Increased costs of regulations deeply impacting home builders — and buyers

By John Bitely
President Sable Homes

A Wall Street Journal writer recently reached out to me about the current housing crisis in America. During our conversation, we discussed how the increased costs of regulations for building a home are deeply impacting builders and buyers nationwide.

While demand for housing is stronger than ever these days, land and construction costs have roughly doubled since the end of the last boom a decade ago. The Wall Street Journal story examines how the combination of tightened housing regulations, a lack of construction labor and a land shortage in highly prized areas, like Grand Rapids, is driving the crisis.

The National Association of Home Builders estimates builders will start fewer than 900,000 new homes in 2018, less than the roughly 1.3 million homes needed to keep up with population growth. The overall inventory of new and existing homes for sale hit its lowest level on record in the fourth quarter of 2017, at 1.48 million, according to the National Association of Realtors.

Closer to home, new housing construction is 22 percent below the historical average, making Grand Rapids one of 69 major metropolitan areas where construction is still below normal levels, according to a Trulia analysis.

This is partly because the wounds from the housing crash, when hundreds of local builders went out of business, haven’t healed. But skyrocketing regulatory costs associated with home construction is the main culprit.

Home builders throughout the country have seen regulatory costs substantially escalate over the past few years. The national average of those costs has increased 30 percent since 2011 – adding nearly $85,000 to the cost of a home. While it might not be that steep here in West Michigan, by the time you add in all the development regulation fees, we are inching up there.

Stricter zoning and government regulations and processes to improve quality of life, as well as increased material costs, are the main reasons why West Michigan residents are feeling the additional pinch when building a home nowadays. For example, some municipalities require new homes to be built on two-acre minimum lot sizes, complete with sidewalks and curbs and gutters. I’m not saying these are bad features, but it all adds up when you spread them across the board.

In some cases, these restrictions are in locations where they make little to no sense. For instance, developers and builders often get hit with “big city” regulations – even when building on a small piece of developable land in a rural setting. They may also be forced to develop on larger lots and permitted to construct only one home rather than maybe the four or five homes that would normally be allowed in more dense areas.

Along with all the other economic issues, such as workforce development and access to bank funding, it’s these types of governmental regulations that are keeping the region from achieving and growing new housing inventory.