Home Building's Welfare State image

Three out of five of housing regulation dollars--which total up to a national average of $80,000 for a new house in a new community, and account for one-fourth of a new home's sticker price--get spent before a slab gets poured or the foundation gets dug for a crawl space or a full basement.

What's more, most developers and builders will tell you that it's not just fees, taxes, and other agency levies heaped into the cost of bringing new homes and apartments online. It's time. Carrying costs, like insurance, interest payments, maintenance, etc., become sunk costs--money that does not go into creating new value on the property--and choke project viability as they stretch across the weeks, months, and sometimes years of approvals, sometimes long before other investments even have a chance at seeing a return.

Housing is over-regulated, and a direct consequence of that over-regulation is a lumpy shortage of homes--by price and type--in locations around the country. What's more, a lack of affordable homes and apartments is a constraint and suppressor of economic mobility that could kick our economy into another growth gear.

Some valid arguments for much of this cost claim that localities are already congested, lacking infrastructure and space and human, economic, and natural resources to support more development. A by-product of these arguments are real estate prices--for-rent and for sale--that freeze out young people who would move there, and even go so far as to make it too expensive for long-time residents to remain.

Most builders and developers see no way around this cycle. They see greater risk to their business models in unmanageable hits to their land and lot development pipeline than any other pain point--including lending and labor capacity issues.

"We're not replacing lots at a cost where we can keep our pricing models where they've been," the ceo of one of home building's major public companies with an emphasis on entry-level homes told me. "And these are lots nobody was looking at a year or two ago. The entitlement and other fees on them are spiraling, and there's nothing we can do other than to look elsewhere in our business model for give."

That's pretty much the consensus among builders, analysts, and experts we've heard from on the issue of regulation's costs to housing's players. Blithely promising to bring those costs from 25% down to less than 5% is Pixar studios talk.

But it's not as if we've seen a full exploration of channels--builders and developers collaborating at a more strategic level with one another, rather than as opponents in planning and zoning board of appeals meetings and marathon city council sessions. One town went so far as to declare an extended temporary abatement on local property taxes to encourage new construction.

These localities--towns, mid-sized municipalities and urban metropolises--have pain points that can sync up with those of builders and developers. Money, time, and talent are usually in scarce supply in these places, and the right kinds of residential projects represent fresh reinforcement and replenishment of all three.

Attainability. It's one way to take an arc or two out of a vicious circle.