply with building regulations places a disadvantage on smaller home construction businesses that are forced to hire outside consultants to fully comply with regulations. Most home contractors employ fewer than 10 workers and build fewer than 10 houses per year. Larger companies have compliance personnel on staff.

Because compliance is universal, the cost to comply is passed on to the consumer. This applies to renters as well because multi-family construction is impacted even more than single family housing, making the cost burden disproportionately greater on lower income individuals and households, as well as first time buyers.

So, what’s to be done? In addition to the NAHB, state and national housing associations and other trade associations do monitor new legislation and raise their voices, urging reasonable responses to safety and environmental threats. Individuals as well should make their opinions known.

It is important to make our homes safe, build them in appropriate locations, and keep their energy consumption efficient. But there are reasonable, cost effective limits to what should be required from new laws, and reviewing outdated laws and regulation is not a bad idea either. Let’s not get to the point where only the wealthy can afford new homes that are built by only the biggest home builders.