Residential: Is homebuilder relief next on the deregulation agenda?

Regulatory relief for homebuilders could be on the horizon, according to recent remarks from housing regulators. Despite strong demand for affordable new construction, rising costs and regulatory burdens have led to a decline in builder confidence and single-family housing starts.

“The new focus on homebuilders and the challenges they are facing is welcomed by the industry,” said Tim Rood, Chairman of The Collingwood Group, a Situs company. “Homebuilders have an important role to play in easing the affordability crisis by introducing more entry-level homes into the housing market, and that role has been held back by cost and regulation. Policymakers are going to have to intervene at the state and local level to solve this problem.”

The National Association of Home Builders estimates that regulations add more than $80,000 in cost to a new home construction. Further, an estimated 25% of new construction costs can be attributed to federal, state and local regulations.

The evidence of this burden can be seen in dragging builder confidence. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index noted a 2-point decline in June. NAHB Chairman Greg Ugalde said, “While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues.”

The Census Bureau also reported a 6.4% decline in single-family housing starts from April to May. Danushka Nanayakkara-Skillington, NAHB Assistant Vice President of Forecasting and Analysis, said the trade association expects single-family housing starts to “remain flat through 2019.”

During an address at an industry conference in May, Department of Housing and Urban Development (HUD) Secretary Ben Carson said his agency is “promoting deregulation by aiming to break down regulatory roadblocks that get in the way of building and developing new homes that are affordable.” Carson specifically called out density limitations, height restrictions, parking requirements and drawn-out permitting and approval processes. Relaxing these land-use and building restrictions would encourage more new construction, he said.

Carson said, “HUD is working with local public officials, business leaders and community leaders to mobilize support for smart but significant deregulation at the local level.”

“We’re really starting to see some alignment amongst regulators, which should help build momentum to encourage local, state and federal stakeholders to take a closer look at the new-home construction market,” said Rood.

Federal Housing Finance Agency (FHFA) Director Mark Calabria spoke at HUD and NAHB’s Innovation Housing Showcase last month. Calabria explained that despite steady increases in home prices, housing starts have remained somewhat anemic. He said, “That’s the affordability problem in a nutshell: Housing prices keep rising, but the supply of housing isn’t keeping up.”

Addressing the zoning restrictions, environmental regulations, building codes and “steep regulatory costs,” Calabria said, “This is a national problem with local roots.” He said, “Tackling our affordable housing shortage requires organizing nationally and acting locally. We have seen the power of deregulation at the national level the past two years in everything from energy to health care to infrastructure. Now, we need to apply those lessons to the homebuilding industry in localities across the country.”

Rood said, “As HUD and FHFA connect with local government leaders and NAHB, we could begin to see some real traction on this issue, hopefully paving the way for more affordable housing options in the future.”

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