Here's another take on how regulation is retarding the construction of new homes even as the market indicates substantial demand.
Why aren't home builders building fast enough to keep up with this demand?
One answer was highlighted by John Lovallo II at Bank of America Merrill Lynch: land regulations.
Not only is the cost of land increasing at a rapid pace, but the land-entitlement process — in which homebuilders get approval from the government to start building — is one of the biggest problems holding developers back from completing more houses, according to Lovallo.
"Land entitlement represents one of the greatest bottlenecks for homebuilders, with timelines extended further following the Great Recession," wrote Lovallo in a recent note to clients. He continued: In addition, transforming raw land into entitled land is arguably the most value enhancing stage of the development process, with industry estimates indicating a 1X-5X multiplier. However, entitlement can be fraught with risk of procedural missteps negatively impacting a project's value.