Paul Emrath, Ph.D.
Economics and Housing Policy
National Association of Home Builders


Rising regulatory costs are a limiting factor on housing supply, particularly for the entry level market in need of inventory. This study updates NAHB’s estimates of the aggregate cost of regulation in the price of a new single-family home. The methodology is slightly different from the one used in the previous (2016) study, in that it is based on two separate surveys—one of land developers, and one of single-family builders. The survey questions were also modified slightly, to incorporate lessons learned during previous iterations of the study.

On a dollar basis, applied to the current average price ($394,300) of a new home, regulation accounts for $93,870 of the final house price. Of this, $41,330 is attributable to regulation during development, $52,540 due to regulation during construction. In dollar terms, the NAHB studies show the cost of regulation continuing to rise between 2016 and 2021, although not as much as it did between 2011 and 2016 (Figure 1).

On a percentage basis, the latest estimates show that regulations imposed by government at all levels account for 23.8 percent of the final price of a new single family home built for sale. Compared to previous studies, surveying builders and developers separately produced a somewhat different breakdown of the regulatory cost, with 10.5 percent of the final house price attributable to regulation during development of the lot, the other 13.3 percent due to regulation during construction of the single family structure.

The 2021 estimate of 23.8 percent is down slightly from the 24.3 percent reported in the previous study. However, many other costs have risen since 2016, so the percentage now applies to base of higher-priced homes.

This study is not arguing that all regulation is bad or should be eliminated. Nor is it trying to estimate a share of regulation that may be excessive. The underlying premise is that, in an environment where housing is regulated in a complex way by a variety of federal, state and local entities, it is useful to have a numerical estimate of how much regulation exists and its aggregate dollar value at present when contemplating new policies or revising existing ones.

Regulation during Development

Table 1 shows estimates of regulation as a percentage of both the lot cost, and the final house price. The table shows the share of developers subject to the regulation, the average cost of the regulation when it exists, and the average cost of the regulation across all homes (i.e., with the “zeroes” included in the average).

The first significant interaction between a developer and the government usually occurs when the developer applies for zoning approval for housing to be built on a particular parcel of land. Most developers (98.1 percent) reported regulatory costs at the zoning approval stage. Regulatory costs imposed at this time can include fees paid directly to a government, as well as requirements for environmental impact, traffic, archeological or other studies. Averaged across all lots in the study, these costs account for 6.6 percent of the price the builder pays for the lot, which translates to 1.6 percent of the final house price.

All developers in the survey reported incurring regulatory costs after obtaining zoning but sometime later during the development process. This may include costs of complying with, for example, requirements to mitigate environmental impacts, as well as actual fees. Governments impose impact, utility hook-up, and other types of fees when site work begins. Averaged across all lots in the study, these costs account for 12.0 percent of the builder’s lot cost, 3.0 percent of the final house price. Also common (reported by 94.0 percent of developers) are requirements to dedicate land to the government (e.g., for a park) or otherwise leave a portion of it undeveloped. In these cases the developer must pay for the land but is not allowed to derive revenue from it, driving up costs on the lots that can be developed and sold. On average these requirements account for 11.0 percent of the price of the lot, and 2.8 percent of the final house price.

Local governments often require that new development conform to community design standards. These may include specific requirements for lot size and design, sidewalks, landscaping, etc. The survey specifically asks about standards that go beyond the ordinary. For example, in the absence of regulation, the developer is still likely to provide some landscaping. This study assumes a design standard imposes no cost unless it requires the developer to provide landscaping (or something else) that costs more than the developer’s ordinary practice.

A large share of developers (85.4 percent) reported being subject to design standards that go beyond what they would ordinarily do and add to their costs. On average these requirements account for 9.1 percent of price of the lot, and 2.3 percent of the final house price.

OSHA is responsible for labor safety standards. State or local governments may have safety standards as well. Safety of construction workers is important, and there is a broad level of support for a variety of safety rules. However, NAHB has criticized particular standards for attempting to regulate risks that don’t really exist in residential construction (e.g. beryllium), imposing costs significantly greater than needed to ensure worker safety (e.g. silica) or accomplishing little beyond driving up recordkeeping costs (e.g. Volks rule).

Although reported less often than other regulatory costs incurred during development, 58.3 percent of developers said that complying with OSHA or other labor standards added to their costs. On average these standards account for 1.8 percent of the price of a lot, and 0.5 percent of the final house price.

Even when regulation imposes no direct costs, it can have a financial impact if it delays the development process. If nothing else, if it takes longer to develop and sell a lot, interest on a development loan will typically accrue.

The vast majority of developers (95.9 percent) said complying with regulations typically caused a delay. In these cases, the delay averaged roughly 6 months. Across all lots, using the interest rate and other assumptions described in Appendix I, NAHB calculated that the “pure” cost of this delay (i.e., the cost of the delay even if regulation imposed no other costs) on average accounts for 1.4 percent of the price of a lot, and 0.4 percent of the final house price.

Every developer in the NAHB survey reported experiencing some type of regulatory cost. Added together, the development regulatory costs captured by the survey account for 41.9 percent of the price of a lot, and 10.5 percent of the final house price.

Regulation during Construction

Table 1 also shows the impacts of regulation imposed during construction, after a builder has acquired the lot from a developer. Most single-family builders responding to the HMI special questions (91.1 percent) reported paying fees during this phase of the project. . These could be building permit or inspection fees, as well as additional impact or utility hoof-up charges not covered by the developer. Across all homes in the survey, fees paid by the builder after acquiring the lot account for 5.0 percent of the builder’s construction costs, and 3.1 percent of the final house price.

The survey also asked builders about the cost implications of changes to building codes over the past ten years. Most jurisdictions have been adopting and enforcing building codes for decades, so the 10-year criterion in general captures changes to codes after they have already been updated and revised many times.

Most builders (90.2 percent) reported that changes to building codes over the past 10 years have added to their costs. Averaged across all homes, the cost increases associated with codes account for 9.9 percent of the builder’s construction costs, and 6.1 percent of the final house price—making this the most costly of the categories of regulation listed in Table 1.

In addition to traditional building codes, jurisdictions have increasingly sought to impose architectural design standards motivated by aesthetics, or possibly even, in some cases, a desire to price less affluent residents out of particular neighborhoods. Prohibition of vinyl siding has become relatively common, for example, but NAHB has also reviewed ordinances that mandate details like the orientation of a garage, material used in fences, window shutters, the square footage of window space, and dimensions of particular features down to a quarter of an inch.

Over half (57.5 percent) of single-family builders report being subject to architectural design standards of this type that force them to spend more than the otherwise would on particular home features. Averaged across all homes in the survey sample, these standards account for 4.4 percent of the builder’s construction costs, and 2.7 percent of the final house price.

Like developers, builders can also experience costs of complying with labor regulations, as well as delays caused by regulatory requirements. A total of 63.8 percent of builders in the survey reported costs of complying with OSHA or other labor regulations. On average these requirements account for 1.8 percent of construction costs, 1.1 percent of the final house price.

In addition, 89.5 percent of builders reported that regulation caused some delay in the construction process. When they existed, these delays averaged a little over 5 weeks. Averaged across all homes in the sample, the “pure” cost of regulatory delays during construction account for 0.4 percent of construction cost, and 0.2 percent of the final house price.

Nearly all (98.9 percent) of builders reported experiencing some type of regulatory cost during construction. Added together, the average of these costs across all homes in the sample account for 21.5 percent of the builder’s construction costs and 13.3 percent of the final house price.

Combined with results from the development phase of the project, total regulation captured in both surveys and attributable to all levels of government accounts for 23.8 percent of the final house price.

Regulation in Dollars

The costs in Table 1 can be converted from percentages to dollars by multiplying the percentages by the average price of a new home. Following the practice in previous iterations of this study, the average sales price in the HUD/Census Bureau “New Residential Sales” report one month before the surveys were conducted is used for this purpose.

The latest NAHB builder and developer regulatory surveys were both conducted in March of 2021. As of this writing, the first revision of the February 2021 average sales price is available from the Census Bureau, and is $394,300. Applying this to the percentages from Table 1 shows that the regulation captured by the NAHB surveys accounts for $93,970 of the price of an average new home built for sale. Of this, $41,330 is attributable to regulation during development of the lot. The remaining $52,540 is due to reg2ulation imposed during construction of the single-family structure (Table 2).

The individual line items in the table range from under $1,000 per home for the pure cost of delay during the construction phase of the project, to over $24,000 for changes in building codes over the past 10 years. These are averages across all homes in the sample, including those where a particular regulatory cost is zero. Table 2 also shows the somewhat higher average cost of particular regulations only for the cases where the regulations have some positive cost, for readers who may be interested in that. The current estimate of $93,870 is up 11 percent from the 2016 estimate of $84,671, and 44 percent from the 2011 estimate of $65,224.

Conclusion

As the above discussion has demonstrated, home building is subject to a wide array of regulatory costs, including various fees, standards, and other requirements imposed at different stages of the development and construction process that may be imposed by any combination of federal, state and local governments. The only way to construct a reasonably comprehensive picture of these costs is to collect information from the builders and developers who experience them. Results from the latest NAHB surveys on the topic show that, on average, the regulation captured in these surveys accounts for 23.8 percent of the final price of a single-family home, or $93,870 at current new home prices.

Other costs of producing new housing have received attention recently, particularly the cost of lumber and many other building materials. The fact that several factors are contributing to the high cost of new housing doesn’t mean any one factor is unimportant. In fact, at these times, a strategy for dealing with each component of rising costs may be necessary to achieve significant progress. Although rising costs of materials are currently a key issue for builders, the 23.8 percent—or $93,870—of the average new home price attributable to regulation remains noteworthy and economically important.